Beige Book Report: Minneapolis
September 7, 2016
The Ninth District economy grew modestly overall since the last report. Growth was noted in commercial real estate, professional services, and mining. Activity in energy and manufacturing was steady, while commercial construction and residential real estate slowed from high levels. Consumer spending, tourism, residential construction, and agriculture were mixed. Employment grew moderately since the last report, wage pressures were moderate, and price pressures were modest overall.
Consumer Spending and Tourism
Consumer spending since the last report was mixed. A Minneapolis-St. Paul area mall reported a 20,000-square-foot expansion and the addition of 12 new stores in space freed up by the downsizing of a national retailer. In Minneapolis-St. Paul, six new grocery stores opened since the last report. A fabric store chain and an $18-million hardware and outdoor sports store opened in the Duluth, Minn., area. In contrast, two well-established restaurants closed in Minneapolis, and a national chain closed in Sioux Falls, S.D. A national retail chain saw a drop in sales since the last report--the first drop in two years. Overall sales by vendors at the North Dakota State Fair dropped 4 percent from last year.
Tourism was mixed across the region since the last report. Hoteliers in Sioux Falls reported a "lackluster summer," and they expect flat revenue for the remainder of the year. Hotel occupancy in North Dakota in general has dropped by 21 percent since this time last year; tourism officials attribute this to the "perfect storm" of the falling Canadian dollar and the drop in activity at oil fields. Yellowstone National Park visits were up 6.5 percent during the first six months of the year, and Glacier National Park "shattered" previous visitation records with a nearly 14 percent increase during this period. Park officials attributed the increased activity to the centennial celebration of the National Parks Service as well as low gas prices. However, numbers for the annual motorcycle rally in Sturgis, S.D., were down 40 percent from last year. One regular attendee shared her observation that the turnout was the "lowest in decades."
Construction and Real Estate
Commercial construction activity was modest since the last report, slowing slightly overall from high levels. Nonresidential construction in June and July rose in Montana and South Dakota compared with a year earlier, but fell in Minnesota and North Dakota. A construction database showed that weekly projects out for bid have dropped persistently from spring through mid-August. The value of new commercial construction permits during summer months fell in Sioux Falls, Rochester, Minn., Bismarck, N.D., and Billings, Mont., compared with similar months in 2015, but remained strong in the city of Minneapolis. Residential construction was mixed. In Minneapolis-St. Paul, single-family units authorized in June-July rose 15 percent over a year earlier, but total housing units were slightly lower due to a slowdown in multifamily units. The value of newly permitted housing units rose in Fargo, N.D., and St. Cloud, Minn., and was flat in Rapid City, S.D., but fell in Sioux Falls, Bismarck, and Billings.
Commercial real estate activity was moderate since the last report. Apartment sales in Minneapolis-St. Paul continued at a record annual pace through mid-August, according to industry data. Transactions involving industrial space were also strong over this period, both in terms of number and total value, but activity in the office market has fallen off. Vacancy rates for office, industrial, medical, multifamily, and retail space in the region were low. Residential real estate activity slowed from high levels. Closed sales in Minnesota fell by 2 percent in June and July compared with a year earlier. Summer sales also fell in northern and western counties of Wisconsin, and Fargo saw a notable July slowdown. Inventories were lower in most markets, negatively affecting sales, sources said. In Sioux Falls, July home sales were down 14 percent from a year earlier. Inventory was down 9 percent over the same period, but homes below $200,000 dropped by 24 percent.
Services
Service-providing industries reported increased business since the last report. A national ride share company continued to expand its services in Montana. An accounting agency in Wisconsin reported that business activity was up 5 percent to 10 percent over last year. An information technology consultancy in Minneapolis-St. Paul expanded its business as a result of bringing on new clients.
Manufacturing
District manufacturing was flat since the last report. An index of manufacturing conditions by Creighton University fell to levels indicating slight growth in July in Minnesota and South Dakota; the index fell further from a month earlier to levels indicating contraction in North Dakota. A Montana producer of aerospace parts was expanding production and moving into a new product line. A manufacturer of oil spill containment products and a motorized bicycle maker announced plans to open plants in western South Dakota. A Minnesota biotech firm announced it would open research and production facilities there. In contrast, a medical device maker closed a plant in Minnesota, and a manufacturer of forest products equipment announced it would close a plant in Wisconsin.
Energy and Mining
Activity in the energy sector was steady at low levels. The number of active drilling rigs in the District in mid-August was unchanged from the previous month, but was well below the level of a year earlier. North Dakota daily oil production in June fell 2 percent from a month earlier. North Dakota regulators approved permits for three oil pipeline projects, while large protests at one pipeline already under construction halted development. Mining activity was up slightly since the last report. An idled Minnesota iron ore mine resumed production and broke ground on an expansion. Production increased recently at a precious-metals mine in Montana on a recent uptick in prices. However, Montana coal production through June was down substantially from the first half of 2015.
Agriculture
District agricultural conditions were mixed, with strong growing conditions offset by low commodity prices. District crops were mostly in good condition as of mid-August, with record harvests expected in some cases; parts of western South Dakota and Montana suffering from severe drought were an exception. Winter and spring wheat harvests were progressing ahead of schedule, but high yields were not expected to fully offset the effect of low prices on income, according to contacts. Prices received by farmers increased in June from a year earlier for corn, soybeans, hogs, and turkeys; prices for wheat, hay, cattle, chickens, eggs, and milk fell from a year earlier.
Employment, Wages, and Prices
Employment grew moderately in spite of tight labor availability. A staffing firm in southern Minnesota said sales activity this summer was the "highest ever." Separate call centers in Montana and South Dakota announced plans in late summer to hire 100 and 460 new workers (including seasonal), respectively, over the coming months. In northeastern Minnesota, more than 20 employers took part in an August job fair, "and there were anecdotes of on-the-spot hiring," according to a workforce development source. Not all companies have been able to procure needed labor. Hours billed at a Minneapolis-St. Paul staffing firm fell from June through mid-August, which the owner said was "nearly 100 percent due to lack of available workers." There were also some notable job losses; a previously-reported iron ore mine closure in Michigan's Upper Peninsula left more than 300 jobless.
Wage pressures were moderate since the last report. "We are definitely seeing a steady increase in entry-level wages in recent months, and across industries," said a Minnesota workforce development source. Recently settled contracts for a handful of construction unions in Minnesota saw total compensation increases of 3 percent to 5 percent per worker. However, not all regions were seeing wage increases. A source in Michigan's Upper Peninsula noted that despite strong demand for summer tourism workers, there was "not much of a wage increase."
Price pressures were modest overall since the last report. A recently released construction cost index for Minneapolis-St. Paul reported that overall costs were "essentially flat from last year." A South Dakota source in heavy construction said low oil prices kept a lid on costs for asphalt and fuel. From July to mid-August, average gas prices fell in all District states, but by less than the national average. Based on expected low fossil fuel costs, a Wisconsin utility is forecasting a small drop in electricity rates next year.