The economy in the Ninth Federal Reserve District is expected to continue expanding in 2006, despite concerns about higher energy and materials prices, and a likely slowing in home building and residential real estate. The Ninth District includes Minnesota, North and South Dakota, Montana, northwestern Wisconsin and the Upper Peninsula of Michigan.
The Federal Reserve Bank of Minneapolis announced the regional economic outlook for 2006 during a media briefing today at the Minneapolis Fed. This forecast includes information from the Minneapolis Fed's statistical forecasting models, results from the fedgazette's
annual business conditions outlook poll of 345 district business leaders, a survey of 474 district manufacturers conducted by the Minneapolis Fed and the Minnesota Department of Employment and Economic Development, and a survey of 113 district agricultural lenders.
The outlook for labor markets in 2006 is positive, reflecting expectations for increased economic growth. The strongest growth is expected in Montana, while the slowest growth is expected in the Upper Peninsula of Michigan. District business leaders indicate that labor markets are tightening. While a majority of respondents to the poll expect to increase employment at their companies, many are beginning to indicate difficulty finding qualified workers. Hiring in the services, manufacturing and construction sectors will expand. In contrast, the agriculture and retail sectors anticipate decreases in employment levels.
In most district states, unemployment rates will stay about the same in 2006 as in 2005. Rates are anticipated to decrease slightly in Montana from 2005 levels, remain flat in South Dakota, and increase slightly in the other states. Wage growth of 3 percent or below is expected throughout the district. Personal income should post healthy growth in 2006, a positive sign for consumer spending.
Increases in energy and materials prices have several business leaders concerned about their souring effect on profits and the overall economy. Poll respondents expect input prices to increase in 2006, and most plan to pass those increases on to their customers in the form of higher selling prices.
Housing markets will likely cool somewhat during 2006, but will likely not go into a deep freeze. Commercial real estate and construction activity are showing signs of strengthening.
The manufacturing sector is expected to be solid in 2006. Manufacturers expect robust gains in sales and plan to add employees and increase investment in plant and equipment.
The district agricultural sector saw increases in total production of corn, soybeans and wheat in 2005. The preliminary outlook for growing conditions in 2006 is positive. District farmers and ranchers received decent prices for commodities in 2005 and expect solid prices for 2006. However, there is a deep concern over the increases in input costs, especially fertilizer and fuel. Larger revenues are expected in 2006, but profits may be suppressed by higher costs.