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Beige Book
Ninth District - Minneapolis

October 10, 2012

The Ninth District economy expanded modestly since the last report. Increased activity was noted in construction and real estate, consumer spending, tourism, and professional services. Energy and mining were steady at high levels, while agriculture varied widely, with crop farmers generally in better condition than animal producers. Meanwhile, activity slowed slightly in the manufacturing sector. Labor markets tightened somewhat. Overall wage increases remained subdued, although stronger increases were reported in some areas. Price increases were generally modest.

Consumer Spending and Tourism
Consumer spending increased moderately. Same-store sales at a Minnesota-based retailer increased 4 percent in August compared with a year ago. A Minneapolis area mall manger reported that sales over the past two months were up about 4 percent compared with a year earlier, while another Minneapolis mall reported that while traffic was flat, sales were up somewhat. In North Dakota, a mall manager reported that sales in August and September were up more than 5 percent from last year. Recent sales increased at a Minnesota-based women's apparel store. A domestic auto dealer reported strong sales activity near the end of September and solid commercial fleet sales. A representative of an auto dealers association in North Dakota reported strong vehicle sales across the state.

Tourism activity was above year-ago levels. In response to an end-of-summer survey of lodging and camping businesses by Minnesota's tourism office, 46 percent of businesses reported higher occupancy than last summer, while 31 percent reported that occupancy was the same. In addition, the number of visitors to the Minnesota State Fair fell just short of a record. Tourism officials in Montana reported strong occupancy levels during the summer and expect this year to finish ahead of last year.

Construction and Real Estate
Commercial construction activity increased since the last report. The value of commercial building permits issued in August more than quadrupled from the same period last year in both the Sioux Falls, S.D., and Billings, Mont., areas. A Minneapolis area construction contact noted interest in building a regional warehouse, while a research and development building was also planned. Residential construction increased from a year ago. The value of residential building permits in the Sioux Falls area in August was up 11 percent from the same period last year. The number of residential permits more than doubled in the Minneapolis-St. Paul area in August compared with a year ago. The value of residential permits issued in August more than doubled in Billings.

Commercial real estate markets expanded at a slow pace. Vacancy rates for Minneapolis office, industrial and retail properties declined slightly since the last report, according to local real estate professionals. Residential real estate market activity was brisk. Home sales in mid-September were up 18 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale was down 30 percent. In the Sioux Falls area, August home sales were up 44 percent, inventory was down 14 percent and the median sales price rose 5 percent relative to a year earlier.

Services
Activity at professional business services firms grew slightly since the last report. According to an architecture firm, demand for services picked up recently. An information technology consulting company noted a recent uptick in the number of projects. A data center opened in northern Minnesota. An environmental consulting firm noticed increased activity primarily due to oil and gas pipeline analysis. A logistics consulting firm noted that recent freight volumes are about the same as last year.

Manufacturing
The manufacturing sector weakened slightly since the last report. A survey of purchasing managers by Creighton University (Omaha, Neb.) found that manufacturing activity decreased in Minnesota and South Dakota in August for the second month in a row, though the rate of contraction was not as sharp as in July. Activity increased in North Dakota, but at a slower pace than the previous month. In contrast, an agricultural equipment maker announced that it will open operations in Minnesota, and a machining firm expanded operations in Michigan's Upper Peninsula.

Energy and Mining
Activity in the energy and mining sectors remained strong. Oil and gas exploration decreased slightly in North Dakota and increased in Montana; however, North Dakota oil production hit a new record. A large railroad increased its capacity for carrying crude oil out of North Dakota's Williston Basin. Several large transmission-line projects were under way around the District. In contrast, another Minnesota ethanol plant shut down, and a North Dakota wind-turbine producer cut production, citing reductions in demand and uncertainty over the expiration of a federal tax credit. District iron ore mines continued operating at near capacity. Sand mines saw increased demand from oil and gas producers.

Agriculture
Agriculture was mixed, as crop farmers saw strong prices but widely varying yields, while animal producers saw tighter profit margins. Harvests were well ahead of schedule for crops around the region, thanks to hot and dry conditions late in the summer. District sugar beet producers were expecting a record harvest. The condition of the corn and soybean crops remained much better in Minnesota and North Dakota than in core corn belt states. However, portions of Wisconsin and South Dakota were hit much harder by drought. In addition, meat and dairy producers struggled with higher feed costs. Prices received by farmers increased for most agricultural outputs in September compared with a year earlier; the primary exceptions were milk and hogs, which saw price decreases.

Employment, Wages, and Prices
Labor markets tightened modestly. According to a survey by an employment services firm, 20 percent of respondents in Minneapolis-St. Paul expect to increase staffing levels during the fourth quarter, while 6 percent expect to decrease staff. A year ago, 12 percent anticipated increases, while 11 percent expected decreases. A recent Minnesota Chamber of Commerce survey showed that only 49 percent of companies responding said that the state has enough skilled workers in their respective industries. In Minnesota, a foreign information technology consulting firm plans to add 300 workers and a telecommunications company recently announced that it will add 150 call-center employees. In contrast, a North Dakota wind turbine manufacturer announced that it will lay off 300 workers. A hardboard plant in Minnesota closed, affecting 140 workers, and a medical devices company laid off 80 of its Minnesota workers as part of a reorganization plan.

Overall wage increases remained subdued, although stronger increases were reported in some areas. For example, a health care system recently offered substantial bonuses to recruit registered nurses in eastern North Dakota.

Price increases were generally modest, with some exceptions noted. Late September Minnesota gasoline prices increased almost 20 cents per gallon since late August. Metals prices increased somewhat since the last report, as well as some lumber prices.

            

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