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Minneapolis Fed Forecasts Slow Recovery in the Ninth District for 2010

Minneapolis, December 21, 2009

Minneapolis Fed Forecasts Slow Recovery in the Ninth District for 2010
The Federal Reserve Bank of Minneapolis is expecting the Ninth District economy to gradually mend in 2010. However, not all areas of the economy are anticipated to pull through with similar strength, and downside risks continue to linger. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan

An optimistic outlook for agriculture and a modest improvement in consumer spending are expected to aid the recovery. On the other hand, slow residential and nonresidential construction and weak labor markets will continue to drag on the economy.

The annual forecast includes information from the Minneapolis Fed’s statistical forecasting models, results from the fedgazette’s annual business conditions outlook poll of 376 district business leaders, a survey of 532 district manufacturers conducted by the Minneapolis Fed and the Minnesota Department of Employment and Economic Development, and a poll of 544 chamber of commerce members.

“It appears the national and Ninth District economies have emerged from the recession and a slow recovery is under way,” said Toby Madden, regional economist at the Minneapolis Fed. Manufacturing activity began picking up in the district during the second half of 2009, after declining for 12 consecutive months. New orders and production are expected to grow in 2010, but employment and capital investment will remain flat.

Consumer spending has showed some signs of recovery, growing by 2.9 percent in the third quarter, helping to boost overall growth. And monthly retail sales also posted increases in October and November. Meanwhile, personal savings as a percentage of disposable personal income was 4.5 percent in the third quarter, the fourth quarter in a row in which the savings rate exceeded 3 percent. “While higher savings results in less consumption in the current quarter,” Madden said, “it does suggest that households are strengthening their financial position to support more consistent economic growth in the longer run.”

Meanwhile, district housing units authorized through October were down 26 percent compared with a year earlier. With the exception of Montana, continued declines in housing units authorized are expected in 2010.

Commercial building also decreased during 2009, as vacancy rates increased and announcements of new development projects came to a near halt. Slow commercial building activity is expected next year. “As firms downsized their workforces during the recession, demand for office, manufacturing and retail space decreased as well,” Madden said.

Unemployment rates increased across the district in 2009. The Minneapolis Fed’s forecasting model predicts employment increases during 2010 in Montana and the Dakotas, but recovery in the district’s eastern states may stall on job increases until 2011.

More details on the economic forecast for the Ninth District can be found in the January issue of the fedgazette, the Federal Reserve Bank of Minneapolis’ quarterly newspaper, as well as on the following page: Ninth District Economic Forecasts.

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. Together with its branch in Helena, Mont., the Minneapolis Fed serves the Ninth Federal Reserve District, which includes Minnesota, Montana, North and South Dakota, 26 counties in northwestern Wisconsin and the Upper Peninsula of Michigan.