Beige Book Report: Minneapolis
October 14, 2015
The Ninth District economy grew moderately since the last report. Increased activity was noted in consumer spending, tourism, commercial construction and real estate, residential real estate, and professional services. Manufacturing was flat, and residential construction, energy, and mining were down. Meanwhile, agricultural production was solid, but many crop prices were down. Labor markets tightened further in several areas, while some increased wage pressures were noted. Price pressures remained subdued.
Consumer Spending and Tourism
Consumer spending grew modestly. A furniture store owner in northwestern Minnesota stated that recent sales were solid. An auto dealer in northeastern North Dakota saw a 4 percent drop in new car and truck sales over the past few months, but used car sales were up 17 percent. Retailers in northwestern Montana reported a 10 percent to 15 percent drop in spending by visiting Canadians owing to recent appreciation in the U.S. dollar.
Overall tourism activity grew. In northern Minnesota, a tourism industry survey reported a 51 percent increase in lodge and hotel occupancy compared with a year earlier. Taxable tourism sales were up 75 percent from this time last year in western South Dakota. In contrast, resort owners in northern Montana reported a drop in Canadian guests by as much as 30 percent, and vacancy rates for hotels are down across many communities in North Dakota, according to a lodging association survey.
Construction and Real Estate
Commercial construction continued to expand moderately. An official reported that the value of commercial building permits in Minneapolis was at strong levels. The value of August commercial permits increased compared with a year earlier in Sioux Falls, S.D., but decreased in Billings, Mont. Residential construction decreased somewhat. In the Minneapolis-St. Paul area, the value of residential building permits decreased 13 percent in September compared with a year earlier. In Billings, the value of permits for single-family homes was down 8 percent in August from a year earlier, while the value of permits for new residential construction decreased in Sioux Falls.
Commercial real estate activity grew moderately. A commercial real estate association in Minnesota reported continued positive net absorption of office and industrial space in the Minneapolis-St. Paul area. A commercial real estate services firm reported that asking prices for industrial and retail property in Montana increased moderately during the past few months, while office property prices dropped somewhat. On balance, residential real estate activity increased moderately. In Minnesota, August home sales increased 5 percent and the median sales price increased 3 percent compared with a year ago. A report by a real estate agent in southwestern Montana noted that recent home sales activity was solid, and price levels were somewhat steady. In western Wisconsin, home sales decreased 6 percent in August from a year earlier, while the median sales price increased 5 percent. Apartment rental prices decreased substantially over the past few months in the energy-producing areas of western North Dakota.
Services
Professional services grew modestly. A staffing services firm in central Wisconsin reported strong demand for services, but personnel placements were constrained by tight labor market conditions. An insurance executive in North Dakota indicated that business has been trending downward over the year, but business this past quarter was "just slightly ahead."
Manufacturing
Manufacturing activity was flat overall since the previous report. An index of manufacturing activity released by Creighton University indicated slight growth in September in Minnesota and South Dakota; the index for North Dakota remained at a level indicating contraction in activity. A producer of video display equipment reported weaker sales for its most recent quarter compared with a year earlier. Contacts in the electronics industry reported losing business to overseas competitors due to recent changes in exchange rates. Demand for agricultural equipment remained weak. In contrast, a landscaping equipment producer saw a larger-than-expected increase in sales in its most recent quarter, and a maker of recreational vehicles is expanding its headquarters and planning for 50 percent growth over the next five years.
Energy and Mining
Activity in the energy sector was down slightly from the last report, while the slowdown in mining continued. The number of active drilling rigs in the District fell to a low point for the year in late September. The volume of crude shipped by rail has fallen this year, as pipeline capacity has increased, and production growth has tapered off, according to regulators. In contrast, an electric utility began work on a $300 million wind farm. An iron ore facility in Minnesota announced plans to idle, the most recent in a succession of such announcements. Even as iron ore production has fallen, inventories at docks remain much higher than usual for this time of year, due to weaker demand from steel plants, according to industry sources. Contacts in the silica sand mining business noted that demand from oil and gas fracking activity has fallen; most of the burden has been borne by newer and small sand mining operations.
Agriculture
While growing conditions were good, the income outlook for agricultural producers remained weak. District crops were in mostly good or excellent condition, with wheat and small grains harvests progressing well ahead of average; record corn and soybean yields were expected in some areas. A banker noted that agriculture is having a very good production year, which will help make up for low prices, but breakeven will be a stretch for many. Prices received by farmers fell in August compared with a year earlier for soybeans, wheat, hay, milk, chickens, hogs, and cattle; prices increased for corn, eggs, calves, and turkeys. In other news, an agribusiness firm announced a $20 million seed research facility in Minnesota and a ranch supply company in western South Dakota reported that sales were up 30 percent from last year.
Employment, Wages, and Prices
Labor markets tightened further in several areas. A state official in Montana noted that labor markets were continuing to tighten, particularly in eastern Montana and some urban areas. Manufacturers in central Minnesota noted difficulty filling open positions, while contacts in western Wisconsin noted many businesses were challenged to find workers. In Minnesota, a health insurance provider announced plans to hire 1,800 new workers in a variety of positions, and a health care technology company plans to increase its workforce by almost 170 employees. While the news on employment was positive on balance, there were some reports of cuts. For instance, job cuts and sharp reductions in overtime hours were reported in the energy-producing regions of North Dakota and Montana. Meanwhile, a call center in South Dakota was scheduled to close, affecting about 250 workers, and a timber mill in Montana laid off 90 employees.
Some increased wage pressures were noted. Contacts in a number of areas noted that wage rates were picking up for positions in manufacturing and health care. An airline announced an increase in base pay of over 10 percent for flight attendants and ground workers in Minnesota, according to a news report. Price pressures remained subdued. Minnesota gasoline prices in late September decreased about 40 cents per gallon from mid-August and about 90 cents per gallon from a year earlier.
Few price pressures were reported for manufacturing and construction material inputs. The pace of decline in some metals prices eased as copper and aluminum prices increased slightly from relatively low levels since the last report.