December 3, 2014
Overall, the Ninth District economy grew moderately since the last report. Increased activity was noted in consumer spending, tourism, commercial construction and real estate, residential real estate, professional services, manufacturing, mining, and agriculture. Activity was steady in energy and mixed in residential construction. Hiring continued to outpace layoff announcements. Although overall wage increases were moderate, some signs of increased wage pressures were noted. Price increases were generally subdued.
Consumer Spending and Tourism
Consumer spending increased modestly, and retailers were cautiously optimistic for the holiday shopping season. Respondents to a survey of holiday shoppers in the Minneapolis-St. Paul area that was conducted by the University of St. Thomas indicated that per-household spending will increase by about 4 percent relative to last year. Recent same-store sales at two large retailers were up slightly compared with a year ago. A food retailer in Minnesota reported that recent same-store sales were level from a year ago, while a restaurant chain in Minnesota noted that recent sales were down from last year.
While fall tourism activity was level with a year ago, early snowfall in several areas of the District has led to increased optimism for the winter season. Some downhill and cross-country ski locations in Minnesota and northwestern Wisconsin opened about two to three weeks earlier than usual. Likewise, in the Upper Peninsula of Michigan, heavy snowfall has helped boost lodging reservations for the winter season according to an official.
Construction and Real Estate
Commercial construction activity increased from a year ago and is expected to grow further in 2015. According to preliminary results from the Minneapolis Fed's 2015 business outlook poll, construction-sector respondents are optimistic for the coming year and expect sales volumes and capital investment to increase at their firms. "New construction activity is having a huge impact," commented a Minnesota commercial construction supply firm. In Sioux Falls, S.D., the value of October commercial permits almost doubled from a year ago. But, in Billings, Mont., commercial permits were down in value in October from a year earlier. Residential construction activity was mixed compared with last year. In the Minneapolis-St. Paul area, the value of October residential permits decreased 9 percent compared with October 2013. However, the value of October residential permits in Sioux Falls increased 61 percent from the same period last year. October residential building permits in Billings increased significantly in value from last year for both single-family and multifamily buildings.
Activity in commercial real estate markets increased since the previous report. A real estate analytics firm noted strength in several market segments. For example, in the Minneapolis-St. Paul area, the industrial vacancy rate dropped by 30 basis points in the third quarter from the same period last year, the office vacancy rate dropped 90 basis points, and the retail vacancy rate was flat. Residential real estate market activity also increased since the previous report. In the Sioux Falls area, October home sales were up 5 percent, inventory increased 4 percent, and the median sales price increased 8 percent relative to a year earlier. October home sales in western Wisconsin were up 20 percent from last year; the median sales price was up 3 percent. Home sales were up in Montana in the third quarter compared with last year. Minnesota home sales were up 4 percent from the same period a year ago in October, the inventory of homes for sale increased 8 percent, and the median sales price rose 2 percent. However, multifamily housing vacancy rates increased slightly from the second quarter to the third quarter in the Minneapolis-St. Paul area.
Services
Activity at professional business services firms increased at a modest pace since the previous report; growth is expected to continue in 2015. Service-sector respondents to the business outlook poll expect sales volumes and capital investment at their firms to grow in 2015; more than four out of five were optimistic regarding their community's future economic performance. A contact at a mid-size environmental engineering firm noted 5 percent to 7 percent growth in revenue since the previous report.
Manufacturing
The manufacturing sector grew at a healthy pace since the previous report. According to preliminary results from the Minneapolis Fed's 2015 survey of manufacturers, more than half of respondents indicated that demand and production had increased from a year earlier; on average, respondents expect orders, production, employment, investment, and profits at their operations to increase in the coming year. A manufacturing index for Minnesota and the Dakotas released by Creighton University (Omaha, Neb.) decreased in October from the previous month, but remained at levels consistent with an expansion in activity in all three states. A partnership among several firms announced plans for a $4 billion petrochemical facility in North Dakota that would be the largest private investment in the state's history.
Energy and Mining
Activity in the energy sector was steady, but mining activity rose since the previous report. In early November, oil and gas exploration activity decreased in North Dakota and increased in Montana relative to a month earlier; production remained at record levels. Despite recent declines in oil prices, officials in North Dakota expect oil production to continue increasing over the next two years. October production at District iron ore mines increased from a year earlier. In response to rail delays, District mines are sending more ore by truck to water ports.
Agriculture
Overall agricultural conditions improved from the previous report. Early estimates of crop production indicated record soybean harvests and a very large corn crop in District states. However, farm incomes continued to be affected by lower crop prices; in contrast, livestock and dairy producers benefited from lower feed costs and high output prices. Relative to a year earlier, prices received by farmers in October were lower for corn, soybeans, wheat, and hay; prices were higher for cattle, hogs, poultry, and milk.
Employment, Wages, and Prices
Hiring continued to outpace layoff announcements. A medical technology company recently announced plans to hire almost 500 workers at facilities in western Wisconsin. A firm that supplies aerospace companies plans to expand operations in Minnesota, adding 30 to 50 new jobs. Business owners in western South Dakota noted difficulty finding qualified workers for open positions. Agricultural producers in eastern North Dakota recently reported difficulty finding enough truck drivers to move commodities. Nursing positions were difficult to fill in parts of Minnesota. In contrast, a vegetable canning plant in Minnesota recently announced that it will close, affecting 46 full-time workers and about 150 seasonal workers.
Although overall wage increases were moderate, some signs of increased wage pressures were noted. According to preliminary results from the survey of manufacturers, respondents noted that wage increases averaged slightly less than 3 percent compared with a year ago. In Minnesota, a contact reported that wages for skilled construction trades have increased as much as 10 percent from a year ago, and a temporary staffing firm's representative noted that businesses were paying increased wages for some occupations. According to preliminary results from the business outlook poll, 16 percent of respondents expect wages and salaries in their communities to increase by 4 percent or more during 2015, up from 7 percent in last year's poll.
Price increases were generally subdued. According to the business outlook poll, 37 percent of respondents expect prices for their firms' products and services to increase in 2015, while 20 percent expect decreases. In last year's poll, 33 percent expected increases and 15 percent expected decreases. Minnesota gasoline prices were down more than 20 cents per gallon from mid-October and from a year ago.