Beige Book Report: Minneapolis
March 5, 2014
The Ninth District economy experienced moderate growth since the last report. Increased activity was noted in consumer spending, residential and commercial construction, commercial real estate, professional services, manufacturing, and energy and mining. Tourism was mixed, while residential real estate activity decreased and agricultural conditions weakened for farmers. Labor markets tightened since the last report, and wage increases were moderate. Prices generally remained level with a few exceptions noted.
Consumer Spending and Tourism
Retail sales activity increased moderately. A Minnesota-based restaurant and bar chain reported that recent same-store sales were up 2 percent to 5 percent from a year ago. A mall manager in Minnesota noted that apparel retailers reported an increase in resort wear sales and that restaurants and bars were busy. Two furniture retailers were expanding showroom space in North Dakota and Montana. A car dealership in Minnesota noted that mechanics were working overtime to meet demand for repairs in large part due to cold, wintry weather. A Montana auto dealer reported solid sales activity in January.
Tourism was mixed, as extremely cold weather was balanced by strong snow depth in several areas of the district. Cold weather slowed the number of visitors to the Upper Peninsula of Michigan. A Minnesota ski resort reported that cold weather slowed ski lift sales on a number of days. However, several ski resorts in Montana reported that lift ticket sales and lodging were up over last year, as the region benefited from good snow conditions. Looking ahead, Minneapolis' convention and tourism bureau anticipates that attendance at events in 2014 will be the largest in more than 10 years.
Construction and Real Estate
Commercial construction activity continued to grow since the last report. New hotels are planned or under construction in several Minnesota markets. In the Minneapolis-St. Paul area, a large retail mall and several industrial as well as mixed-use developments were planned. The retail vacancy rate dropped 50 basis points in the fourth quarter from the third quarter of 2013 in the Minneapolis-St. Paul area. However, the value of January commercial permits in Sioux Falls, S.D., was down slightly from a year ago. Overall residential construction activity increased. In the Minneapolis-St. Paul area, the value of January residential permits grew by 28 percent from January 2013. The value of January multifamily residential building permits in Billings, Mont., increased from January 2013, but single-family decreased. The value of January residential building permits in Sioux Falls decreased significantly from a year earlier.
Activity in commercial real estate markets increased since the last report. A recent report by a Minneapolis-St. Paul area real estate analytics firm noted that absorption of space is solid and that investors expect more activity across all property types. Residential real estate market activity decreased since the last report. In the Sioux Falls area, January home sales were down 13 percent and inventory was down 4 percent, while the median sale price increased 5 percent relative to a year earlier. In La Crosse, Wis., January home sales and the median price decreased from January 2013. Meanwhile, January home sales were down 13 percent from the same period a year ago in the Minneapolis area; the inventory of homes for sale was down 11 percent, while the median sale price rose 12 percent.
Services
Activity at professional business services firms increased since the last report. A February Minneapolis Fed ad hoc survey of lawyers, accountants, engineers, architects, IT consultants and other professional business services firms noted optimism. Most respondents expected more orders and increasing billable hours. A lawyer noted that transactional activity was up and that clients' business increased during the past two years; the lawyer expected this to continue. Recent revenue was up at several Minnesota advertising agencies compared with a year earlier.
Manufacturing
District manufacturing activity increased moderately since the last report. Purchasing managers responding to a January survey by Creighton University (Omaha, Neb.) reported that manufacturing activity increased in Minnesota and the Dakotas. A company in the early stages of planning a $1.7 billion nitrogen fertilizer plant in North Dakota exceeded its fundraising goals. South Dakota's state government withdrew $13 million in loan commitments for a shuttered Aberdeen beef slaughter plant that declared bankruptcy and was sold last December.
Energy and Mining
Activity in the energy sector remained brisk. Mid-February oil and gas exploration in Montana and North Dakota decreased slightly from recent months, primarily due to extreme cold; however, production remains at record levels. Unexpected demand for propane to dry corn at harvest time, along with severe cold, led to a surge in demand for the fuel. A judge's decision opened the doors for approval of a $250 million solar power development in Minnesota. Overall mining activity was stable. District iron ore mines were operating at near capacity. Meanwhile, fourth quarter 2013 palladium and platinum production was up in Montana compared with the same period in 2012.
Agriculture
Conditions continued to soften for district farmers, while livestock and dairy producers remained in better shape. More than half of respondents to the Minneapolis Fed's fourth quarter (January) Survey of Agricultural Credit Conditions said farm incomes decreased in the last three months of 2013, and two-thirds expected incomes to fall in the first quarter of this year. Cattle and hog producers continued to benefit from high prices and falling feed costs, as did dairy producers, according to survey comments. Informal survey results suggest that farmers are reacting to falling corn prices and intend to plant fewer acres of corn and a potentially record high acreage of soybeans this coming spring. January prices received by farmers fell from a year earlier for corn, wheat, soybeans, hogs and chickens; prices increased for cattle, milk, eggs and turkeys.
Employment, Wages, and Prices
Labor markets tightened slightly since the last report. A software company expansion in North Dakota will result in 150 construction jobs, followed by increased employment of up to 180 new workers over the next few years. A home improvement retailer announced plans to hire about 1,000 workers in the Minneapolis-St. Paul area to fill spring positions. A workforce center in western Minnesota noted strong demand for welders and health care workers, such as certified nursing assistants. In contrast, a Minnesota-based retailer announced plans to lay off 400 to 500 employees, while another Minnesota company will lay off more than 180 employees in its legal publishing division. A printing plant in Minnesota will close, laying off 170 workers.
Overall wage increases were moderate. Wages remained at high levels in the oil-drilling areas of North Dakota and Montana, but the pace of increase has moderated recently.
Prices were generally level with a few exceptions noted. Minnesota gasoline prices remained level since the last report. Some metals prices were down slightly. Meanwhile, District consumers of residential propane faced prices two to three times higher than a year ago due to strong demand and supply constraints.