Beige Book Report: Minneapolis
March 01, 2017
Summary of Economic Activity
The Ninth District economy grew modestly overall since the last report. Employment grew moderately, accompanied by moderate wage and price pressures. The District economy showed growth in manufacturing, residential construction, energy, and mining. But real estate and consumer spending were mixed, commercial construction slowed, and agriculture remained weak.
Employment and Wages
Employment grew moderately since the last report. Ad hoc employer surveys in a Minneapolis-St. Paul suburb and in Michigan's Upper Peninsula found that more than one-quarter were adding headcount, while only 5 percent were cutting jobs. A monthly manufacturing index showed strong increases in hiring expectations in December and January for Minnesota and the Dakotas. Initial unemployment insurance (UI) claims in January were about one-fourth lower compared with a year earlier. A staffing agency in southern Minnesota said that client calls and overall business were increasing, and another in Minneapolis-St. Paul said job orders were flat in January, but clients expected activity to pick up. Job fairs were held by a frac sand mine in western Wisconsin and oil companies in the Bakken oil patch; a builders' group in Minnesota held a job fair to fill 200 openings. However, January online job openings in North Dakota continued to decline compared to previous-month and previous-year levels. Major upheavals continued in retail, where national outlets have seen significant layoffs in Minneapolis-St. Paul, Fargo, N.D., Sioux Falls, S.D., and elsewhere. A South Dakota manufacturer announced "substantial" but unspecified layoffs, and the closure of an engineering facility in Minneapolis-St. Paul will affect up to 72 workers.
Wage pressure was moderate to strong since the last report. A Minnesota state official noted that wages grew 4 percent in 2016, and manufacturing paychecks rose by even more. Ad hoc surveys of employers in two regions suggested that average wages in these locations grew about 3 percent in 2016. Their wage expectations for 2017 were slightly lower; however, given tight labor conditions, a lower wage outlook for 2017 might stem from historical expectations of long-standing wage stagnation. The owner of a southern Minnesota staffing agency expected manufacturing wages in the region to grow 8 percent to 10 percent in the coming year. "There's a huge demand and low supply. Wages need to match in order to supply workforce."
Prices
Price pressures were moderate since the last report. Sources in the construction sector noted that mounting labor and materials input prices were driving up construction costs. An industry report indicated that Minneapolis-St. Paul construction prices were expected to increase 3 percent in 2017, a faster pace than in 2016. A utility was increasing gas and electric rates. Most prices received by farmers decreased in December from a year earlier, with the exception of soybeans, milk, chickens, and hogs.
Consumer Spending
Consumer spending across the District was mixed since the last report. A Minnesota-based retailer reported weaker sales due to a continuing shift toward online shopping. Two large national retailers and two nationwide clothing retailers closed their doors in the Twin Cities market due to poor sales. However, analysts report reason for optimism in the Twin Cities retail sector overall. In Sioux Falls, S.D., retailers saw a slight uptick in spending, "but not by much," a retailer commented. A mall manager in Montana reported that the mall was expanding by 40,000 square feet, effectively doubling the size of a mid-priced department store, while also refurbishing the mall with updates and new amenities. Reports from grocers were mixed; for instance, Minnesota was seeing the entrance of new grocers, while a large grocery retailer posted a loss in earnings since the last report. A North Dakota-based construction and farm equipment dealership announced the closure of eight stores in the Dakotas and Minnesota.
Tourism
Tourism conditions were mixed. Snow conditions in the northernmost regions of the Ninth District provided steady recreational tourism activity, according to industry officials. Regions to the south saw a decline in recreational activity since the last report due to poor snow conditions. Elsewhere, casino-related revenues in Deadwood, S.D., suffered a significant decline--as much as 25 percent at some operators--leaving one industry spokesperson to comment that the drop was "alarming." At the same time, a large gaming firm was expanding and improving its resort in South Dakota, stating confidence in the local industry and an interest in catering to changing consumer tastes.
Construction and Real Estate
Construction activity was mixed since the last report. Commercial construction slowed. Projects out for bid in early January were below levels of a year ago but subsequently increased and by early February were on par with last year, according to an industry database. January commercial permitting was lower compared with a year earlier in most District metros. However, sources were optimistic about near-term activity, especially in Minneapolis-St. Paul, where major projects were waiting to break ground. In Montana, $144 million in previously suspended road construction projects moved forward. In North Dakota, preliminary work has begun on a $250 million airport in Williston and a $2.1 billion flood diversion project in Fargo. Residential construction was strong. Permitted units in January for both single- and multi-family units were significantly higher than a year earlier in Minneapolis-St. Paul and Sioux Falls. Residential construction was also higher in Fargo, but lower in Billings, Mont., and Rochester, Minn.
Commercial real estate remained healthy, with some softening. Vacancy rates in Minneapolis-St. Paul were low but have risen recently in the retail and office categories. Industrial vacancies there remained low, with significant new space either under construction or in development. Home sales in January were mixed from a year earlier. They were slightly higher in western Wisconsin and the Flathead, Mont., region, and flat in Sioux Falls and northern Wisconsin. Home sales were slightly lower in Minneapolis-St. Paul, though it was the third-strongest January since 2005. Several sources attributed the softness to late-2016 sales, as consumers locked in rates before a mid-December rise in the Fed Funds rate.
Manufacturing
District manufacturing activity increased moderately since the last report. An index of manufacturing conditions produced by Creighton University indicated increased activity in January compared to a month earlier in Minnesota and South Dakota; the index indicated decreased activity in North Dakota. Two contract equipment manufacturers reported an increase in orders in late 2016 and optimistic expectations for 2017. A boat maker received a large contract to produce barges. A Minnesota candy maker opened a new production facility.
Agriculture, Energy and Natural Resources
District agricultural conditions remained weak since the previous report. Respondents to the Minneapolis Fed's most recent (January) survey of agricultural credit conditions indicated that farm incomes and capital spending fell in the fourth quarter of 2016 relative to a year earlier, with similar expectations for the coming three months. Activity in the energy and mining sectors increased since the last report. As of mid-February, oil and gas drilling in the Bakken region of North Dakota was up slightly from a month earlier. Federal regulators granted a license to a potential $1 billion project in Montana that would store energy from wind production and other sources. Production at operating District iron ore facilities was near full capacity, with an idled facility scheduled to resume production in coming months.