Beige Book Report: Minneapolis
July 15, 2015
The Ninth District economy grew moderately since the previous report. Increased activity was noted in consumer spending, tourism, commercial construction, commercial and residential real estate, and professional services; agricultural conditions improved slightly. Activity decreased in energy and mining, while manufacturing and residential construction were mixed. Labor markets tightened slightly since the last report. Overall wage increases remained moderate, while prices were generally level since the previous report.
Consumer Spending and Tourism
Consumer spending showed signs of modest growth. A Montana mall manager reported that sales levels were above a year ago. Restaurant sales in northwestern Minnesota have picked up, and business owners were optimistic for the summer season. Retailers and hospitality managers in eastern North Dakota reported sales activity has been flat in recent months, and they anticipate consumer spending will remain flat during the summer. Visits from Canadian shoppers were down due to the strong dollar. An auto dealers association in Montana reported strong sales in May in contrast to slower sales earlier in the year.
Tourism activity was solid. Many state tourism representatives across the District predicted a strong season compared with recent years. Tourism in western South Dakota started early due to mild weather and was on pace for a strong summer season. A resort owner in central Wisconsin indicated that they were "very optimistic" about the coming tourism season. A tourism official in the Upper Peninsula of Michigan noted that summer was looking strong. According to a survey of Minnesota lodging businesses, 53 percent of respondents expect summer revenue to increase from a year ago, while 11 percent expect decreases.
Construction and Real Estate
Commercial construction activity continued to grow since the last report. In western North Dakota, a number of publicly funded road and building projects were underway. Developers broke ground on a $250 million mixed-used project in western Montana. The value of new commercial building permits in Sioux Falls, S.D., and Billings, Mont., year-to-date in May was much higher than a year ago. Residential construction in the District was mixed. The value of residential permits in the Minneapolis-St. Paul area increased 15 percent in June compared with a year earlier. In contrast, the value of new residential construction permits in Sioux Falls was down more than 30 percent year-to-date in May from last year, while the value of new residential permits in Billings was down slightly.
Commercial real estate activity increased since the last report. Developers purchased land for a $500 million, 1-million square-foot mixed-use development in western North Dakota. Several large data center operators were in the process of expanding facilities in Minnesota. Two large retail lease deals were recently signed in downtown Minneapolis. Activity in residential real estate markets increased since the last report. In Minnesota, May home sales increased 13 percent, the median sales price increased 8 percent, and inventory decreased 8 percent, compared with a year ago. In Sioux Falls, May home sales increased 12 percent, the median sales price increased 10 percent, and inventory decreased 19 percent. In western Wisconsin, home sales increased 9 percent in May from a year earlier, while the median sales price increased 10 percent. In northwestern Wisconsin, real estate agents reported "the busiest spring in 10 years." Meanwhile, an agent in western North Dakota said sales were flat.
Services
Professional services activity increased. A recent professional services survey conducted by the Minneapolis Fed and Minnesota Department of Employment and Economic Development indicated that sales and profits grew over the past year and firms expected growth to continue. An accounting firm in Minnesota commented that "clients are feeling good and business is as good as ever."
Manufacturing
District manufacturing activity was mixed since the previous report. An index of manufacturing activity for Minnesota and South Dakota released by Creighton University (Omaha, Neb.) increased in June from the previous month; the index for North Dakota fell to a level indicating contraction in activity. A producer of plumbing equipment announced an $18 million expansion to a pipe manufacturing plant in Minnesota. A facility that produces road construction equipment announced an expansion. However, some contacts were concerned about a slowing in exports.
Energy and Mining
The slowdown continued in the energy and mining sectors. The number of active drilling rigs in the District fell further since the previous report, with some leveling in the pace of decline in recent weeks. Diesel production began at a new refinery in North Dakota. State regulators approved a $250 million solar energy project in Minnesota; several smaller-scale solar facilities were also announced across the District. Output at District iron ore mines fell in May compared with a year earlier. Reports indicated that demand for sand used for hydraulic fracturing was down 30 percent compared with last year, with prices down as much as 25 percent.
Agriculture
District agricultural conditions improved slightly since the previous report. Crop progress was ahead of schedule in District states, with most corn, soybean and spring wheat crops currently rated in good or excellent condition. While solid rains have left most of the District free from drought, farmers in some areas reported that wet conditions were holding back the hay and winter wheat harvests. No new outbreaks of avian flu have been reported in recent weeks. Prices received by farmers in May decreased from a year earlier for corn, soybeans, wheat, hay, hogs, milk and chickens; prices increased for cattle, eggs and turkeys.
Employment, Wages, and Prices
Labor markets tightened slightly since the last report. According to the survey of professional services firms, 21 percent expected to increase employment over the upcoming year, while 7 percent expected decreases in staffing levels. Plans were recently announced for a new retail distribution center in Minnesota that will create 1,000 jobs. A business service specialist noted that there is strong demand across a broad range of industries for both high school and post-secondary school graduates in Minnesota. An expansion of a grocery store in South Dakota will lead to 100 new hires. However, an equipment manufacturer in North Dakota noted it will cut almost 40 jobs, following 80 layoffs earlier in the year. Labor markets continued to loosen somewhat in the energy-producing areas of North Dakota and Montana.
Overall wage increases remained moderate. Results from the professional services survey showed that, on average, wages increased by 2.1 percent over the previous 12 months and were expected to increase 2.3 percent over the following 12 months. According to a recent survey of central Minnesota businesses by St. Cloud State University, 59 percent of respondents expect to increase employee compensation over the next six months, up from 44 percent in last year's survey.
Prices were generally level since the previous report. Minnesota gasoline prices at the end of June were about the same as prices toward the end of May. According to a food company in Minnesota, input cost inflation was estimated at 2 percent for 2016. Meanwhile, metals and lumber prices dropped since the previous report.