April 25, 2007 Federal Reserve Districts Ninth District--Minneapolis

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The Ninth District economy grew firmly since the last report. Growth was noted in consumer spending, services, tourism, manufacturing, energy, agriculture and construction and commercial real estate. Residential construction and real estate activity decreased, and mining was flat. Labor market conditions gradually continued to tighten in a number of areas, and overall wage increases were moderate. Significant increases were noted in fuel and freight prices, while lumber prices were down from a year ago. Consumer Spending and Tourism Overall retail sales increased. Cold wintry weather slowed sales in late February, but several contacts noted a pickup in March, in part aided by an early Easter holiday. A major Minneapolis-based retailer expected same-store sales to be up about 5 percent in March and April compared with a year ago. A Minneapolis area mall manager reported that March sales of spring merchandise were solid. A mall manger in North Dakota noted that February same-store sales were up about 2 percent compared with a year ago, but traffic picked up during March as stores promoted spring merchandise. A representative of a Montana auto dealers' association reported that recent new car sales were down, but used car sales were very strong. Recent vehicle sales in North Dakota were mediocre, according to a representative of an auto dealers' association, but dealerships were more optimistic as spring approached. Winter tourism activity improved since the last report, but was down overall from last year. Activity picked up significantly in the Black Hills area of South Dakota beginning in mid-February; however, the previous months were essentially a bust due to a lack of snow, according to a tourism official. Winter seasonal activity was down significantly from a year ago in northwestern Wisconsin, according to a representative of a chamber of commerce. Tourism and convention business in Duluth, Minn., was up about 4 percent during March compared with a year ago. Services Contacts from a variety of professional business service firms indicated that business activity increased compared with last year. In addition, many expect to expand operations over the next six months. A contact in the medical services area noted that expansion was constrained by difficulty in recruiting physicians. Contacts from architectural, administrative, legal, accounting, travel, investment, information security, and Web services reported strong growth and plan to add capital and labor inputs. However, a contact from the information technology area noted flat activity and is facing decreasing prices and excess capacity. Construction and Real Estate Heavy building increased since the last report. Commercial building permits in the St. Cloud, Minn., area were up significantly in the first two months of 2007 compared with the same period in 2006. Several retail and commercial building projects are planned or are under construction in southern Minnesota. Several industrial and numerous public projects are planned across the District. In contrast, residential construction decreased. Housing permits were down 54 percent in March compared with a year ago in the Minneapolis-St. Paul area. Several condo projects were stalled due to the crowded market. A former condo project became a retail/hotel project. However, in Williston, N.D., plans were announced for the first major housing subdivision in 30 years. Commercial real estate was solid. A market research firm reported that office, industrial and retail vacancy rates declined in the Minneapolis-St. Paul area during the first quarter. In contrast, residential real estate activity decreased. Home sales were down 15 percent in the first quarter of 2007 compared with the same period a year ago in the Minneapolis-St. Paul area according to a Realtors' association. Manufacturing Activity in the manufacturing sector grew since the last report. A March survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased manufacturing activity in Minnesota and North Dakota and flat activity in South Dakota. In Minnesota, a concrete product producer is expanding. In North Dakota, a metal fabricator plans to add a facility, and a manufacturer of hydraulic press brakes plans to expand. In South Dakota, a meat packer plans to expand, while a metal parts producer shut down. Many lumber mills across the District have reduced production due to decreased demand. Energy and Mining Activity in the energy sector increased since the last report, and mining was flat at high levels. Several wind energy projects are either planned or in development, and a wind blade manufacturing facility recently opened in South Dakota. Oil and gas exploration in the District was level with previously reported amounts. Mining production remained at near capacity across the District. High metal prices were aiding the mining industry as mining officials expect strong production in 2007. However, a coal mine in Montana was idled in late February. Agriculture Spring moisture boosted the outlook for the agricultural sector. Although drought is evident in some parts of the District, increased rainfall aided soil conditions for many producers. Demand for farm machinery is increasing, according to farm implement dealers. District producers are expected to significantly increase plantings of corn and decrease plantings of soybeans, according to the U.S. Department of Agriculture. Employment, Wages and Prices Labor market conditions gradually continued to tighten in a number of areas. A Montana bank director noted that the most common complaint he hears from businesses around the state is a shortage of workers. A staff member of a career center in Sioux Falls, S.D., noted tight area labor markets with growth in technical jobs that require two- and four-year degrees. In Minnesota, a major food retailer plans to relocate 400 positions to its headquarters in the state, while a household appliance manufacturer plans to rehire 130 recently laid-off employees. A credit card service center in South Dakota recently announced plans to hire 100 employees over the next year, and a call center in Montana plans to hire over 100 employees. In contrast, as a result of company acquisitions, a financial services company is cutting 170 back-office positions, and a wireless company is planning to cut as many as 100 jobs in Minnesota. In northwestern Wisconsin, a circuit plant recently announced plans to lay off 160 workers. A survey of CFOs in the Minneapolis-St. Paul area showed that 92 percent expect no change in hiring during the second quarter. Wage increases were generally moderate. According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 46 percent expect to increase employee compensation over the next six months, down from 50 percent in last year's survey. Significant increases were noted in fuel and freight prices, while lumber prices were down from a year ago. Minnesota gasoline prices increased 23 cents per gallon from early March to early April. Diesel prices in the Midwest increased about 12 cents from early March to early April. Bank directors noted that rail transportation rates will likely increase in 2007, but not as much as in recent years, and that lumber prices were down about 20 percent from a year ago. Return to top St. Louis Kansas City