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Ninth District--Minneapolis

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Since the last report, the Ninth District economy grew at a firm pace. Consumer spending, tourism, services, manufacturing, energy, mining and agriculture saw increases. Commercial construction was mixed; residential construction decreased. Meanwhile, commercial real estate was weak, and residential real estate activity decreased. Labor markets showed some signs of strengthening, but wage increases were generally modest. Overall prices remained relatively level.

Consumer Spending and Tourism
Consumer spending increased since the last report. A major Minneapolis-based retailer reported that same-store sales in October were almost 2 percent higher than a year ago. Total September sales at a Minneapolis area mall increased 9 percent from a year ago, and early November traffic was steady, according to the mall manager. September sales at a North Dakota mall were up 6 percent compared with a year earlier, and recent traffic levels were strong, particularly on Veterans' Day. Luxury car dealerships in the Minneapolis-St. Paul area reported strong sales during the past few months. According to the University of St. Thomas Holiday Spending Sentiment Survey, household spending on holiday gifts is predicted to increase a surprising 6.8 percent in the Minneapolis-St. Paul area from last year. Preliminary results of the Minneapolis Fed's business outlook poll indicated that 30 percent of respondents expect consumer spending to increase in their communities in 2011, while 20 percent expect spending to decrease. In last year's poll, 18 percent expected increases in consumer spending, while 49 percent expected decreases.

Tourism activity increased. Minnesota deer hunting licenses sold through mid-November were up 2 percent from the same period a year ago. In South Dakota, nonresident small game hunting licenses sold through October were up 1 percent from the same period a year ago.

Construction and Real Estate
Commercial construction was mixed across the District. In the Minneapolis-St. Paul area, commercial developers said activity was at a standstill. In contrast, the value of October commercial permits in Fargo, N.D., nearly doubled from low levels the same month a year earlier, while permits in Sioux Falls, S.D., increased 10 percent. Residential construction slowed. October permits in the Minneapolis-St. Paul area fell 13 percent in value from the previous October, while the number of permitted units increased. Permits fell slightly in value in Sioux Falls and were roughly flat in Fargo in October from a year earlier. In contrast, October permits increased by nearly a third in Rochester, Minn.

Commercial real estate remained weak. Vacancy rates in Minneapolis-St. Paul were near record levels for office and industrial space, and very few large transactions were noted. A commercial real estate broker in Fargo described activity there as "slow and steady," with few purchases but some recent large leasing deals. Residential real estate activity dropped due in part to problems closing transactions for bank-owned properties. October pending sales in Minneapolis-St. Paul fell 36 percent from the previous year, while inventories increased and prices were flat. Sales decreased slightly in Sioux Falls, but average prices increased.

Professional business services firms are optimistic about economic activity. Based on results from the business outlook poll and the business confidence survey, respondents from the services sector expect increased sales and capital investment in 2011. An information technology consulting firm expects to double its workforce over the next year due to unexpectedly robust demand.

Manufacturing output was up since the last report. An October survey of purchasing managers by Creighton University (Omaha, Neb.) showed increases in manufacturing activity in Minnesota and South Dakota, and slight increases in North Dakota. Preliminary results of a November manufacturers survey by the Minneapolis Fed and the Minnesota Department of Employment and Economic Development indicated that manufacturing activity increased in 2010 from 2009 and that this trend is expected to continue through 2011. Based on results from the business outlook poll, manufacturers expect increased sales and capital investment in 2011.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Mid-November oil exploration activity increased since early October. Wind energy is expanding across the District, but at a slower pace than a year ago. Strong prices were noted for District mining commodities, and District mines were operating at near capacity. In Minnesota, October iron ore production increased slightly from September.

Agricultural activity saw large harvests and solid prices. Because of nearly ideal weather conditions, the harvest was completed early. Large yields and production were noted for most district crops. The U.S. Department of Agriculture raised its price estimates for corn and soybeans. The Minneapolis Fed's third-quarter (October) survey of agricultural credit conditions indicated that most lenders expect overall agricultural income and spending to be higher in the fourth quarter.

Employment, Wages, and Prices
Labor markets showed some signs of strengthening. A semiconductor firm recently announced plans to hire 300 more employees in Minnesota as part of a factory expansion. Employment gains were also reported in Great Lakes grain shipping. A representative of a temporary services firm noted that it is becoming more difficult to find talented workers in information technology, skilled trades and health care. In the Upper Peninsula, a manufacturer noted difficulty finding technical and welding workers. According to the business outlook poll, 34 percent of respondents expect to increase employment at their own firms during 2011, while 8 percent expect decreases. In last year's poll, 14 percent of respondents expected to increase staff, while 45 percent expected to lay off workers. In contrast, a Minnesota wind tower maker laid off 110 workers, and an information management firm will lay off 60 workers. A health insurance company in Fargo was laying off 63 people.

Wage increases were generally modest. A contact in the information technology sector said that he expects continued depressed wage levels in software development. In contrast, pressure on wages in oil-producing areas of western North Dakota and eastern Montana had some fast food restaurants offering as much as $13 per hour with signing bonuses.

Prices remained relatively level with some exceptions noted. Mid-November Minnesota gasoline prices were about the same as early October, but diesel fuel prices increased. A Minnesota-based food producer recently announced price increases for some of its cereals and baking products due to increased commodity and grain expenses. A bank director noted that fertilizer prices have increased over the past few months.

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Last update: December 1, 2010