Beige Book Report: Minneapolis
June 3, 2015
The Ninth District economy showed signs of moderate growth since the previous report. Increased activity was noted in consumer spending, tourism, commercial construction, and professional services; residential real estate activity grew at a brisk pace. Activity was flat in manufacturing, residential construction, and commercial real estate, while activity decreased in energy and mining, and agricultural conditions were mixed. Labor markets tightened further since the last report. Wage increases remained mild, with some signs of increased wage pressures; with the exception of gasoline, prices were relatively stable.
Consumer Spending and Tourism
Consumer spending increased moderately. According to a recent survey of District business leaders conducted by the Minneapolis Fed, 40 percent of respondents noted that retail spending increased over the past three months, while 12 percent reported that sales had decreased. Recent same-store sales at a retailer in Minnesota increased slightly from a year earlier, and sales at a mall in North Dakota were about even with a year earlier. Vehicle sales in Minnesota in 2015 are expected to exceed last year's levels, according to an auto dealers association. However, retailers in the energy-producing areas of western North Dakota reported slower traffic and sales during the past two months, as drilling activity slowed.
Travel and tourism increased from last year. Recent tourism activity was above year-ago levels in northwestern Wisconsin, according to an official. A travel agency in Minnesota noted that leisure travel bookings for March and April were up over 10 percent; summer bookings were looking strong with many higher-end trips planned. However, hotel occupancy rates in western North Dakota were lower than a year earlier, and passenger totals at North Dakota airports dropped 3 percent in March compared with a year ago.
Construction and Real Estate
Commercial construction activity increased. In Sioux Falls, S.D., the value of April commercial permits increased from a year ago. In Billings, Mont., commercial permits significantly increased in value in April from a year earlier. Residential construction activity in the District was level overall. In the Minneapolis-St. Paul area, the value of April residential permits increased slightly compared with April 2014. In western North Dakota, recent residential construction continued at a solid pace. April single-family residential building permits in Billings decreased slightly in value from the previous year. The value of April residential permits in Sioux Falls decreased from a year earlier.
Activity in commercial real estate markets was steady since the previous report. A commercial real estate analytics firm noted that first-quarter 2015 industrial and retail vacancy rates in Minneapolis-St. Paul dropped slightly from the end of 2014. Residential real estate activity increased at a brisk pace from a year ago. Compared to a year ago, western Wisconsin home sales increased 25 percent in April, and the median sales price rose 12 percent. Also, Minnesota home sales were up 20 percent in April, the inventory of homes for sale was flat, and the median sales price rose 12 percent. In the Sioux Falls area, April home sales were up 4 percent, inventory decreased 14 percent, and the median sales price increased 1 percent relative to a year earlier.
Services
Activity at professional business services firms increased since the previous report. For instance, a developer of training software noted a recent increase in sales, a recruiting firm noted that recent growth was faster than the pace of the past few years, and an architectural firm noted that recent bidding activity was stable. Rural hospitals and specialty clinics reported expansions in service offerings from a year ago. A hospital administrator in Minnesota noted that demand for services increased due to broader insurance coverage.
Manufacturing
District manufacturing was level since the last report. An index of manufacturing activity released by Creighton University (Omaha, Neb.) increased in April from the previous month in Minnesota and South Dakota; the index fell in North Dakota, but was at levels consistent with slight growth in all three states. A recreational vehicle maker announced plans for expansions in two locations, and a producer of truck accessories announced a facility expansion. Meanwhile, a plant that produces industrial gas-processing equipment shut down, citing reduced demand. Some contacts noted a deceleration in industrial capital investment in response to the recent increase in the dollar's exchange value. Among manufacturing respondents to the District business leader survey, 29 percent reported that the dollar's rise had decreased sales; however, most noted that sales were unchanged.
Energy and Mining
The slowdown in the energy and mining sectors continued. The District drilling rig count fell further since the last report. In a survey of District energy services firms conducted in March, 75 percent of respondents reported that revenues decreased compared with a year earlier, and half reported that capital expenditures decreased. Output at mines producing sand for hydraulic fracturing was expected to decline this year; one facility was idled in Wisconsin. Contacts noted that copper mines have cut planned capital expenditures. A Minnesota iron ore processing facility recently filed for Chapter 11 bankruptcy protection.
Agriculture
District agricultural conditions were mixed in early spring. Progress in crop planting was well ahead of its five-year average in District states. While dry conditions persisted in some areas, drought conditions abated in much of the District owing to heavy precipitation in recent weeks. According to results of the Minneapolis Fed's first-quarter (April) survey of agricultural credit conditions, 79 percent of respondents said farm incomes fell in the previous three months, with a similar outlook for the second quarter. The outbreak of avian flu was expected to cost Minnesota turkey producers more than $300 million. Prices received by farmers in March decreased from a year earlier for corn, soybeans, wheat, hay, milk, chickens, and hogs; prices for eggs and cattle increased.
Employment, Wages, and Prices
Labor markets tightened further since the last report. According to an ad hoc survey by the Minneapolis Fed, 39 percent of respondents reported that their ability to retain employees has decreased over the past 12 months, while 3 percent said it has improved. A survey of Minnesota small-business owners indicated that respondents expect hiring to be similar to last year. A survey of Minnesota manufacturers also found that hiring plans for the upcoming year are similar to a year ago, with about two-thirds of respondents expecting their staff levels to remain the same; attracting qualified candidates to fill vacancies was described as difficult by 71 percent of respondents, compared with 67 percent in last year's survey. A new distribution center in Minnesota is expected to employ 1,000 people, and a window maker plans to hire 300 workers as part of an expansion. In contrast, a food processing plant will temporarily lay off over 200 employees and a food manufacturer will lay off 100 workers. Online job openings in the energy-producing area of North Dakota were down 23 percent in April compared with a year earlier.
Wage increases remained mild, with some signs of increased wage pressures. About a quarter of respondents to the Minneapolis Fed's ad hoc survey were raising starting pay for most job categories to attract new hires. Three health care systems in Minnesota have agreed to a minimum wage of $15 per hour under recent contract agreements.
With the exception of gasoline, prices were relatively stable. Metals prices were about level since the previous report. However, mid-May Minnesota gasoline prices were about 30 cents per gallon higher than at the beginning of April but were still 75 cents per gallon lower than a year ago.