Beige Book Report: Minneapolis
September 2, 2015
Since the last reporting period, the Ninth District economy posted moderate growth. Increased activity was noted in tourism, commercial construction and real estate, residential real estate, and professional services. Agricultural conditions mostly improved. Consumer spending and the energy sector were level, and residential construction and manufacturing were mixed. Activity decreased in mining. Labor markets tightened modestly since the previous report. Overall wage pressures were mild, while prices remained relatively flat.
Consumer Spending and Tourism
Consumer spending was relatively level. A Minnesota mall manager reported "flat sales, and not a lot of movement in inventory." A Minnesota-based retailer reported that recent same-store sales increased slightly compared with a year ago, while an apparel retailer reported that recent same-store sales decreased. A mall manager in Montana noted even sales compared with last year, and a retailer in northern Montana reported that sales to Canadian visitors were down due to the strong dollar.
Tourism remained strong across the region. The 75th annual motorcycle rally in Sturgis, S.D., attracted over 500,000 visitors, a 30 percent increase from last year's attendance, according to the state's department of transportation. A recently opened $5 million visitor center and exhibit space in western South Dakota reported strong attendance. Resort owners in north-central Minnesota reported an "A season for the area," with the exception of properties damaged by a strong windstorm. Weather was also a factor in drought-stricken northwestern Montana, where wildfires broke out at Glacier National Park.
Construction and Real Estate
Commercial construction remained strong across most of the Ninth District. In North Dakota, a $16 million municipal airport project and a $91 million airport expansion were recently completed. In addition, numerous highway expansions and improvements were under way in the energy-producing areas of North Dakota. Commercial building in the Minneapolis-St. Paul market was "the strongest it's been in decades," according to a real estate analyst. However, the value of new commercial construction permits was down in Billings, Mont., during July from a year ago. Residential construction was mixed since the last report. The value of new residential construction permits in July was down in Sioux Falls, S.D., and Billings compared with a year earlier. However, in the Minneapolis-St. Paul area, the value of new residential building permits was up 13 percent in July compared with last year.
Commercial real estate activity increased. A real estate firm reported recent strong leasing activity for office space in the Minneapolis-St. Paul area and that landlords were offering fewer concessions. Vacancy rates in the Minneapolis-St. Paul market fell to 9.3 percent by the end of June. Residential real estate activity was robust in many areas. In Minnesota, July home sales increased 19 percent, the median sales price increased 4 percent, and inventory decreased 14 percent compared with a year ago. In western Wisconsin, home sales increased 16 percent in July from a year earlier, while the median sales price increased 4 percent. According to real estate market reports, apartment vacancy rates were below 3 percent in the Minneapolis-St. Paul area; however, apartment vacancy rates increased in the energy-producing regions of North Dakota, as many newly built complexes were less than 80 percent occupied.
Services
Service-providing industries grew since the last report. Home health care services were fast-growing across the Ninth District. Demand for in-home health care, including remote monitoring of patients, was up in many states; a North Dakota home care executive noted that "tele-health services are taking off." Contacts indicated that the shipping season on the Great Lakes has been very busy this year. An accounting agency in Wisconsin reported that business activity was up 5 percent to 10 percent over last year.
Manufacturing
District manufacturing activity was mixed since the last report. Contacts in the metal forming industry reported exceptionally strong sales, driven by strong demand from commercial construction and power generation; in contrast, demand from agricultural equipment producers and oil extraction decreased. Recreational vehicle makers have seen strong sales recently, and a producer of parts for sports vehicles announced an expansion at a facility in Minnesota. An index of manufacturing activity released by Creighton University (Omaha, Neb.) indicated slight growth in July in Minnesota and South Dakota; the index for North Dakota remained at a level indicating contraction in activity. Developers canceled plans for a proposed $3 billion fertilizer plant in North Dakota due to projected cost overruns.
Energy and Mining
The energy sector was stable since the previous report. The number of active drilling rigs in the District as of mid-August was unchanged from a month earlier. North Dakota daily oil production increased in June to a level close to the record reached last December. A $125 million upgrade to a pipeline that transports crude from North Dakota and Canada to Minnesota refineries was approved by regulators. Mining activity decreased since the last report. Output at District iron ore mines fell substantially in July compared with a year earlier.
Agriculture
Conditions improved for most District agricultural producers since the previous report. The majority of corn, soybean, and spring wheat acres were listed in good or excellent condition as of mid-August; progress on the spring wheat, oats, and barley harvests was well ahead of recent years. While most of the District remained free from drought conditions, federal disaster aid was offered to ranchers in 15 Montana counties stricken by severe drought. Low crop prices continued to depress farm finances. Three-quarters of respondents to the Minneapolis Fed's second quarter (July) survey of agricultural credit conditions indicated that farm incomes and capital spending had decreased in the previous three months, and a similar share expected them to continue to fall in the coming quarter. Prices received by farmers in June 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 modestly since the previous report. Several restaurant managers in the Minneapolis-St. Paul area recently noted difficulty finding workers to fill vacancies for a variety of positions. Businesses in eastern North Dakota noted continued difficulty finding workers to fill job openings, as did farmers in Montana and north-central Wisconsin. In Minnesota, plans were moving forward for a new distribution center, which would hire 250 workers. A home health care company in South Dakota is expected to add 200 jobs in the next three to five years. In contrast, a mining company in Montana recently announced almost 120 layoffs, and a printing company in South Dakota announced that it laid off 55 employees in response to decreased customer demand.
Overall wage pressures were mild. An economic development official in northwestern Wisconsin noted that businesses generally have not increased wages much, but were offering a boost in pay to recruit workers employed at other firms.
Prices remained relatively flat. Mid-August Minnesota gasoline prices were about the same as they were at the beginning of July. A number of metals prices decreased since the previous report, while several input prices for construction and manufacturing were lower than the last report and a year ago.