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Beige Book
Ninth District - Minneapolis

December 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, professional services, manufacturing and energy. Mining was steady at high levels, and agricultural conditions weakened slightly. Labor markets continued to tighten slightly since the last report, and wage increases were moderate. Prices generally remained stable. Overall, the partial federal government shutdown had a muted impact on the District economy.

Consumer Spending and Tourism
Consumer spending increased modestly. Two Minnesota-based retailers reported slight gains in same-store sales compared with a year earlier. Recent sales were down slightly from a year ago at a Montana mall after strong growth in 2012; store managers were cautiously optimistic for the holiday season. A Minnesota-based restaurant chain recently reported that same-store sales decreased slightly. However, respondents to a survey of holiday shoppers in the Minneapolis-St. Paul area by the University of St. Thomas indicated that spending per household will increase by about 8 percent over last year. An auto dealer in Minnesota reported strong vehicle sales during early November.

Tourism activity was up from a year ago. A representative of a Minnesota-based travel agency noted that recent bookings for leisure travel during the next few months were up more than 10 percent. October airline boardings at North Dakota's eight largest airports increased 13 percent compared with a year earlier. However, October visits to Glacier National Park were down about 50 percent compared with last year due to the government shutdown.

Construction and Real Estate
Commercial construction activity continued to grow since the last report. A recent survey of Minnesota building professionals conducted by a trade association noted an improvement in market conditions. More than half of construction respondents to a late-October Minneapolis Fed ad hoc survey reported that they expected to increase capital expenditures in 2014 compared with 2013; the remainder expected level spending. However, in Sioux Falls, S.D., and Billings, Mont., the value of October commercial permits decreased from a year ago. Residential construction activity increased. In the Minneapolis-St. Paul area, the value of October residential permits grew by 20 percent from October 2012 to $195 million. However, the value of October residential building permits in Sioux Falls and Billings fell from 2012.

Activity in commercial real estate markets increased since the last report. The University of St. Thomas semiannual survey (November) of 50 Minneapolis-St. Paul commercial real estate leaders noted higher rent, occupancy, land prices and building material costs. A large real estate consulting firm reported that demand continues to outpace new building of industrial space, while vacancy rates are expected to continue to decline. Residential real estate markets experienced slight growth since the last report. In the Sioux Falls area, October home sales were up 9 percent, inventory was down 4 percent and the median sale price increased 4 percent relative to a year earlier. Meanwhile, October home sales were down 2 percent from the same period a year ago in Minnesota; the inventory of homes for sale increased by 7 percent, and the median sale price rose 12 percent. In La Crosse, Wis., October home sales and the median price declined from October 2012.

Services
Recent activity at professional business services firms increased since the last report. In the aforementioned survey of building professionals, 53 percent of engineers and architects reported improving conditions compared with 11 percent who saw declines. A Minnesota business consulting firm said that demand has picked up recently, particularly since the end of the government shutdown. A web technology firm noted that demand was strong and that profit margins were good. An environmental engineering firm expected its business to continue to grow. Recent corporate travel was up from last year, according to a Minnesota-based travel agency.

Manufacturing
The manufacturing sector saw continued moderate growth since the last report. An October survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that manufacturing activity increased in Minnesota and the Dakotas. Preliminary results from the Minneapolis Fed's 2013 survey of manufacturers indicated that respondents on average expect orders, production, employment, investment and profits at their operations to increase in the coming year. A furniture maker began a major expansion at a Wisconsin plant. A producer of agricultural material handling equipment announced an expansion of a South Dakota facility. However, several producers of agricultural equipment noted a reduction in new orders.

Energy and Mining
Activity in the energy sector increased moderately, while mining was steady at a high level. Late-October oil and gas exploration activity was flat in North Dakota and fell slightly in Montana from a month earlier. Production remained at record levels. Construction of a refinery began on an Indian reservation in North Dakota. Regulators approved construction of a large wind farm in North Dakota. October production at District iron ore facilities was up slightly from a year earlier. Activity at Montana precious metals mines was solid; a new gold mining operation was planned at one site, while another operation sought to extend its permit.

Agriculture
The agriculture sector saw slight contraction. In the Minneapolis Fed's third quarter (October) survey of agricultural credit conditions, 28 percent of lenders reported that farm incomes decreased from the second quarter, while 15 percent reported increases; nearly half expect incomes to decrease in the final three months of 2013. October prices received by farmers decreased from a year earlier for wheat, corn, soybeans, milk, eggs, turkeys and cattle; prices increased for chickens, calves, hogs and dry beans. An early-October blizzard in western South Dakota killed an estimated 15,000 cattle there. Drought conditions abated in most of the District in late fall.

Employment, Wages and Prices
Labor markets continued to tighten slightly since the last report. According to respondents to a Minnesota construction industry survey, 38 percent expect to expand staffing levels in 2014, while 12 percent expect layoffs; last year, 31 percent expected to hire more workers, while 18 percent expected layoffs. In Minnesota, a countertop manufacturer plans to hire more than 100 employees over the next six months and a food manufacturer had more than 30 positions open. A South Dakota manufacturer recently announced plans to add up to 20 more workers. However, a Minnesota-based retailer recently laid off about 150 corporate employees as part of a restructuring plan, while a paint company in Minnesota laid off 25 employees.

Overall wage increases were moderate. According to preliminary results of the aforementioned survey of manufacturers, respondents expect to increase wages by 2.2 percent in 2014. However, an eastern Montana contact reported that salaries there have increased at a faster pace for mechanics, truckers and information technology workers.

Prices generally remained stable with some exceptions noted. Mid-November Minnesota gasoline prices were down more than 20 cents per gallon compared with early October. Several metals prices decreased over the past month. Home heating costs for natural gas are expected to increase almost 15 percent compared with last winter.

            

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