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Ninth District--Minneapolis

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Overall economic activity in the Ninth District was flat since the last report. Modest decreases in activity occurred in consumer spending, agriculture, and commercial real estate and construction. Tourism was mixed, while activity in services and residential construction was flat. The manufacturing, energy, mining and residential real estate sectors saw moderate increases. Labor markets were mixed, and wage increases were subdued. Prices remained relatively stable since the last report.

Consumer Spending and Tourism
Overall retail spending remained soft, except for auto sales, which were boosted by the cash-for-clunkers program. A major Minneapolis-based retailer reported that same-store sales in July were down 7 percent compared with a year earlier. Same-store sales at two Minneapolis area malls were down 4 percent and 8 percent, respectively, compared with last year. A Minnesota-based bed retailer reported that same store sales edged up in July, but the slight growth was supported by a number of closings of lower-performing stores during the past year. In addition, contacts noted back-to-school shoppers were focusing on value.

The cash-for-clunkers program jump-started auto sales across the District. A representative of an auto dealers association in North Dakota reported that most recent activity at showrooms was associated with the program. Auto inventories were low in Minnesota as a result of rebate-driven sales, according to a representative of an auto dealers association. Contacts noted some concern about the program's impact on future sales--that the incentives drove sales that would have occurred in the fall into a condensed period of time.

Tourism was mixed, as visitor numbers were solid, but spending was soft in some areas. The number of visitors in July to Yellowstone National Park was up 11 percent compared with a year ago; however, spending at nearby restaurants and retail stores has been slow. Visits to attractions and overall highway traffic were up about 10 percent compared with a year ago in western South Dakota, while business at hotels was flat, according to a tourism official.

Overall activity was flat in the professional business services sector. Contacts who provide professional services to the commercial real estate sector noted a downturn in business. Architects reported extremely low activity levels--the same as the last report. Contacts from the legal sector also reported that activity was the same, but many customers were asking for lower fees. Professional services firms that support the health care and government sectors noted an uptick in activity.

Construction and Real Estate
Commercial construction activity mostly decreased, with some bright spots noted in public construction projects. Few office, retail or industrial projects were under way. However, road construction was strong throughout the District. Runway reconstruction was in progress at the Minneapolis-St. Paul airport. Residential construction was stable at low levels. July building permits were about even with a year earlier in Rochester, Minn., and Sioux Falls, S.D.; however, the value of permitted units fell 46 percent in Minneapolis-St. Paul.

Commercial real estate was weak. According to a commercial real estate firm in Minneapolis-St. Paul, retail vacancy reached its highest level on record; industrial absorption was at record lows. A commercial broker in Fargo, N.D., said market activity there was stable though slightly lower than in recent years. Residential real estate showed continued improvement. July home sales in Minneapolis-St. Paul were up 16 percent from a year earlier, but median sale prices were down 18 percent. Home sales also increased in Duluth, Minn.; however, they decreased in Sioux Falls, S.D., and Michigan's Upper Peninsula. Meanwhile, sales of vacation properties were down significantly from last year across the District, particularly in western Montana.

Manufacturing activity was up slightly. A July survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that manufacturing production was flat in Minnesota but increased in the Dakotas. A Minnesota plastic injection company expanded production, and an auto assembly plant plans to expand output. In Montana, a bridge parts maker is building a factory. A seed oil processing plant is planned in North Dakota. A South Dakota generator component producer plans to open a new facility.

Energy and Mining
Activity in the energy and mining sectors increased slightly. Mid-August oil and gas exploration edged up from early July. An oil services company is building a facility in North Dakota. Two large wind energy projects were approved in North Dakota. Due to increased demand, an iron ore mine in northern Minnesota plans to start up three previously idled production lines.

Agricultural conditions declined since the last report. Results of the Minneapolis Fed's second-quarter (July) survey of agricultural credit conditions indicated that lenders expect overall agricultural income and spending to decrease in the third quarter. Due to wet weather, the Montana wheat harvest is behind schedule. Farmers are nervous about an early frost, as the progress for the District corn and soybean crops is behind its five-year average pace. The western part of the District experienced scattered grasshopper infestations, and parts of northwestern Wisconsin were in severe drought.

Employment, Wages, and Prices
Overall labor markets were mixed. In Minnesota a defense contractor laid off over 300 workers, a boat manufacturing plant also cut over 300 workers, about half of its labor force, and a medical device manufacturer announced plans to reduce staff by 200 companywide. A meatpacker in South Dakota laid off 30 workers. Competition for seasonal work was much greater this summer compared with a year ago in many areas of the District.

In contrast, month-to-month gains in employment were recorded in Minnesota, Montana and South Dakota during July. Federal economic stimulus funds have created a number of road construction jobs. For example, the state of Montana estimated that stimulus spending created 140 jobs by the end of July, which does not include any indirect jobs at businesses that provide goods and services to construction projects and construction workers. In North Dakota, 120 workers will be added to a coal-fired power plant construction project during late August and September.

Wage increases were subdued. For example, the state of Montana has frozen wages for two years. Several architectural firms reported decreased employee compensation.

Prices remained relatively stable since the last report. Minnesota gasoline prices were only slightly higher at the end of August compared with early July, but were $1.15 per gallon lower than a year ago. Tuition will increase about 5 percent this fall at Minnesota state colleges and universities; federal stimulus dollars will cover 2 percentage points of that increase. Metal prices increased a tad during July, but remained mostly level during the month of August; metal product prices were well below year-ago levels.

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Last update: September 9, 2009