Beige Book Report: Minneapolis
March 4, 2015
The Ninth District economy grew at a moderate pace since the previous report. Increased activity was noted in consumer spending, commercial construction, commercial real estate, professional services, and manufacturing. Activity was mixed in tourism and residential real estate and down in residential construction, agriculture, and energy and mining. While labor markets continued to tighten in several areas, signs of loosening were noted in the energy-producing region. Reports of increased wage pressures were noted in some areas. Price pressures were subdued, as oil and gasoline prices decreased during January.
Consumer Spending and Tourism
Consumer spending increased moderately. A North Dakota mall noted that sales were up in January compared with a year ago. A bar and restaurant chain in Minnesota reported strong sales during January compared with last year. Recent light truck and car sales were relatively solid in Montana, according to a representative of an auto dealers association. However, some apparel stores had difficulty selling winter clothing due to relatively mild weather conditions during December and January. As the U.S. dollar strengthened relative to the Canadian dollar over the past few months, border crossings and related retail sales decreased. For example, bridge crossings at the International Bridge in Sault Ste. Marie, Mich., were down 12 percent in December compared with a year earlier.
Tourism conditions were mixed. A lack of snow in many areas of Minnesota slowed snowmobiling and cross-country skiing. Light snowfall and warm weather slowed winter tourism activity in parts of Montana. However, winter tourism activity was solid in the Upper Peninsula of Michigan, where the snowpack was relatively deep. Visits from out-of-state tourists to Montana are expected to increase by 2 percent in 2015.
Construction and Real Estate
Commercial construction activity increased. Recent industry reports noted increased interest in building new hotels across many parts of the District. In Sioux Falls, S.D., the value of January commercial permits increased from a year ago. In Billings, Mont., commercial permits decreased in value in January 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 January residential permits decreased 19 percent compared with January 2014. The value of January residential permits in Sioux Falls decreased from a year earlier. However, January residential building permits in Billings increased in value from the previous year.
Activity in commercial real estate markets increased since the previous report. A commercial real estate broker noted recent increases in sales and leasing transactions in the Minneapolis-St. Paul area. A real estate firm expected increased absorption and sales prices of industrial buildings in the Fargo, N.D., area in 2015 compared with last year. Residential real estate market activity was mixed. Minnesota home sales were down 9 percent in January from a year earlier, the inventory of homes for sale increased 1 percent, and the median sales price rose 10 percent. In the Sioux Falls area, January home sales were up 5 percent, inventory decreased 4 percent, and the median sales price increased 8 percent relative to a year earlier.
Services
Activity at professional business services firms increased since the previous report. Merger and acquisition services firms noted increased consulting activity. A large oil-drilling services company noted recent reduced demand due to lower oil prices. A railroad recently announced plans to increase capital expenditures in several District states.
Manufacturing
Manufacturing activity increased since the previous report. A manufacturing index released by Creighton University (Omaha, Neb.) increased in January from the previous month in North Dakota and South Dakota, but it fell slightly in Minnesota. The index remained at levels consistent with expansion in activity in all three states. A manufacturer of capital equipment reported that demand in January was stronger than expected.
Energy and Mining
The energy and mining sectors contracted since the last report. Oil and gas exploration activity fell rapidly in response to lower prices; the number of active drilling rigs in North Dakota and Montana fell to 128 in mid-February compared with 179 at the beginning of the year. An investor contact reported less interest in funding renewable energy technologies, due to cheaper fuel. A Montana copper-silver mine will be idled in response to low metals prices. However, a clay mine in Montana applied for a permit to expand. Production at District iron ore mines is expected to be slightly higher in 2015 than last year.
Agriculture
On balance, District agricultural conditions were down, with livestock and dairy producers faring better than crop farmers. According to preliminary results from the Minneapolis Fed's fourth-quarter (January) survey of agricultural credit conditions, 70 percent of respondents said farm incomes had fallen from a year earlier, while 73 percent reported decreases in capital spending; the first-quarter outlook was similar. Land values and rents fell in 2014 in Minnesota and North Dakota, according to appraisers.
Employment, Wages, and Prices
While labor markets continued to tighten in several areas, signs of loosening were noted in the energy-producing region. Business owners in South Dakota noted difficulty finding workers to fill openings for skilled construction and manufacturing positions. In western Montana, business owners in several sectors noted difficulty finding qualified workers. A Minnesota staffing firm reported that finding workers was difficult and that competition for those workers increased recently. A representative of a Minnesota information technology firm noted relatively low worker turnover despite the strength in the sector. However, a retailer in Minnesota announced 550 job cuts, and a plant that salvages electronics parts closed, affecting almost 80 jobs.
Decreased oil- and gas-drilling activity in western North Dakota and eastern Montana has led to reduced hours and layoffs of oilfield workers. The number of job postings in the region has also decreased, but several companies in a variety of sectors are still looking for employees. Businesses in and around the energy-producing region have noticed an increase in the number of job applicants for open positions.
While wage pressures in the energy-producing region moderated, wage pressures rose in other areas, as reports of wage increases above 3 percent were noted more frequently during the past couple months. Nevertheless, wage increases generally remained moderate.
Price pressures were subdued, as oil and gasoline prices decreased during January. Minnesota gasoline prices in mid-February were over a dollar per gallon lower than a year ago. Copper prices decreased since the previous report.