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Minneapolis: January 2010

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Beige Book Report: Minneapolis

January 13, 2010

Overall economic activity in the Ninth District grew tepidly since the last report. Consumer spending, tourism, energy, mining and residential construction and real estate saw modest increases. Manufacturing and services were mixed, while commercial construction was stable. Decreases in activity occurred in agriculture. Labor markets remained weak, but the pace of job losses has slowed. Meanwhile, wage increases were modest, and overall prices remained flat.

Consumer Spending and Tourism
Consumer spending increased modestly. A representative of a Minneapolis area mall expected holiday sales to finish 2.5 percent higher than a year ago, while a manager at another Minneapolis area mall noted that holiday traffic was relatively heavy and that store owners were generally pleased. Bank directors reported that holiday sales during December were soft in western South Dakota, but up somewhat in North Dakota. Brisk retail activity was reported in central Montana the day after Christmas. Larger retailers noted an increase in Internet sales during the holiday shopping season.

A Minnesota auto dealer noted that November and December sales were up from a year ago. Meanwhile, a representative of an auto dealers association in North Dakota reported that recent vehicle sales were generally soft.

Winter tourism activity was up from a year ago. Tourism activity increased in northwestern Wisconsin due to excellent snow conditions for snowmobiling and skiing. In western South Dakota, winter sports have also benefited from a deep snow cover; a local tourism official noted strong numbers of vehicles with snowmobile trailers and ski racks. A Minnesota ski resort reported that activity picked up during the holidays; advanced bookings were about on par with a year ago.

Construction and Real Estate
Commercial construction was flat at low levels. A commercial builder in the Minneapolis-St. Paul area said that recent activity was very slow, but the builder expected more projects to bid on in the first part of 2010. Residential construction increased across most of the District. The number of residential permits in November was up compared with a year ago in Sioux Falls, SD., Fargo, ND., Rochester, Minn., and in the Minneapolis-St. Paul area.

Commercial real estate markets saw a slight uptick from very low levels of activity. The value of commercial properties sold in Minnesota increased in November from October. However, recent vacancy rates for many commercial real estate sectors were higher than a year ago across most of the District. Meanwhile, residential market activity increased in November. The dollar volume of closed sales in Minnesota increased nearly 46 percent in November from a year earlier as first-time home buyers took advantage of federal tax credits.

Overall activity was mixed in the professional business services sector. A Minnesota-based travel services firm shut down due to decreased demand. A health care provider noted that people deciding on elective surgery are asking for limited procedures at reduced cost. However, an environmental engineering firm noted solid orders.

Manufacturing output was mixed. A December survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity increased in Minnesota and decreased in the Dakotas. This survey showed strong new orders in Minnesota and South Dakota, but decreased new orders in North Dakota. In South Dakota, a pipe maker plans to open a production facility, but a trailer manufacturer shut down.

Energy and Mining
Activity in the energy and mining sectors increased slightly. Mid-December oil and gas exploration increased from mid-November. A proposed large-scale wind energy project was recently announced for eastern South Dakota. Meanwhile, late December prices for copper, platinum and nickel increased from mid-November, which aided the profitability of Montana mines. An iron ore mine plans to restart a production line in early 2010, but output at iron ore mines in Minnesota dropped about 5 percent in November from October.

Agricultural activity declined. The wet fall caused farmers to incur extra drying expenses, and some shortages of propane were noted. A portion of the corn crop will have to be harvested in the spring because winter storms halted the already late harvest; this may constrain overall production from expected high levels. The heavy winter storms put stress on some cattle herds.

Employment, Wages, and Prices
Labor markets remained weak, but the pace of job losses has slowed. While employment levels are lower than a year ago, employment increased slightly in November from a month earlier in Minnesota and the Dakotas. Nevertheless, some layoffs were announced. In Montana a paper mill will close, affecting over 400 workers. In Minnesota a call center closure will eliminate about 60 jobs, and an information management firm will cut 120 positions. In contrast, a financial services firm announced plans to add 50 to 75 jobs in South Dakota. According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 19 percent expect to increase employment at their companies over the next six months, while 15 percent expect decreases.

Wages generally remained level or rose modestly, and this trend may continue. For example, wages for most employees at the University of Montana will be frozen for the next two years. Of the respondents to the aforementioned St. Cloud survey, 19 percent plan to increase wages and benefits over the next six months, while 6 percent plan decreases.

Prices generally remained flat since the last report. For example, recent Minnesota gasoline and fertilizer prices are about level with mid-November. However, natural gas and some metal component prices have increased since the last report.