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Beige Book
Ninth District - Minneapolis

January 15, 2014

The Ninth District economy experienced moderate growth since the last report. Increased activity was noted in consumer spending, tourism, residential and commercial construction, commercial real estate, professional services, manufacturing, and energy and mining. Residential real estate was mixed, while agricultural conditions weakened for farmers. Labor markets showed signs of tightening since the last report, and wage increases were moderate. Prices generally remained level, although contacts expected prices to pick up modestly in 2014.

Consumer Spending and Tourism
Consumer spending increased moderately. A Minnesota-based retailer noted that electronics and gaming product sales were particularly strong during the holiday season. A couple of snowmobile and all-terrain vehicle dealers in Minnesota reported strong sales during November and December compared with a year earlier. Recent car and truck sales were above year-ago levels in Minnesota. Meanwhile, in Montana a mall manager noted that December sales were about the same as last year. According to a mall manager in North Dakota, holiday sales were about level with last year's very strong numbers.

Winter tourism activity was off to a solid start due to snowy weather. A ski resort in Minnesota noted that lodging and early reservations were up from a year ago; however, frigid weather during late December slowed ski admissions. Snowmobiling and cross country skiing have benefited from early snow in northwestern Wisconsin, according to a representative of a chamber of commerce.

Construction and Real Estate
Commercial construction activity continued to grow since the last report. Construction sector respondents to the Minneapolis Fed's annual business outlook poll expect sales volumes to increase but capital investment to remain flat at their firms in 2014. "Our local economy looks better all the time," commented a Minnesota commercial construction firm. Overall residential construction activity was up slightly. In the Minneapolis-St. Paul area, the value of December residential permits grew by 20 percent from December 2012. The value of December residential building permits in Sioux Falls, S.D., increased from 2012. The value of November residential building permits in Billings, Mont., grew significantly from November 2012. However, a housing construction firm in the Upper Peninsula of Michigan and northwestern Wisconsin noted that the industry was "not looking good."

Activity in commercial real estate markets increased since the last report. Recently, several office and industrial buildings were sold in the Minneapolis-St. Paul area. A Sioux Falls commercial real estate firm noted a lot of corporate leasing and sales activity. Residential real estate markets experienced mixed activity since the last report. In the Sioux Falls area, November home sales were up 14 percent, inventory was down 3 percent and the median sale price increased 7 percent relative to a year earlier. In La Crosse, Wis., November home sales decreased and the median price increased from November 2012. Meanwhile, November home sales were down 9 percent from the same period a year ago in Minnesota; the inventory of homes for sale increased by 3 percent, and the median sale price rose 10 percent. The University of St. Thomas Minneapolis-St. Paul residential real estate report predicts a solid year in the housing market for 2014.

Services
Activity at professional business services firms increased since the last report, and the 2014 outlook is positive. Services sector respondents to the business outlook poll expect sales volumes and capital investment at their firms to grow in 2014; four out of five were optimistic for their community's economic performance. Several contacts in the technology sector noted increased demand for consulting services, especially for information analytics. Contacts from the health care sector reported increased capital expenditures.

Manufacturing
Manufacturing activity grew at a solid pace since the last report. A December survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity increased in Minnesota and the Dakotas. The Minneapolis Fed's 2013 manufacturing survey results indicate that respondents on average expect orders, production, employment, capital investment and profits at their operations to increase in the coming year. A new wool mill in Minnesota will be the second-largest such operation in the nation. A manufacturer of hoses for the automotive industry will open a new production facility in the Upper Peninsula.

Energy and Mining
Activity in the energy and mining sectors increased. Late-December oil and gas exploration activity increased in North Dakota and decreased in Montana from a month earlier. A proposed $250 million solar power project in Minnesota came closer to development, due to a judge's ruling. Most Minnesota iron ore mines continued to operate at near capacity. Minnesota released an environmental impact report on a proposed copper-nickel mine showing substantial long-term costs, bringing the future of the project into question.

Agriculture
Overall conditions for District farmers weakened, although livestock and dairy producers saw improvement. Annual production decreased from a year earlier in District states for wheat, soybeans, dry beans and sugar beets; District corn production increased, but price reductions likely outweighed the benefits to farmers. A farm equipment retailer saw a reduction in sales revenue sooner than expected, due to falling crop prices. District sugar beet farmers are facing steep losses this year due to a decline in sugar prices. December prices received by farmers fell from a year earlier for corn, soybeans, wheat, hay, hogs and chickens; prices increased for cattle, turkeys, eggs, milk and dry beans.

Employment, Wages, and Prices
Labor markets showed signs of tightening. According to the business outlook poll, 30 percent of respondents expect to hire more full-time employees in 2014, while 18 percent expect to have fewer full-time employees. According to a recent St. Cloud (Minn.) Area Quarterly Business Report, 47 percent of survey respondents expect to increase the number of employees over the next six months, while 8 percent expect decreases. An air distribution product firm announced plans to open a facility in Minnesota that is expected to hire 40 workers. Meanwhile, a representative of a North Dakota employment service agency reported more long-term jobs offered in response to the strong state economy.

Overall wage increases were moderate since the last report and are expected to remain moderate during 2014. According to the business outlook poll, 93 percent of respondents expect wages and salaries in their communities to increase 3 percent or less in 2014, the same percentage as last year. However, a Minnesota company was reporting offering signing bonuses and moving expenses to attract manufacturing workers.

Overall prices remained level. Late December Minnesota gasoline prices were up only about 10 cents per gallon from the month earlier and a year earlier. Pressure to increase prices is expected to pick up modestly in 2014, as a somewhat larger share of respondents to the business outlook poll and survey of manufacturers expect to increase prices for their own products and services compared with the previous year.

                             

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