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Ninth District--Minneapolis

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The Ninth District economy grew moderately since the last report. Strong growth was reported in the agriculture, energy and mining sectors. Modest to moderate growth was noted in consumer spending, tourism, residential and commercial construction, residential real estate and professional services. Activity in commercial real estate was flat, while manufacturing was mixed. Labor markets showed some signs of tightening, while wage increases remained moderate. Prices generally were level.

Consumer Spending and Tourism
Consumer spending grew moderately. A major Minneapolis-based retailer reported that same-store sales in October increased about 3 percent compared with a year earlier. A Minneapolis area mall reported that recent sales were up between 3 percent and 5 percent, as cooler weather inspired shoppers to buy fall goods. According to the University of St. Thomas Holiday Spending Sentiment Survey, Minneapolis-St. Paul households are predicted to spend 3.4 percent more on holiday gifts than last year. Auto sales in the Minneapolis-St. Paul area increased since the last report, according to a domestic auto dealer. However, a Minnesota-based clothing retailer announced plans to close several stores and reduce its workforce. Preliminary results of the Minneapolis Fed's business outlook poll indicated that respondents expect slight increases in consumer spending in their communities and increased sales of their businesses' products and services.

Tourism activity was up from a year ago. According to officials, momentum from a very good summer tourism season in Montana continued into the fall. Occupancy at Minnesota's hotels and motels increased almost 5 percent during the third quarter compared with a year ago.

Construction and Real Estate
Commercial construction activity increased modestly since the last report. Respondents to a November Minneapolis Fed ad hoc survey of commercial construction contacts reported an increase in construction activity for health care facilities and industrial buildings. However, the value of commercial building permits in the Sioux Falls, S.D., area was down slightly in October from October 2010. Residential construction increased from last year. Several multifamily construction projects were announced or are under construction in the Minneapolis-St. Paul area. The number of permitted residential units in Minnesota was up in September from a year ago. However, in the Sioux Falls area, the value of residential building permits in October was level with the same period a year earlier.

Commercial real estate markets were flat. Respondents to the Minneapolis Fed's ad hoc survey noted flat revenues and profits over the past three months. The commercial real estate sector is still very weak, particularly in office space. "Very little expansion by companies, so the only activity seems to be companies shopping for lower rates," commented a Minneapolis-St. Paul area contact. Residential real estate markets grew. Home sales in October were up significantly from the same period a year ago in the Minneapolis-St. Paul area, while the inventory available for sale shrank.

On balance, professional business services firms expect increased activity. Based on results from the business outlook poll, respondents from the services sector expect to increase sales and capital investment in 2012. "Things generally are better," commented a Montana professional services firm.

Manufacturing activity was mixed since the last report. An October survey of purchasing managers by Creighton University (Omaha, Neb.) showed that production increased in Minnesota and North Dakota, but unexpectedly contracted slightly in South Dakota. Bank Directors noted that manufacturing was doing well with some equipment backlogs extending throughout 2012. Producers of storage bins for agricultural use reported strong demand. However, a window maker announced that it will lay off workers due to weak home construction. A large printing operation in Minnesota halted expansion plans due to uncertainty about the economy.

Energy and Mining
The energy and mining sectors saw continued strong growth. Oil exploration activity increased in Montana since the last report, but decreased slightly in North Dakota. In North Dakota, regulators approved plans for a 105-megawatt wind farm, and three other wind energy projects are under review. A short line railroad reported that it saw strong demand growth from the wind energy and oil drilling sectors. District mines continued to operate at very high capacity utilization rates.

Agricultural conditions remained generally strong. Farm financial conditions were very strong due to high commodity prices. Prices for hogs, cattle, turkeys and eggs increased in October; prices for corn, soybeans and wheat declined, but remain substantially above their year-earlier levels. The harvest went quickly, thanks to recent dry weather. District corn production was roughly even with 2010; however, soybean production was down more than 12 percent. Wheat production was down dramatically in some areas of the District.

Employment, Wages, and Prices
Labor markets showed some signs of tightening. In a recent survey of Minnesota manufacturers, 45 percent of respondents reported that skilled-worker shortages were a moderate or serious problem, particularly for skilled production and IT workers. A Minnesota recreational vehicle manufacturer reported that it isn't running a plant at capacity because of a surprising shortage of workers. A representative of a Minnesota employment services firm noted robust demand for temporary light industrial positions during September and October; demand for permanent positions was volatile. A South Dakota manufacturer reported difficulty finding qualified workers in order to expand operations. In Montana, a job fair indicated that employers were recruiting recent college graduates with engineering, business and computer science majors. According to the business outlook poll, 36 percent of respondents consider securing workers a challenge or serious challenge in 2012, up from 24 percent in last year's poll.

Wage increases were moderate. Members of a South Dakota county highway union recently agreed to a 5 percent pay cut in 2012. The business outlook poll shows that 96 percent of respondents expect wages and salaries in their communities to increase no more than 3 percent. However, some fast food restaurants in western North Dakota were offering wages as high as $15 per hour to attract employees.

Prices generally remained level, although some exceptions were noted. Minnesota gasoline prices continued to decrease since the last report, but were still 54 cents per gallon higher than a year ago. Meanwhile, a South Dakota manufacturer noted that steel prices have softened recently. According to respondents to the business outlook poll, 41 percent expect to increase prices for their businesses' products and services in 2012, up from 35 percent last year.

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Last update: November 30, 2011