Beige Book Report: Minneapolis
October 15, 2014
The Ninth District economy grew at a moderate pace since the previous report. Increased activity was noted in consumer spending, tourism, commercial real estate, professional services, manufacturing, and energy. Agricultural conditions were mixed and mining was flat, while construction and residential real estate activity decreased. Labor markets continued to show signs of tightening. Overall wage increases were modest, while price increases generally remained subdued.
Consumer Spending and Tourism
Consumer spending increased moderately overall since the previous report. August and early-September same-store sales at a mall in North Dakota were up about 2 percent compared with the same period a year earlier. Recent sales and traffic at a South Dakota mall were relatively flat compared with last year, while August sales were flat relative to a year ago at a Minnesota mall. An apparel retailer noted that recent sales were up slightly from a year earlier. Recent vehicle sales at Montana dealerships were doing well with particularly strong sales in the northeastern part of the state, according to a representative of an auto dealers association.
Tourism activity was up from last year. This year's record attendance at the Minnesota State Fair was 5 percent higher than a year ago. A travel agency in Minnesota noted that recent leisure travel bookings were about 10 percent higher than last year, while another travel agency reported that leisure bookings in August and September were strong. Compared with last year, August visits to Glacier National Park were up 8 percent and visits to Yellowstone National Park were up 7 percent. According to a survey of lodging and camping properties in Minnesota, 48 percent of respondents reported that summer occupancy was up from a year ago, while 25 percent reported that it was down.
Construction and Real Estate
Commercial construction activity decreased since the previous report. Commercial permits in Billings, Mont., were down significantly in value in September from a year earlier. In Sioux Falls, S.D., the value of August commercial permits decreased from a year ago. Residential construction decreased from last year. In the Minneapolis-St. Paul area, the value of September residential permits decreased 16 percent compared with September 2013. The value of August residential permits in Sioux Falls decreased 40 percent from the same period last year. The value of August housing permits decreased significantly in Bismarck from a year ago. However, September residential building permits in Billings increased in value from last year.
Activity in commercial real estate markets increased since the previous report. Several commercial real estate transactions were announced around the District, including both purchase and lease transactions in retail, hotel, office, and industrial real estate. However, a retailer announced that it would vacate three of its stores in Minnesota this year. Residential real estate market activity decreased since the previous report. In the Sioux Falls area, August home sales were down 8 percent, inventory increased 11 percent, and the median sales price increased 5 percent relative to a year earlier. August home sales were down 5 percent from the same period a year ago in Minnesota; the inventory of homes for sale increased 13 percent, and the median sales price rose 4 percent. Several Minnesota real estate professionals and investors recently noted that out-of-state investor groups are paying above-market prices for single-family rental properties in Minneapolis. Meanwhile, August home sales in western Wisconsin were up 8 percent from a year ago; the median sales price was flat.
Services
Activity at professional business services firms increased at a modest pace since the previous report. Contacts from architectural firms noted some increases from a year ago in bidding activity for government and industrial projects. Contacts from accounting and legal firms noted steady activity since the previous report. Several contacts noted that capacity constraints in freight rail have increased demand for trucking services.
Manufacturing
Manufacturing activity grew moderately since the previous report. A manufacturing index released by Creighton University (Omaha, Neb.) increased in September from the previous month in North Dakota; the index fell slightly in Minnesota and South Dakota, but remained at levels consistent with expansion in activity in all three states. An agribusiness firm announced that it will move ahead in building a $3 billion fertilizer plant in North Dakota.
Energy and Mining
Activity in the energy sector increased, while mining was steady since the previous report. Late-September oil and gas exploration activity increased in North Dakota and was level in Montana from a month earlier; production remained at record levels. A partnership announced plans to build a 450-mile pipeline from the Bakken oil fields to a hub in Wyoming. A crude oil storage facility in North Dakota announced a $5.5 million expansion. Production at District iron ore mines appeared steady in August compared with a month earlier. It was announced that construction will resume on a $1.8 billion ore production facility that was delayed due to financing. Freight rail congestion was leading to increased stockpiles at some ore production facilities, as locomotives and crews that move ore to port were in short supply.
Agriculture
Agricultural conditions were mixed since the previous report. The most recent USDA forecast calls for substantially increased production of corn and soybeans this year in District states compared with 2013. Livestock and dairy producers continued to benefit from lower feed costs and high output prices. Most of the district's crops were in good or excellent condition despite late planting; however, an early frost damaged soybeans in some parts of Minnesota and South Dakota. Relative to a year earlier, prices received by farmers in September were lower for corn, soybeans, and wheat; prices increased for hay, cattle, hogs, poultry, and milk.
Employment, Wages, and Prices
Labor markets continued to show signs of tightening since the previous report. In Minnesota, a firm is hiring 1,000 seasonal workers to fill a variety of positions, a medical device manufacturer announced plans to add over 200 jobs, a window manufacturer will add 100 jobs, and a heating and air conditioning plant announced plans to add 95 jobs over the next three years. According to a survey of Minnesota businesses by an employment services firm, 19 percent of respondents expect to hire more employees during the fourth quarter, while 6 percent expect decreases in staffing. In last year's survey, 17 percent expected staffing increases, while 7 percent expected decreases. According to surveys conducted by four technical schools in South Dakota, almost all graduates were employed or continuing their education six months after graduation. Some contacts noted continued difficulty finding truck drivers to fill open positions. In contrast, a food manufacturer recently announced plans to eliminate up to 800 positions companywide.
Overall, wage increases were modest since the previous report. However, according to a recent survey of central Minnesota businesses by St. Cloud State University, 54 percent of respondents expect to increase compensation over the next six months, up from 43 percent in last year's survey.
Price increases generally remained subdued. End-of-September Minnesota gasoline prices were down about 10 cents per gallon both from mid-August and from a year earlier. Metals prices decreased somewhat since the previous report.