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Beige Book
Ninth District - Minneapolis

September 4, 2013

The Ninth District economy grew at a moderate pace since the last report. Increased activity was noted in consumer spending, tourism, residential and commercial real estate and construction, manufacturing, energy and agriculture. Growth in residential real estate and construction has slowed somewhat, but is still strong. The mining sector was flat, and professional services were mixed. Hiring announcements were more prevalent than layoff announcements since the last report. Wage increases were moderate. Prices were relatively level since the last report.

Consumer Spending and Tourism
Consumer spending increased modestly. A Montana mall manager reported that sales increased about 5 percent in June and July from a year earlier. Recent same-store sales at a Minnesota-based retailer were up slightly compared with last year. In the Minneapolis area, a mall manager noted that summer traffic and sales increased slightly compared with a year ago, while another mall reported modest decreases in traffic and increases in sales. Truck and car sales during the summer were generally higher at a number of dealerships in Montana, according to an auto dealers association; some dealerships noted that sales were constrained due to a lack of inventory.

Tourism increased from a year ago. Summer tourism activity was strong after a slow start in northern Wisconsin, according to a representative of a chamber of commerce. The number of visitors to Glacier National Park in Montana increased more than 5 percent compared with a year ago. Tourism activity was solid in southwestern Montana. Camping permits and revenue at state parks in South Dakota were up from last year.

Construction and Real Estate
Commercial construction activity continued to grow since the last report. A commercial real estate research firm noted an increase in planned construction of industrial and medical office space in the Minneapolis-St. Paul area. The value of July hotel building permits in Billings, Mont., increased significantly from last year. However, in Sioux Falls, S.D., the value of July commercial permits was down from a year ago. Growth has slowed somewhat but is still strong in residential construction. In the Minneapolis-St. Paul area, the value of residential permits in July was up by 25 percent from July of 2012. The value of July single-family residential building permits in Billings was up 24 percent from last year; multifamily building increased by $23 million. However, the value of July residential building permits in Sioux Falls fell from 2012.

Activity in commercial real estate markets increased since the last report. A commercial real estate professional noted an increase in transactions, including a portfolio of retail centers, a large distribution center, an office building, a mixed-use property and a hotel in the Minneapolis-St. Paul area. Growth has slowed somewhat but is still strong in residential real estate markets. July home sales were up 13 percent from the same period a year ago in Minnesota; the inventory of homes for sale increased by 1 percent, and median sale prices rose 13 percent. In the Sioux Falls area, July home sales were up 25 percent and inventory was down 11 percent, but the median sale price decreased 3 percent relative to a year earlier.

Services
Recent activity at professional business services firms was mixed, depending on the service. An information technology consulting contact noted continued strong demand. A health care consulting contact said business was up. Mortgage and real estate title company contacts reported an increase in purchase activity but a decrease in refinance activity. An architectural contact noted flat activity since the last report. A large Minnesota-based law firm noted a slight decrease in July billable hours compared with a year ago primarily due to reduced merger and acquisition business.

Manufacturing
The District manufacturing sector continued to grow moderately. A July survey of purchasing managers by Creighton University (Omaha Neb.) indicated that manufacturing activity increased in Minnesota and the Dakotas; the pace of growth rose in South Dakota but declined in North Dakota and Minnesota. An electronics manufacturer recently broke ground on a new plant in Minnesota. However, a large beef slaughter and packing facility in South Dakota filed for bankruptcy in July.

Energy and Mining
Growth in the energy sector continued, while mining activity was flat. Oil and gas exploration activity decreased slightly in mid-August in North Dakota and Montana from a month earlier. The Bureau of Land Management in South Dakota recently auctioned off 50 oil and gas leases, indicating that exploration is expanding into the area, but activity is expected to be modest relative to North Dakota. An electricity utility completed multiyear upgrades to a nuclear power plant in Minnesota, at a total cost of nearly $600 million. Two facilities that will serve Canadian oil sands development are under construction in Montana. July output at District iron ore mines was slightly above its year-earlier levels after several slower months. Some Minnesota and Wisconsin mines that produce sand for hydraulic fracturing have idled recently.

Agriculture
Conditions for District agricultural producers improved since the last report. While progress remains slower than average, recent warm and dry weather has helped crops catch up, as the majority of the corn, soybean and spring wheat crops are listed in good or excellent condition in all District states. According to the Minneapolis Fed's second-quarter (July) survey of agricultural credit conditions, 90 percent of respondents said farm incomes increased or held steady over the previous three months, with similar results for household and capital spending. Despite the wet beginning to the growing season, USDA estimates indicate that acres of corn and soybeans planted in District states saw only a small decline compared with last year. North Dakota wheat acreage fell nearly 1 million acres, or 12 percent, from last year. Prices received by producers increased in July from a year earlier for cattle, hogs, milk, eggs, chicken, hay and potatoes; prices for corn, wheat, dry beans and turkeys fell, while soybean prices were flat.

Employment, Wages, and Prices
Hiring announcements were more prevalent than layoff announcements since the last report. A new information technology support center broke ground in South Dakota that will bring 200 jobs to the state. In Minnesota, a manufacturer recently completed an expansion of its headquarters, with plans to hire 200 new workers over the next few years. Another manufacturer recently purchased a new industrial building in Minnesota and will hire 100 new workers. A representative of a Minnesota staffing firm noted continued solid demand for temporary work placements. Some district manufacturers were having difficulty filling job openings for technical positions due to a lack of suitable workers. In contrast, the aforementioned South Dakota meat packer laid off about 250 workers and a bank in Minnesota is laying off 160 employees due to slowdown in mortgage refinancing activity.

Wage increases were moderate. A Minnesota county recently offered a contract to union employees with wage increases of 4.5 percent, spread over three years.

Prices were relatively level since the last report, with some exceptions noted. Recent fertilizer prices were down from a year ago, while lumber prices were up about 10 percent compared with last year. Metals prices increased somewhat since the last report. Representatives of health systems with operations in the District noted that medical cost inflation subsided recently, and they expect it to remain relatively subdued going forward.

            

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