Beige Book Report: Minneapolis
January 14, 2015
Overall, the Ninth District economy grew at a modest pace since the previous report. Increased activity was noted in consumer spending, professional services, manufacturing, and non-energy mining. Activity was level in tourism and mixed in commercial construction, commercial real estate, and agriculture. Energy, residential real estate, and residential construction were down. Labor markets continued to tighten since the previous report. While overall wage increases remained modest, there were examples of steeper increases in some regions and industries. Overall price increases were modest, but some decreases were noted.
Consumer Spending and Tourism
Consumer spending increased moderately. A Minneapolis area mall reported heavy traffic early in the holiday season, followed by steady traffic later in the season; overall traffic and sales were flat to slightly higher compared with the previous year. A Montana mall reported strong sales activity the week before Christmas, with overall sales up nearly 10 percent compared with a year earlier. A representative of a retailers' association was optimistic about the holiday shopping season in North Dakota, based on reports of strong traffic at stores. A poll of Minnesota retailers taken after Thanksgiving weekend showed that half of respondents expected the holiday season to finish better than the previous year, with the balance mostly expecting sales similar to 2013. An auto dealer in Minnesota noted strong sales in December, particularly for corporate vehicle fleets.
Overall tourism was about level with a year ago. After an early snowfall and an early start to winter sports, warm weather reduced winter tourism in some areas during December. Low snowpack slowed snowmobiling and cross country skiing in northwestern Wisconsin, according to an official. Lift ticket and lodging sales were on par with a year ago, and future bookings were strong at a Montana ski resort. Tourism in western South Dakota was up slightly compared with a year ago.
Construction and Real Estate
Commercial construction activity was mixed. In Sioux Falls, S.D., the value of November commercial permits increased from a year ago. In Billings, Mont., commercial permits decreased in value in November from a year earlier. Residential construction activity in the District was down compared with a year ago. In the Minneapolis-St. Paul area, the value of December residential permits decreased 9 percent compared with December 2013. In November 2014, residential permits dropped in the Bismarck, N.D., area from November 2013. November single-family residential building permits in Billings increased in value from the previous year, but multifamily permits decreased in value. The value of November residential permits in Sioux Falls increased from a year earlier.
Activity in commercial real estate markets was mixed since the previous report. A real estate analytics firm noted that occupancy rates and revenue per available room were expected to drop from the third quarter to the fourth quarter of 2014 in the Minneapolis-St. Paul area. A Minnesota property manager noted increased leasing activity for retail and office properties during the reporting period. Residential real estate market activity decreased from a year earlier. In the Sioux Falls area, November home sales were down 12 percent, inventory increased 1 percent, and the median sales price increased 6 percent relative to a year earlier. November home sales in northwestern Wisconsin were down from a year earlier; the median sales price was down 6 percent. Minnesota home sales were down 13 percent in November from a year earlier, the inventory of homes for sale increased 5 percent, and the median sales price rose 3 percent. November home sales in the Bismarck area were about level with the same period a year ago.
Services
Activity at professional business services firms increased since the previous report. A law firm in the Minneapolis area noted a recent significant increase in merger and acquisition activity among small startup firms. A logistics consulting firm in Minnesota noted increased billings since the previous report. A Minnesota architect noted steady activity since the previous report.
Manufacturing
Manufacturing activity increased slightly. A manufacturing index released by Creighton University (Omaha, Neb.) increased in December from the previous month in Minnesota and South Dakota, but it fell slightly in North Dakota. However, the index remained at levels consistent with expansion in activity in all three states. Through October, manufactured exports in District states were up 1 percent compared with the same period a year earlier. A producer of commercial windows noted that demand for its products doubled in the last six months.
Energy and Mining
The energy sector slowed slightly in response to lower output prices. Oil and gas exploration activity decreased in late December compared with a month earlier in Montana and North Dakota. However, a company announced plans for four new diesel and natural gas processing plants in North Dakota. Mining activity increased slightly. District iron ore mines were operating at near capacity, with production in November slightly higher than its level a year earlier.
Agriculture
Overall agricultural conditions remained mixed since the previous report, with livestock and dairy producers faring better than crop farmers. According to the Minneapolis Fed's third-quarter (October) survey of agricultural credit conditions, 69 percent of respondents said farm incomes had fallen from a year earlier, while 63 percent reported decreases in capital spending. The fourth quarter outlook was weaker, as 81 percent of lenders expected farm incomes to fall, while 77 percent expected capital spending to decrease from a year earlier. Prices received by farmers in December decreased from a year earlier for corn, soybeans, wheat, hay, and milk; prices increased for cattle, hogs, eggs, and poultry.
Employment, Wages, and Prices
Labor markets continued to tighten since the previous report. In Minnesota, a bank announced plans to hire up to 3,000 new employees companywide in 2015. A holiday seasonal retailer in the Minneapolis-St. Paul area reported increased difficulty finding workers. A contact in the Upper Peninsula of Michigan noted difficulty finding skilled construction workers. Lower oil prices led to an overall slowing in hiring in the energy producing regions of North Dakota and Montana, but labor conditions remained tight. Contacts noted a continued shortage of truck drivers. In contrast, a distribution center in Minnesota will close, eliminating almost 70 jobs.
While overall wage increases remained modest, there were examples of steeper increases in some regions and industries. Some construction firms in the Minneapolis-St. Paul area noted that labor costs have increased recently. In addition, some managers at Minneapolis-St. Paul area restaurants indicated that they were increasing wages to attract employees. An assisted living facility in eastern North Dakota was offering $10,000 signing bonuses to fill positions for nurses, according to a report.
Overall price increases were modest, but some decreases were noted. Minnesota gasoline prices at the end of December were 75 cents per gallon lower than in mid-November and a dollar per gallon lower than a year ago. Metals prices generally decreased since the previous report.