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Beige Book
Ninth District - Minneapolis

October 16, 2013

The Ninth District economy grew moderately since the last report. Increased activity was noted in consumer spending, tourism, residential and commercial real estate, professional services, manufacturing, energy and mining. Residential and commercial construction continues to grow at a robust rate, while agricultural conditions deteriorated somewhat. Labor markets tightened modestly since the last report, and wage increases were moderate. Price increases were modest. The effects of the partial federal government shutdown on the Ninth District economy were too early to determine.

Consumer Spending and Tourism
Overall consumer spending increased since the last report. Sales and traffic at a Minneapolis area mall were level during the past two months, according to the mall manager. Recent sales were about the same as last year’s strong results at a North Dakota mall; apparel sales were soft. A Minnesota-based food producer reported that recent cereal sales increased 4 percent compared with a year earlier. A Minnesota auto dealer reported recent strong traffic and sales for new and used cars and trucks; service business was also strong. New vehicle sales were robust in North Dakota, but activity was slightly slower from exceptionally strong sales a year ago.

Tourism activity was solid. Respondents to a survey of Minnesota hotels, resorts and campgrounds expect fall occupancy to be somewhat better than in 2012. Tourism businesses in Montana noted strong occupancy levels at hotels and motels and solid activity at tourism destinations through the end of the summer season. Convention business and leisure travel was very good during the past two months in the Sioux Falls, S.D., area, according to an official. However, some South Dakota hotels noted that fall reservations by hunters decreased due to a report that the number of pheasants in the state was down. Tourism destinations funded by the federal government were recently closed due to the partial government shutdown.

Construction and Real Estate
Commercial construction activity continued to grow since the last report. The value of September commercial building permits in Billings, Mont., increased significantly from last year. In Sioux Falls, the value of September commercial permits increased from a year ago. Several commercial building projects were announced in the Minneapolis-St. Paul area since the last report. Robust growth was noted in residential construction, especially for multifamily housing. Several multifamily building projects were announced since the last report. A long-time developer of apartment buildings warned that “massive” amounts of construction could be a sign of overbuilding. In the Minneapolis-St. Paul area, the value of residential permits in September was up by 47 percent from September of 2012. However, the value of September residential building permits in Sioux Falls and Billings fell from 2012.

Activity in commercial real estate markets increased since the last report. Contacts noted that several commercial real estate transactions occurred since the last report, including sales and leasing activity at higher rents. A real estate analytical firm reported that retail vacancy rates edged downward in the Minneapolis market in the third quarter. A contact from a hotel chain noted increased occupancy and rates for properties in the Ninth District. Residential real estate markets experienced moderate growth since the last report. August home sales were up 7 percent from the same period a year ago in Minnesota; the inventory of homes for sale increased by 4 percent, and median sale prices rose 14 percent. However, in the Sioux Falls area, September home sales were down 4 percent, inventory was down 5 percent and the median sale price increased 3 percent relative to a year earlier. In La Crosse, Wis., September home sales and the median price declined from September 2012.

Services
Recent activity at professional business services firms grew since the last report. A web design firm noted strong demand, but growth was limited by the lack of available talent. A package design firm noted a recent uptick in activity. Architect contacts noted a slight increase in bidding activity. Mortgage and real estate title company contacts reported a continued decrease in refinance activity.

Manufacturing
District manufacturing activity continued to grow moderately. A September survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that manufacturing activity increased in Minnesota and the Dakotas. An aerospace manufacturer announced a $34 million expansion of a plant in Montana. A producer of landscaping equipment announced plans to expand a Minnesota facility.

Energy and Mining
The energy sector continued to grow. Late-September oil and gas exploration activity increased in North Dakota and was flat in Montana from a month earlier; production remained at record levels. Several highway expansion projects were under way in western North Dakota to accommodate oilfield traffic. Meanwhile, mining activity increased. Production at District iron ore mines picked up from its lull earlier in the year, but remained slightly below year-earlier levels. A stalled copper-nickel mining development in Michigan’s Upper Peninsula resumed construction after it was sold to another owner. Work began on a Montana plant that will reprocess mining waste for construction and industrial use.

Agriculture
Agricultural conditions deteriorated somewhat since the last report. Drought conditions returned to the eastern part of the District in late summer, with parts of eastern North Dakota and central Minnesota seeing severe drought conditions in early September. Crop progress remains behind average due to late spring planting, and yields are likely to be affected. While much of the District corn and soybean crops remain in good or excellent condition, overall quality has fallen in recent weeks. However, in Minnesota, apple growers are expecting a strong harvest. Prices received by farmers in September increased from a year earlier for hogs, cattle, milk, dry beans and chickens; prices for corn, wheat, soybeans, hay, eggs and turkeys fell from a year earlier.

Employment, Wages, and Prices
Labor markets tightened modestly since the last report. Minnesota initial claims for unemployment insurance benefits decreased 12 percent in August compared with a year earlier.

A web-based image publishing company recently broke ground on a facility in Minnesota that will add at least 300 jobs to the area. A Minnesota manufacturing company expansion will add 50 new positions at its headquarters. Contacts from Minnesota staffing agencies noted increased demand for workers and fewer workers applying for jobs. However, a bank recently eliminated about 330 jobs in Minnesota due to slowing demand for home-mortgage financing, and a Minnesota advertising company recently laid off more than 30 workers in the state. A Minnesota-based retailer announced that it is planning to hire fewer temporary workers during the holiday season than last year.

Wage increases were moderate. According to a recent St. Cloud (Minn.) Area Quarterly Business Report, 43 percent of respondents expect to increase compensation over the next six months, while 56 percent expect no change. In last year’s survey, 41 percent expected to increase compensation, while 58 percent expected no change.

Price increases were modest. Most metals prices were relatively level since the last report. Minnesota gasoline prices at the end of September were down about 20 cents per gallon from the end of August and almost 40 cents per gallon from a year earlier.

            

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