Beige Book Report: Minneapolis
June 4, 2014
The Ninth District economy grew at a moderate pace since the last report. Increased activity was noted in consumer spending, tourism, commercial real estate, professional services, manufacturing, and energy and mining. Decreased activity was noted in farming, construction and residential real estate. Labor markets continued to show signs of tightening. Wage increases were slightly higher over the past few months, but remained moderate overall. Prices remained relatively level overall.
Consumer Spending and Tourism
Consumer spending increased modestly. A Minneapolis area mall manager noted that sales were flat during the extended winter season, but with spring weather arriving, sales had picked up. Traffic and sales were slow during late winter months at a North Dakota mall, but sales started increasing in April and May. According to preliminary results of the Minneapolis Fed’s annual survey of professional services companies (conducted in May), consumer spending is expected to increase during the next 12 months. Vehicle sales were solid in North Dakota, but were somewhat softer in recent weeks as farmers were concerned about getting crops planted.
Tourism was up from a year ago. In western South Dakota tourism activity was above year-ago levels during April and May, while advance bookings for lodging and camping were solid for the early part of summer, according to an official.
Construction and Real Estate
The extended winter negatively affected commercial construction activity. The value of April commercial and hotel permits in Billings, Mont., fell from last year. In Sioux Falls, S.D., April permits were down 69 percent from a year ago. Residential construction decreased from last year. The value of April residential permits in Sioux Falls fell by 10 percent from a year earlier. In the Minneapolis-St. Paul area, April residential permitted units decreased compared with April 2013. The value of April single-family residential building permits in Billings was up from last year, but multifamily building was down.
Activity in commercial real estate markets increased since the last report. A real estate analytics firm noted that Minneapolis-St. Paul industrial vacancy rates dropped in the first quarter and are forecast to fall throughout 2014. Residential real estate market activity decreased since the last report. In the Sioux Falls area, April home sales were down 12 percent, inventory increased 5 percent and the median sales price decreased 1 percent relative to a year earlier. April home sales were down 12 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale increased 2 percent and the median sales price rose 8 percent. In La Crosse, Wis., April home sales were down 11 percent from the same period a year ago and the median sales price rose 1 percent. However, April home sales increased in the Bismarck, N.D., area. Multifamily vacancy rates in Minneapolis-St. Paul were level in the first quarter, but are forecast to rise for the remainder of 2014.
Services
Activity at professional business services firms increased at a moderate pace since the last report. Preliminary results of the professional services survey showed that over the past four quarters, sales revenue, productivity and profits grew, and they are expected to increase over the next year. A contact from a railroad noted significant growth in freight volumes thus far in 2014 compared with the same period in 2013.
Manufacturing
The manufacturing sector saw continued moderate growth. An April survey of purchasing managers by Creighton University (Omaha, Neb.) suggested that manufacturing activity in Minnesota and the Dakotas increased. In Michigan’s Upper Peninsula, a snowplow blade producer and an electrical equipment manufacturer were expanding capacity. A Minnesota plastic parts producer noted that demand from the auto sector has increased. However, in Minnesota a disk-drive parts facility and a military firearms plant will both close later this year.
Energy and Mining
Activity in the energy and mining sectors increased since the last report. Mid-May oil and gas exploration increased in Montana and decreased slightly in North Dakota from a month earlier. Output is expected to surge this spring, as a large number of wells drilled over the winter could not begin producing due to extreme cold. A pipeline operator in Minnesota announced a $125 million plan to double capacity on an existing line that feeds crude from Canada and North Dakota to Minnesota refineries. A plant that will process natural gas from the Bakken oilfield opened in North Dakota. A large wind farm development will be built this summer in South Dakota. A mining firm finalized plans for a large copper mine in northern Minnesota. While district iron ore mines were operating at near capacity, industry contacts were concerned that demand from the steel industry may slow.
Agriculture
District farmers saw their financial condition continue to weaken, while livestock and dairy producers were in better shape. More than half of respondents to the Minneapolis Fed’s first quarter (April) Survey of Agricultural Credit Conditions said farm incomes and capital spending fell in the first three months of 2014, and about the same percentage expect it to decrease in the second quarter. A late spring and heavy early-season rains significantly delayed corn and soybean plantings throughout the district. Hog producers continued to lose large numbers of animals to a virus, pushing up prices for pork, as well as poultry. Cattle producers enjoyed record beef prices, as overseas demand grew and efforts to rebuild the U.S. herd kept cattle from going to slaughter. Grain elevators reported delays in shipping grain due to rail capacity constraints.
Employment, Wages, and Prices
Labor markets continued to show signs of tightening. A number of manufacturers noted difficulty hiring qualified employees to fill positions. A new outlet mall in Minnesota is looking to hire 1,600 workers. A window manufacturer announced plans to add 100 jobs at a Minnesota factory, while a window and door manufacturing facility in North Dakota plans to add up to 125 jobs. Minnesota initial claims for unemployment insurance benefits in April were down 15 percent compared with a year earlier. In contrast, a fertilizer company announced plans to lay off 50 employees at its headquarters.
Wage increases were slightly higher over the past few months, but remained moderate overall. For example, wages for workers at some nonunion Minnesota construction firms increased for carpentry and trades positions; however, wage rates remained lower than prerecession levels. A Minnesota manufacturer noted that wages were up about 5 percent, a larger increase than the previous two years.
Prices remained relatively level overall. Late-May Minnesota gasoline prices were about the same as in mid-April. While natural gas prices were relatively level from the last report, they remained higher than a year ago. According to the survey of professional services firms, input costs and selling prices are expected to increase about the same during the next 12 months as over the previous 12 months. Meanwhile, copper and nickel prices increased somewhat since the last report.