October 24, 2001 Federal Reserve Districts Ninth District - Minneapolis

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Economic activity in the Ninth District has weakened since Sept. 11. Tourism, commercial real estate, manufacturing, agriculture and mining are down, while residential real estate, consumer spending and energy activity are about even. Labor markets have been disrupted by major layoffs and a Minnesota state government employee strike. Overall wage and price increases are moderate, with the exception of higher health insurance costs and lower natural gas, gasoline and lumber prices. Construction and Real Estate Construction activity in the district is down from a year ago. Leasing and sales for office building space were significantly down in September compared with a year ago in the Minneapolis area, according to a representative of a commercial real estate firm. Commercial real estate officials in Minneapolis-St. Paul reported that rental rates have dropped since July. However, an economic development official in Fargo, N.D., noted that commercial construction activity did not slow down during September and early October. Residential real estate activity is generally level. A representative of a realtors association in the Minneapolis area reported that since Sept. 11 buyers and sellers have returned to the market, but sales are at a slower pace than they were earlier this year. Price increases for homes have recently slowed, according to a mortgage broker. September building permits in the Minneapolis-St. Paul area were even with a year ago, said a builders association spokesperson. In Sioux Falls, S.D., a banker reported that real estate activity is still busy following Sept. 11. Officials in Rochester, Minn., noted a record number of new home starts during September. Consumer Spending and Tourism Retail sales are about the same as a year ago. A major Minneapolis-based department store retailer noted that overall same-store sales in September were almost even with a year earlier. A North Dakota mall manager reported about average sales for this time of year. In Montana a mall manager reported that while luxury items, such as jewelry, are down, recent sales of many low- to mid-priced products are higher than a year ago. A Minneapolis-area mall reported solid sales during September compared with the same period last year. However, the larger tenants in a St. Paul-area mall reported September sales down from a year ago. Auto dealers in Minnesota reported a gradual shift back to normal fall activity in both sales and service following a decline during the week after Sept. 11, according to a representative of the Minnesota auto dealers association. A North Dakota auto dealers association spokesperson noted strong sales from mid-September through early October after sluggish sales in early September, in large part due to zero percent financing. Tourism businesses that rely on air service report lower levels of activity compared with a year ago. Total passengers at regional airports were down about 30 percent in September compared with last year. Hotel occupancy in the Minneapolis-St. Paul area dropped about 20 percent during the first two weeks following Sept. 11 compared with a year ago, caused in part by 11 convention cancellations. However, no conventions have canceled for October, and hotel occupancy showed signs of improvement by the beginning of October. In contrast, driving destinations report steady activity. September tourism in northern Wisconsin was about the same as a year ago, according to chamber of commerce officials. Several tourism businesses and destinations in South Dakota reported normal activity during September. Chamber of commerce officials in northern Minnesota and Montana noted that higher security and longer wait times at Canadian border crossings have had a minimal effect on tourism. However, in the Upper Peninsula of Michigan crossings at the International Bridge at Sault Ste. Marie were off 24 percent in September compared with a year ago. Manufacturing Overall manufacturing activity is slightly down, but conditions vary across the district. A September survey of purchasing managers by Creighton University indicated decreases in manufacturing activity in Minnesota and increased activity in the Dakotas. As evidence, a Minnesota electronic control producer is reducing production. A data storage plant in North Dakota is expanding production. A farm equipment manufacturer will close a factory in Minnesota and transfer production to a South Dakota plant. An Upper Peninsula medical equipment maker plans to expand its manufacturing facility. Supply disruptions were not significant, according to 73 percent of respondents of an early October survey of former bank directors and advisory council members. However, some contacts reported the increased use of trucks instead of planes to ship supplies and products and longer delays at international border crossings since Sept. 11. Mining and Energy Activity in the energy sector is level, while mining production decreased. District oil and natural gas exploration levels remain about the same as last quarter. Two northern Minnesota iron ore mines shut down in October for six weeks and eight weeks respectively to reduce inventories. Agriculture Agricultural conditions have deteriorated across the district. The harvest for many district crops is behind last year. Small grain production is down significantly from last year. Meanwhile, October hog and cattle futures prices decreased 3 percent and 5 percent respectively from Sept. 10 to Oct. 9. Meanwhile, due to increased enrolled acres, October year-over-year Conservation Reserve Program payments increased across the district from 5 percent in North Dakota to 8 percent in Minnesota. Employment, Wages, and Prices Airlines and other travel-related industries have reported layoffs since Sept. 11. A major Minnesota-based airline will cut 10,000 jobs company-wide (4,500 jobs in Minnesota), a smaller carrier plans to reduce staff by 250 jobs, and an affiliated travel company will cut 150 jobs. A regional carrier will shed 400 jobs. About 200 jobs will be cut at least temporarily at a company that prepares food for airline flights. In addition, about 28,000 state employees in Minnesota were on strike for two weeks in October. However, results of the survey of former bank directors and advisory council members show that 82 percent expect no change in employment levels as a result of the Sept. 11 attacks. Wage increases remain moderate. A temporary staffing agency in Minnesota reported no changes in wages since Sept. 11. Overall price increases remain modest, with significant price increases expected in health insurance and decreases noted in natural gas, gasoline and lumber prices. Many businesses in South Dakota expect 20 percent increases in health insurance rates for 2002 compared to 2001, according to the state chamber of commerce. November futures prices for natural gas decreased 11 percent from Sept. 10 to Oct. 9, while prices for gasoline in Minnesota dropped 34 percent from Sept. 10 to Oct. 8. Lumber prices declined after Sept. 11, according to a lumber company owner. Almost 60 percent of respondents to the former director and advisory council survey expect no change in expenses for their company due to Sept. 11; 26 percent expect expenses to increase. Return to top St. Louis Kansas City