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From early June through mid-July the economy in the Ninth District grew modestly. Growth was noted in residential real estate, construction, manufacturing, mining, energy and consumer spending. Conditions were mixed in commercial real estate, tourism and agriculture. District employment relative to last year picked up considerably, while wage increases were moderate. Significant price increases were noted for building materials, food products and freight.
Construction and Real Estate
Commercial construction and real estate activity was mixed. A development official
reported Sioux Falls, S.D., is in the midst of a construction and renovation
boom, with what may be the busiest year on record. Fargo, N.D., continued its
stable growth path, including the construction of a 50,000-square-foot corporate
headquarters and two big box sports retailers.
However, in Minneapolis-St. Paul, activity was more stagnant. The vacancy rate
for industrial space remained significant, as industrial absorption was slow.
Representatives from a large real estate firm noted that inquiries increased,
but manufacturers await another positive quarter to purchase more space. The
office market remained mostly unchanged with plenty of unused space, but the
practice of offering more concessions to prospective tenants has leveled.
Residential real estate activity grew. Housing units authorized in district
states grew 5 percent for the three-month period ending in May compared with
a year ago. About 20 percent more home sales closed in June compared with a
year ago in the Minneapolis-St. Paul area. However, one realtor noted that sales
among lower-priced homes were slower. A bank director described the housing
market in Billings, Mont., as tight, with prices and buying activity up.
Consumer Spending and Tourism
Overall consumer spending increased modestly. A major Minneapolis-based retailer
reported same-store sales during June were 2 percent higher than a year ago.
A manager at a Minneapolis area mall reported June traffic increased moderately,
while another Minneapolis area mall manager noted that June traffic was up 12
percent compared with a year ago. Traffic and sales at a Minnesota mall outside
the Minneapolis-St. Paul area were up about 1 percent to 2 percent in June compared
with last year. In Montana, a mall manager noted that sales were up 7 percent
in May from a year ago, and that June traffic was solid. However, preliminary
results of a survey of retailers in Minnesota, Montana and North Dakota conducted
by the Minneapolis Fed and state retail associations showed that overall sales
were flat during the three-month period ending in June. A Montana bank director
said that recent auto sales were generally about the same as a year ago.
Tourism was mixed, but the outlook is strong. Tourism was down substantially
in June due to cool, wet weather in the Upper Peninsula of Michigan, according
to a tourism official; however, hotels reported that bookings recently picked
up for the remainder of the season. June tourism activity was about the same
as a year ago in South Dakota, with strong bookings noted for July and August
in the Black Hills. Recent tourism activity and advanced reservations were strong
in Montana, according to a tourism official.
Manufacturing
Manufacturing activity increased. A June survey of purchasing managers by Creighton University (Omaha, Neb.) indicated strong growth in manufacturing activity in the Dakotas and Minnesota. A chemical company announced plans to double manufacturing capacity at a Minnesota facility, and a watercraft maker plans to expand production. A bathtub maker in the Upper Peninsula reported strong sales and is operating three shifts a day, six days a week. A machine manufacturer in western Wisconsin noted slightly stronger sales than a year ago and is somewhat optimistic about the near future as customers add shifts and run their machines at capacity.
Energy and Mining
Activity in the energy and mining sectors remained strong. Early July district oil and natural gas exploration increased slightly from early June levels. A bank director from Montana noted that the demand for exploration and drilling equipment has exceeded the available supply. In North Dakota, a plant that makes natural gas from coal shut down for unscheduled repairs. Meanwhile, prices for most major district mining commodities remained strong. District iron ore mines continued to produce at capacity; however, labor contracts for many mine workers will expire at the end of July. The operating mines in Montana produced at near capacity. "Prices have been steady at the higher levels," reported a Montana mining official.
Agriculture
Agricultural conditions were mixed. Cool weather hindered crop growth. Crop
progress fell behind the pace of last year and the five-year average for most
district crops. The U.S. Department of Agriculture forecasts that 2004 production
of winter and spring wheat in the district will fall 16 percent and 10 percent,
respectively, from 2003. The USDA, responding to drought conditions, allowed
expanded grazing on restricted lands. However, increased rainfall somewhat relieved
drought conditions in the western part of the district. As a result, a Montana
bank director noted that yields for hay and grain in central Montana could be
near record levels.
Increased crude oil prices drove up the input costs for many agricultural producers.
The USDA forecasts that wheat, corn and milk prices will soften somewhat from
the recent strong levels, and prices for livestock, hogs and broilers will increase
slightly.
Employment, Wages, and Prices
Employment increased since the last report. In Minnesota, a distributor of electronic
components could hire at least 300 new employees by the end of 2004, and a recreational
vehicle company recently announced plans to add 150 new jobs. A South Dakota
company that sells auto insurance over the Internet plans to add 240 new positions
over the next three years. Applications for unemployment insurance were down
about 18 percent in Minnesota during June compared with a year ago. A temporary
staffing agency survey showed that 29 percent of employers in Minneapolis-St.
Paul expect to hire more workers during the third quarter of 2004, and 4 percent
expect to reduce payrolls. Last year 21 percent expected to increase payrolls,
and 11 percent planned reductions. A trucking association representative noted
difficulty finding quality truck drivers.
In contrast, a call center in North Dakota will close at least temporarily
in August, resulting in about 260 layoffs. A computer company in South Dakota
laid off 300 employees after closing a plant in June. Restructuring at the U.S.
Forest Service could result in 15 layoffs at one Montana office, according to
the supervisor.
Wage increases remained moderate. Nurses at a hospital in the Upper Peninsula
recently signed a contract that includes an annual 4 percent wage increase,
but also agreed to pay more for health insurance. A Minnesota bank director
noted that recent increases in wages and benefits for building trade unions
have ranged from 3 percent to 6 percent.
Significant price increases were noted
for building materials, food products and freight. Steel prices were up at least
25 percent and seem to increase every three to four months, according to a bank
director. A major food product producer and distributor based in Minneapolis
recently announced plans to raise prices on several food products, including
soups, frozen breakfast food and yogurt. Merchants in northern Montana reported
higher freight costs, as much as 30 percent. Gasoline prices in Minnesota were
down 29 cents in the beginning of July compared with prices in May, but were
27 cents higher than a year ago.
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