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Beige Book
Ninth District - Minneapolis

April 16, 2014

The Ninth District economy continued to grow at a moderate pace since the last report. Increased activity was noted in commercial construction and real estate, professional services, manufacturing, tourism and energy. Mining and consumer spending were level, while agriculture was mixed and residential real estate and construction activity decreased. Labor markets continued to show signs of tightening, and wage increases were moderate. Overall price increases were modest.

Consumer Spending and Tourism
Overall consumer spending was level since the last report. Recent traffic was down from a year ago at a Minneapolis area mall largely due to unusually cold and snowy weather, while sales were up slightly. Sales at a Montana mall were up 5 percent in February compared with a year ago, while March sales slowed somewhat. A Minnesota-based food producer reported that recent sales were down slightly from a year ago, while a Minnesota-based clothing retailer noted that same-store sales were down slightly. Meanwhile, a car dealer in Minnesota noted strong sales during the past few weeks.

Late winter tourism activity was up somewhat. In northwestern Wisconsin, recent lodging levels were strong, while advance bookings for summer vacations were filling up. Several Montana ski resorts were able to extend their seasons due to the deep snow. According to a survey, 57 percent of Montana tourism business owners expect increases in visit numbers during 2014, while only 4 percent expect decreases. A travel agency in Minnesota noted that spring break travel bookings were about the same as last year.

Construction and Real Estate
Commercial construction activity continued to grow since the last report. The value of March commercial permits in Sioux Falls, S.D., increased 18 percent from a year ago. A large university is proposing a $190 million athletic complex. Overall residential construction activity decreased. In the Minneapolis-St. Paul area, the value of March residential permits decreased slightly from March 2013, while the value of March residential building permits in Billings, Mont., decreased. Residential building permits in Sioux Falls dropped significantly in value in March from a year earlier.

Activity in commercial real estate markets increased since the last report. Several cities in Minnesota noted increased interest in office, retail and hotel projects by developers. Residential real estate market activity decreased since the last report. In the Sioux Falls area, February home sales were down 2 percent and inventory was down 5 percent, while the median sale price increased 3 percent relative to a year earlier. In Eau Claire, Wis., March home sales declined and the median price increased from March 2013. Meanwhile, February home sales in Minnesota were down 11 percent from the same period a year ago; the inventory of homes for sale was down 1 percent, while the median sale price rose 9 percent.

Services
Contacts from a wide variety of professional business services firms noted increased activity since the last report. An architecture firm reported that business recently hit record levels due to increased apartment construction. An engineering firm said growth was spreading across the District. A law firm noted growth in a broad mix of specialties. An accounting firm reported that while activity was slower in the beginning of the year, it picked up recently.

Manufacturing
District manufacturing activity increased since the last report. A March survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that manufacturing activity increased in Minnesota and the Dakotas. In Minnesota, a medical device parts supplier was expanding its production facilities and a producer of recycling machinery was expanding its production and shipping facilities to meet strong international demand. Several unmanned aerial vehicle makers have recently expanded in eastern North Dakota due to the location of a test facility there.

Energy and Mining
Activity in the energy sector continued to increase at a brisk pace. Late-March oil and gas exploration increased in North Dakota and decreased slightly in Montana from the last report, while production remained at record levels. A North Dakota grain elevator recently finished a conversion that will allow the facility to load and ship sand used for hydraulic fracturing. Mining activity was stable. Production at district iron ore mines in early 2014 was roughly level from a year earlier. In Montana, regulators recently approved the expansion of a gold mine, while two other proposed operations were in the exploration stages.

Agriculture
District agricultural conditions were mixed, with livestock and dairy producers performing well, while crop producers were in worse shape. March prices received by farmers fell from a year earlier for corn, wheat, soybeans and chickens; prices increased for cattle, hogs, milk, eggs and turkeys. While crop prices increased slightly in March from the previous month, they remain significantly below the strong levels of recent years. A freight rail backlog led to significant shipping delays reported by dry bean producers and will also likely delay getting the winter wheat harvest to market. District farmers overall intend to plant fewer acres of corn and significantly more acres of soybeans and wheat in 2014 compared with last year.

Employment, Wages, and Prices
Labor markets continued to show signs of tightening. A survey of business leaders in eastern North Dakota showed that difficulty in attracting and retaining qualified employees was rated the top factor expected to adversely affect business in 2014. In Minnesota, a call center was in the process of adding 230 new jobs, a printing and packaging company plans to hire 200 new workers and a communications company plans to add 140 new jobs. A manufacturer with locations in the Dakotas recently announced that it intends to hire as many as 200 skilled laborers in the next five years. An employment services firm in Minnesota noted an increase in the rate of workers in temporary positions becoming permanent hires. A number of communities in North Dakota indicated difficulty finding enough health care workers to fill open positions. In contrast, a bank laid off about 200 employees in Minnesota due to declines in mortgage financing demand, a telemarketing operation closure affected about 100 workers and a technology company in Wisconsin was cutting nearly 80 jobs.

Wage increases were moderate. According to a recent survey of businesses in the St. Cloud, Minn., area, 49 percent of respondents expect to increase compensation over the next six months, while 50 percent expect no change, results similar to last year's survey. However, in the energy-producing areas of North Dakota, the U.S. Postal Service and its union recently agreed to pay increases of up to 20 percent for rural carriers.

Overall price increases were modest. Minnesota gasoline prices were slightly higher at the end of March compared with the end of February. Changes in metals prices were mixed since the last report. However, residential propane and natural gas prices posted substantial increases from a year ago in some areas, due to extreme cold weather.

                             

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