July 30, 2003 Federal Reserve Districts Ninth District--Minneapolis

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Ninth District economic activity was up slightly in June and early July. The residential real estate, consumer spending, manufacturing, energy and agriculture sectors grew, and tourism was flat. Meanwhile, commercial building and mining were down slightly, and labor markets were mixed. Overall wage and price increases were modest; however, significant price increases were noted in health care insurance, natural gas and fertilizer. Construction and Real Estate Overall commercial building was down, but commercial real estate activity has recently shown some signs of improvement. No major office building projects are under way in the Minneapolis-St. Paul area; however, commercial property sales have been more active recently, according to a commercial real estate firm. Leasing activity has also picked up for office, industrial and retail space during the past couple of months. Increased commercial building activity was noted outside the Minneapolis-St. Paul area. Construction of the first new office building in about 10 years is under way in downtown Billings, Mont.; renovations and new loft apartment projects are also strong, according to a bank director. The value of permits for commercial construction projects for the first half of 2003 reached $41.2 million in Sioux Falls, S.D., up from $17.5 million during the same period a year ago, according to a city official. A bank director noted a recent increase in health care facility construction in southwestern Wisconsin. Home building and residential real estate activity were strong. The number of permits for residential buildings was up 9 percent in June compared with a year ago in the Minneapolis-St. Paul area. The total value and the number of home sales both set records in June in Minneapolis-St. Paul; a realty association representative expects home sales to be up almost 5 percent in 2003 compared with a year earlier. The median home sale price for the Minneapolis-St. Paul area was up 6.7 percent in June compared with last year. Housing units authorized were up 12 percent compared with a year ago in Sioux Falls, S.D. Consumer Spending and Tourism Overall retail sales were up slightly. A major Minneapolis-based department store and discount retailer reported same-store sales in June up 0.8 percent compared with a year ago. A mall manager in North Dakota reported sales up about 5 percent in June from last year, while a mall manager in the Minneapolis area commented that June sales improved from a slow May and were above year-earlier levels. In contrast, a Minnesota-based leather product retailer noted that same-store sales were down 1.4 percent in June compared with last year. A Minneapolis area mall estimated that sales in June were down slightly from a year ago due to increased local competition. While auto sales levels were up during the past few months compared with last year, sales have recently faced increased price competition, according to a Minnesota auto dealer. Tourism conditions were flat. After a slow start in June, tourism activity in the Upper Peninsula in July was about the same as a year ago; softness was attributed to decreases in gift shop purchases, according to an official. Overall occupancy at large resorts and hotels during June was down from a year ago in northwestern Wisconsin, but the number of repeat visitors to small and medium-sized resorts was strong. In Minnesota, 26 percent of resorts and lodging facilities responding to a state survey expect occupancy to be up in July and August compared with last year; 37 percent expect occupancy to drop. Manufacturing Manufacturing activity was up slightly. A June survey of purchasing managers by Creighton University (Omaha, Neb.) indicated overall significantly increased manufacturing activity in the Dakotas and slight decreases in Minnesota. However, the survey noted increases in Minnesota new orders and production. As evidence, a Minnesota recycled plastics processor plans to open a second production line, and a lumber processing factory recently opened. A plastics plant in the Upper Peninsula plans to open a new facility next year. However, two electronic component plants in Minnesota recently shut down. Energy and Mining Activity in the energy sector increased, while the mining sector was down slightly. Early July district oil and natural gas exploration levels increased from late May. In addition, several wind energy farms are in development or design in the Dakotas. Meanwhile, an iron ore mine in northern Minnesota temporarily shut down due to annual maintenance. A bank director indicated that Montana mining activity was stable. Agriculture Agricultural economic activity increased. Crop conditions improved for most district crops, and harvest estimates increased. According to the U.S. Department of Agriculture, the majority of district crops, pastures and livestock are in good to excellent condition. For example, 82 percent and 79 percent of the Minnesota corn and soybean crops, respectively, are rated as good or excellent. The winter wheat crop harvest is under way in South Dakota, and production is expected to increase 340 percent from the drought-ravaged 2002 crop. The number of hogs and pigs in Minnesota increased 5 percent in June compared with a year earlier. Prices remain robust for many district agricultural products. However, milk prices remain depressed. Employment, Wages, and Prices Labor markets were mixed. About 900 state employees have been laid off so far this year in order to help erase the budget deficit in Minnesota. In Montana, a call center closing will result in 330 job losses, a lumber processor announced 139 layoffs due to a closure, and a video gaming machine manufacturer plans to cut almost 190 jobs by next year. In South Dakota, a road equipment manufacturer announced plans to close an operation and move out of state, affecting 100 jobs, while an electronics manufacturer cut over 100 jobs. The number of job vacancies in Minnesota declined 22 percent during the second quarter compared with a year ago. In contrast, a medical technology firm announced plans to add an estimated 1,000 jobs in Minnesota. In the Bozeman, Mont., area, employment is expected to be at least steady to growing during the rest of 2003, according to a bank director. Furthermore, recent surveys point toward modest increases in overall employment. A June survey by the Minneapolis Fed of 4,400 Minnesota businesses showed that 27 percent of respondents expect to increase employment during the next six months, while 16 percent anticipate decreases. According to a survey of employers in Minnesota conducted by a staffing agency, 19 percent of respondents expect to increase employment levels in the third quarter, 12 percent anticipate decreases, and 61 percent expect no change. In the Upper Peninsula, more construction firms (62 percent vs. 38 percent) and manufacturing firms (74 percent vs. 26 percent) expect to increase employment rather than decrease employment, according to a recent survey by Northern Michigan University. Wage increases were moderate. The Minneapolis Fed survey of Minnesota businesses showed that 86 percent of respondents expect to keep wage increases at 3 percent or lower. Overall price increases were modest, except for significant increases in health insurance rates, natural gas and fertilizer. Several bank directors noted that prices are generally stable. South Dakota's chapter of the National Federation of Independent Businesses reported that one of four members that provide health insurance for their workers saw recent rate increases of 20 percent or more over last year. Due to increases in natural gas prices, heating bills in the Minneapolis-St. Paul area may be as much as 25 percent higher than last year. A bank director noted significant increases in fertilizer prices. Return to top St. Louis Kansas City