Beige Book Report: Minneapolis
November 29, 2017
Summary of Economic Activity
The Ninth District economy grew modestly overall since the last report. Employment grew modestly, with solid hiring demand dampened by tight labor. Wage and price pressures were both moderate. The District economy showed varying growth in consumer spending, services, residential construction, commercial and residential real estate, manufacturing, energy, and mining. But commercial construction dipped slightly, and agriculture remained weak.
Employment and Wages
Employment grew modestly since the last report. Hiring demand remained solid overall. Two employers in western Wisconsin announced immediate hiring of 100 workers. A regional health system with facilities in multiple District states noted that it had 1,100 regular openings. October online job openings in North Dakota were flat compared with a year earlier, but that was a notable improvement compared with the previous six months. Two separate surveys showed that hiring sentiment in South Dakota turned modestly positive in October after months of negative sentiment, and sentiment in Minnesota and North Dakota remained positive. Labor markets remained tight. District initial unemployment claims in October were 17 percent lower than a year earlier. A southern Minnesota manufacturer had 100 openings and could open two more lines of production "but can't find workers," according to a local contact. Figures from Montana Jobs Services showed that active job seekers there were roughly one-third lower in October than a year earlier. A Minnesota staffing contact said current hiring demand was 5 percent higher than last year, but turnover remained high, and "we continue to see fewer candidates." However, there were notable signs of softness in some regional markets. In Minnesota, a printing plant, a papermaker, and a food processor all announced plant closures, including layoffs of 335, 150, and 200, respectively.
Wages rose moderately overall since the last report, though accounts varied. A Minneapolis-St. Paul staffing contact said his firm was seeing "a ton of wage pressure this year," with increases of 5 percent to 7 percent. A small ad hoc survey of Minnesota firms found that wages were expected to rise 2 percent to 3 percent in the coming year. A Montana contact said employers "across the board" were raising wages to attract employees. A North Dakota workforce source said wages there were "trickling up." A rural Wisconsin banker noted that tight labor was pushing up starting wages, but longer-term employees were seeing smaller increases similar to previous years. A northern Minnesota firm said it was freezing wages after a poor quarter.
Prices
Price pressures were moderate since the last report. Building materials prices have increased steeply in recent months, according to several industry sources, in part due to the impact of post-hurricane rebuilding. Retail fuel prices in District states as of mid-November were slightly higher than the previous reporting period. A recent forecast of home heating costs for the coming winter projected natural gas prices to increase 2 percent over last year, while heating oil costs were expected to rise 10 percent. Prices received by farmers for corn, wheat, hay, milk, hogs, chickens, and eggs increased in September compared with a year earlier; prices for soybeans, cattle, and turkeys decreased.
Consumer Spending and Tourism
Consumer spending showed modest growth since the last report. Despite the closure of four large discount/department stores across the District, the retail sector in many District metros saw expansion and was experiencing low vacancy rates. Year-over-year gross sales in South Dakota in September and October turned positive after six consecutive months of decline. A November survey found that Minnesota shoppers expected their holiday spending to increase by 3.5 percent over last year.
Hunting dominates fall tourism in much of the District, and reports varied. South Dakota saw a decline in pheasant hunters, thanks largely to low pheasant numbers stemming from severe drought in the state. Deer licenses in North Dakota were up slightly from last year, but down about 2 percent in Minnesota. Hunters in northwestern and south-central parts of Montana were also down from last year, due in part to wildfires. A survey in Montana found that one-quarter of Montana tourism businesses, and 13 percent of outfitters and guides, had to cancel an event due to this year's wildfires.
Services
Activity in the professional services industry increased moderately since the last report. An accounting firm with business across the District reported steady growth recently. A contact in the financial services industry noted an increase in start-up activity, particularly among information technology and biotech firms. However, a web marketing company was cutting staff amid restructuring.
Construction and Real Estate
Commercial construction was down slightly since the last report. A slow September was followed by a flat October across most of the District, according to industry figures on construction spending. Commercial permitting activity in October was mixed among District metros, and a count of new and active construction projects also declined over the most recent six-week period (ending in early November) compared with a year earlier. The construction outlook received a boost in several District states from strong referendum results for school improvements, including $1.3 billion in capital bonding in Minnesota. Residential construction was up moderately. Permitted single-family units in October rose in a number of metros, while multifamily units saw a notable uptick in Minneapolis-St. Paul.
Commercial real estate grew modestly since the last report. In Minneapolis-St. Paul, industrial leasing activity has been strong, pushing vacancy rates below 7 percent. Industrial projects planned or under construction were also described as healthy, though below last year's levels. Office vacancy rates, on the other hand, have seen an uptick this year, and lease concessions have started to appear. Demand for retail space continued, with vacancy rates remaining steady and asking rents rising modestly. Residential real estate was modestly higher. October home sales grew compared with a year earlier in Bozeman and Missoula (Mont.) and in western and northern Wisconsin. Sales also grew slightly in Minnesota. But decreased sales were seen in Great Falls and Helena (Mont.) and Sioux Falls, S.D.
Manufacturing
District manufacturing activity increased moderately since the last report. An ad hoc survey of Minneapolis-St. Paul inventory managers indicated that recent business activity had increased relative to the same period a year ago and that sales for the remainder of the year were expected to accelerate. An index of manufacturing conditions indicated increased activity in October compared with a month earlier in Minnesota and the Dakotas. A radiator plant in Minnesota and a furniture producer in Wisconsin announced expansions. In contrast, a paper producer shut down a production line at a mill in Minnesota.
Agriculture, Energy and Natural Resources
District agricultural conditions remained weak overall, as good harvests were not expected to offset low prices. Early reports from harvests indicated solid production in District states, though corn and soybean production in the Dakotas was expected to decrease from last year. Respondents to the Minneapolis Fed's third-quarter (October) survey of agricultural credit conditions indicated that farm income and capital spending decreased relative to a year earlier, with further declines expected for the remainder of the year. Activity in the energy and mining sectors increased moderately since the last report. District oil and gas exploration as of mid-November was up slightly from a month earlier, though North Dakota recently approved or renewed a substantial number of drilling permits. September shipments of iron ore on the Great Lakes increased 23 percent from a year earlier.