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Beige Book
Ninth District - Minneapolis

April 11, 2012

The Ninth District economy grew at a solid pace since the last report. Strength was noted in consumer spending, professional services, construction, manufacturing, energy and mining, and agriculture. Residential real estate had an unexpectedly large increase in sales activity. Warm weather slowed winter tourism activity. Hiring activity outpaced layoffs since the last report. Wage increases were moderate, and price increases were generally subdued.

Consumer Spending and Tourism
Consumer spending continued to expand moderately. Same-store sales at a Minnesota-based retailer increased 7 percent in February compared with a year ago. February sales at a Montana mall were up about 10 percent over last year; remodeling activity was strong for new stores and expansions. March sales were up over 5 percent compared with a year earlier at a North Dakota mall. However, a Minnesota-based hair salon plans to close some of its stores. A Minnesota auto dealer reported that mild weather depressed service and vehicle sales during January and February, but auto sales bounced back in March. In addition, higher gasoline prices don't seem to be influencing buying decisions away from SUVs and light trucks.

Lack of snow and warm temperatures slowed winter tourism in a number of areas; however, late-season snow perked up activity in some places. Enough snow fell in northwestern Wisconsin during February to hold the annual American Birkebeiner cross-country ski race, bringing thousands of visitors to the area. Western South Dakota received late-season snow, which enabled a strong finish for snowmobiling and downhill skiing. A ski resort in Montana reported that visits and revenue were up from a year ago.

Construction and Real Estate
The continued warm weather aided construction activity. The value of commercial building permits in the Sioux Falls, S.D., area was up in February from a year earlier. The value and number of new commercial permits increased in Fargo, N.D., during the first two months of 2012 compared with the same period in 2011. Residential construction increased from a year ago. The value of residential building permits increased significantly in the Sioux Falls area in February. The number of single-family building permits increased in Minnesota in January 2012, compared with January 2011. Several new multifamily projects were planned for the Minneapolis area.

Commercial real estate market activity increased. A commercial broker in Minneapolis noted more leasing activity, especially for class A space. Residential real estate had an unexpectedly large increase in sales activity. Home sales in February were up 23 percent from the same period a year ago in the Minneapolis-St. Paul area, and the inventory of homes for sale was down 27 percent. However, median sales prices dropped slightly. In the Sioux Falls area, February home sales were up 5 percent and inventory was down 7 percent relative to a year ago. A broker noted that lower-priced homes saw an investor "feeding frenzy," with properties selling in a few days with multiple offers.

Services
Activity at professional business services firms increased slightly since the last report. An accountant noted that this tax season was busier and that many firms saw an increase in earnings in 2011 compared with 2010. A bank director from Montana noted that law firms were experiencing mixed activity and that firms specializing in petro-chemical and environmental engineering were seeing increased activity, while mechanical and structural engineering activity was flat to down.

Manufacturing
Manufacturing activity expanded. A survey of purchasing managers by Creighton University (Omaha, Neb.) found that manufacturing activity in Minnesota and the Dakotas increased in March. A manufacturer based in northwestern Wisconsin announced plans to build a production plant. A mill in Minnesota will begin a $170 million conversion from producing pulp for paper mills to producing cellulose for textiles. A brewery in Minnesota is expanding its operations. In contrast, a manufacturer of recreational vehicles in South Dakota has halted production and may not reopen.

Energy and Mining
Activity in the energy and mining sectors continued at strong levels. Oil and gas exploration activity in North Dakota increased since the last report, but was flat in Montana. A Federal Circuit Court judge upheld a permit for construction of a $10 billion oil refinery in southeastern South Dakota, which would be the first new refinery in the United States since 1976. A separate $500 million diesel refinery was in early planning stages in western North Dakota. Two District ethanol plants are planning conversions to produce a different biofuel. Ninth District iron ore mines continued to operate at near capacity. A mining firm is developing plans in northern Minnesota for a large underground mine to tap a recently discovered copper deposit. Meanwhile, a tribe in western Montana moved to block a copper and silver mine on a wilderness site.

Agriculture
Agricultural conditions remained strong. Cattle ranchers benefited from both high beef prices and strong export demand as well as ideal weather for the calving season. Drought conditions remained in Minnesota, the Dakotas and western Wisconsin, but were abated somewhat by recent rain and snowfall. Drier conditions may actually lead to increased corn plantings in the eastern Dakotas by making long-flooded fields available. Unseasonably warm weather has led to reports of early spring wheat plantings in some areas. Prices received by farmers for wheat, corn, dry beans, cattle, hogs, eggs and poultry increased in March from the previous month, while dairy prices fell for the month and the year.

Employment, Wages, and Prices
Hiring activity outpaced layoffs since the last report. The new production plant in northwestern Wisconsin is expected to hire 300 workers. In Montana, a company that services student loans could hire about 100 more people this summer. A new wheat straw pulping and molding factory in North Dakota will create 100 jobs. A major Minnesota-based employer noted that fewer employees accepted a recent early retirement offer than expected. In contrast, a telecommunications firm in Minnesota will eliminate 85 positions as part of a restructuring plan, and a printer laid-off almost 50 workers.

Wage increases were moderate. In a first quarter business survey by St. Cloud State University (Minnesota), 65 percent of respondents left wages unchanged in the past three months. However, in western North Dakota and eastern Montana, strong oil-drilling and production activity continued to bid up pay. In contrast, a Minnesota business that makes in-store advertising for retailers was cutting compensation for salespeople and some managers while laying off some staff.

Price increases were generally subdued; however, some exceptions were noted. More than two-thirds of respondents to the St. Cloud survey reported that prices at their companies did not change over the past three months. Late March Minnesota gasoline prices were up about 25 cents per gallon from mid-February and 20 cents per gallon from a year ago. Airlines raised airfares during the past couple of months in response to higher fuel costs. A Minnesota-based food company noted that input cost increases were above 10 percent. Amid higher oil prices, low natural gas prices have spurred energy and transportation companies to pursue conversion projects.

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