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Minneapolis Fed Survey Finds Service Firms Optimistic

Minneapolis, June 30, 2006 Accountants, architects, engineers and other professional services firms in the Upper Midwest did well over the past year and expect to continue to grow over the next 12 months, according to a recent survey of nearly 400 professional services firms conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development.

The survey shows growth in sales prices, revenue and productivity. Profits and employment grew slowly over the past 12 months due to higher input costs, such as supplies, transportation, equipment and space, and lower availability of workers. Over the next four quarters, respondents expect expansion in all aspects of their businesses, although they do not plan to add office space. They also anticipate more jobs and higher profits in the overall economy, but flat consumer spending and rising inflation.

Firm revenue increased across the district over the past year, with more than half of respondents reporting higher revenue. The increased revenue was attributed to higher sales prices and slightly increased employment. It appears that productivity was also up, with 42 percent reporting increases.

Respondents indicated that wages increased an average of 3.5 percent and benefits 3.4 percent. The result is slightly higher profits, with 43 percent of respondents noting increases.

The outlook for the next four quarters is strong and optimistic across the district. Only 17 percent of respondents expect decreases in sales revenue, and just 7 percent expect decreases in productivity. In addition, respondents plan to raise prices further and add employees if they can find them in the current tight labor market. Input costs are expected to continue to increase and over half the respondents expect to increase their bottom line.

The survey of randomly selected business service firms in Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan was conducted in May and early June. It is the first of what is anticipated will become an annual poll. The Minnesota Department of Employment and Economic Development conducted the Minnesota portion of the survey. See complete survey results.

As one of the 12 Federal Reserve Banks, the Federal Reserve Bank of Minneapolis contributes to a variety of Federal Reserve System functions, including operation of a nationwide payments system, distribution of the nation's currency and coin, supervision and regulation of member banks and bank holding companies, and serving as a fiscal agent for the U.S. Treasury. Additionally, the president of the Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve's Board of Governors.