Beige Book Report: Minneapolis
January 17, 2018
Summary of Economic Activity
Ninth District economic activity increased moderately overall since the last report. Employment declined slightly, but labor demand remained strong. Wage and price pressures were both moderate. The District economy showed growth in consumer spending, services, commercial construction, residential real estate, and manufacturing. Residential construction was mixed, energy and mining activity were steady, and agricultural conditions were stable at low levels.
Employment and Wages
Employment declined slightly since the last report, as seasonally adjusted November employment fell in Minnesota, Montana, and North Dakota compared with October. However, labor markets nonetheless appeared healthy, with labor demand still quite strong and a notable lack of large layoff announcements. A staffing agency with offices in Minnesota and Wisconsin noted a "continued strong uptick in hiring." Several large Minnesota employers announced expanded seasonal hiring during the holidays. A December poll of South Dakota retailers found that almost half were hiring despite flat sales compared with a year ago; a similar share said the labor market was very tight and getting tighter. According to a state source, Minneapolis-St. Paul had more job openings than at any time since at least 2001. Limited labor supply also continued to hamper hiring. "Every business we talk to, they can't hire enough workers," said a western Wisconsin banker. A transportation company executive said it was failing to see growth because it can't find drivers. A manufacturing firm in southeastern Minnesota said it consistently had 40 openings to fill, and was losing out on available work because there were "not [enough] people to take the jobs." A central Minnesota finance company announced layoffs of 130 workers, said a local source, and other "companies were already discussing hiring the potential labor."
Wages rose moderately since the last report. More than half of the respondents to the Minneapolis Fed's annual survey of District manufacturers saw wages rise by more than 3 percent over the past year, and similar growth was expected in the coming year. A transportation union in Minneapolis-St. Paul agreed to a three-year contract with annual 2.5 percent increases. A transportation executive in Montana said wages were rising between 2 percent and 3 percent. Contacts in rural areas of the Dakotas said wage growth was more sluggish. Retailers in South Dakota reported wage increases of about 3 percent in the past year, with slightly lower increases expected in the coming year.
Prices
Price pressures were moderate since the last report. A majority of respondents (55 percent) to the Minneapolis Fed's annual manufacturing survey reported that prices charged for their products were unchanged over the past year, while slightly more than a third reported increases. For the coming year, 44 percent of manufacturers surveyed expected to increase their prices, while 57 percent expected the rate of inflation in the broader economy to increase. Retail fuel prices in District states as of early January were slightly lower than in the previous reporting period. Prices received by farmers for wheat, hay, milk, hogs, cattle, chickens, eggs, and turkeys increased in November compared with a year earlier; prices for corn and soybeans decreased.
Consumer Spending and Tourism
Consumer spending showed moderate growth since the last report. Many retailers reported strong holiday sales. A Minnesota contact said in-state retailers "are mirroring the country, or doing slightly better." In contrast, a survey of South Dakota retailers indicated flat holiday sales there compared with a year ago. A Minnesota department store reported strong in-store traffic during the holidays and a 1 percent increase in same-store sales in November and December compared with a year earlier. Retail expansion continued in Minneapolis-St. Paul. An outdoor equipment retailer reopened the first of multiple, rebranded stores that were previously closed. Warehouse retail firms also opened new locations, and a shopping center unveiled a major renovation, which included new stores.
Winter tourism reports suggested an uneven start across the District. Good snowpack was reported across much of Montana ski country, with reports of early and broader trail openings than last year. Snow conditions were spottier in eastern District states, especially in northern areas used to heavy snow. Bitter cold across much of the District to end the year also dampened outdoor activity. However, November hotel occupancy rates rose in Minnesota, as did revenue per available room. A hotel waterpark was reopened under new ownership after a $30 million renovation.
Services
Activity in the professional services industry increased since the last report. Contacts in the accounting and financial services sectors reported a year-end rush for tax planning services in response to new federal tax legislation. Several new retail technology startups have opened or relocated to Minneapolis-St. Paul recently. A commercial bank was expanding its presence in Minneapolis-St. Paul.
Construction and Real Estate
Commercial construction was up modestly since the last report. An industry database showed that nonresidential construction spending rose in November over a year earlier, but was considerably lower than the previous month due to normal seasonal slowdown. Industry tracking showed that total active projects as of mid-December were moderately higher than the same period a year earlier. A Minnesota labor construction contact said average monthly hours among members reached 200 hours, up from an average of 170 hours. The 2018 outlook appeared to be a "continuation of a good 2017...not huge, but better than average."
Residential construction was mixed. On the one hand, single-family permit activity in November rose overall across the District compared with a year earlier, with notable growth in Fargo, N.D., Rapid City, S.D., Rochester, Minn., and Minneapolis-St. Paul. However, single-family activity was flat or slightly negative in eight District metros. On the other hand, the number of permitted multifamily units fell considerably in November compared with a year earlier, with only La Crosse, Wis., Missoula, Mont., and Sioux Falls, S.D., registering prominent gains. Limited data (Billings, Mont., Minneapolis-St. Paul, and Sioux Falls) suggested a similarly mixed pattern in December. Residential real estate sales rose moderately since the last report. Closed sales in November were up virtually across the board; only Missoula saw sales decrease in November compared with a year earlier. However, this performance follows somewhat volatile, sluggish home sales for much of the year due to limited inventory of homes for sale.
Manufacturing
District manufacturing activity increased since the last report. Respondents to the Minneapolis Fed's annual manufacturing survey indicated growth in orders, production, investment, and productivity over the past year, with expectations for more growth in 2018. An index of manufacturing conditions indicated increased activity in December compared with a month earlier in Minnesota and the Dakotas. A producer of wind turbine blades announced that a plant that was scheduled to shut down would instead stay open at least through the end of this year to accommodate new orders. An electronics manufacturer and a producer of aerial lifts announced expansions at facilities in Minnesota.
Agriculture, Energy, and Natural Resources
District agricultural conditions were stable at low levels. Recent estimates of farm income for District states were roughly unchanged from a year ago. Activity in the energy and mining sectors was steady since the last report. Oil and gas drilling in North Dakota and Montana as of late December was unchanged from a month earlier, though industry contacts indicated oil production was up slightly. District iron ore mines continued to operate near full capacity.