October 27, 2004 Federal Reserve Districts Ninth District--Minneapolis

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From September through mid-October signs of economic growth were evident in the Ninth District. Growth was noted in commercial real estate, manufacturing, energy, agriculture, consumer spending and tourism. Conditions were steady in residential real estate and mixed in mining. District job growth and wage increases were modest. While overall price increases appear to have been moderate, significant increases were noted for manufacturing and construction materials, retail food, heating fuel and petroleum. Construction and Real Estate Commercial construction was solid. Contracts awarded for large construction projects in Minnesota and the Dakotas increased 6 percent for the three-month period ending in August compared with a year ago. A northern Wisconsin contractor recently noted activity was up 20 percent for the year. A Minneapolis-area real estate investment company reported strong investment and a positive outlook. In contrast, office markets in Minneapolis-St. Paul remained weak, with high vacancy rates and negative absorption, but analysts predict improvement in the next year as jobs grow. Residential real estate was steady. In Minneapolis-St. Paul, new housing units authorized in September remained roughly flat from a year earlier. A Minneapolis-area realtor noted that residential markets are cooling, with slight price reductions and homes now sitting on the market an average of 50 days, up from 45 days recently and 25 to 30 days a year ago. In Eau Claire, Wis., developers are considering building a 700-unit condominium development. Consumer Spending and Tourism Overall consumer spending grew moderately. A Minneapolis-area mall manager observed level to slightly slower traffic in September compared with last year, followed by a pickup in early October. A North Dakota mall manager reported same-store sales up about 3 percent during September and early October, slower than the 6 percent growth pace for the year. A mall manager in Montana said traffic was up 1 percent during September compared with a year ago; sales of outer wear were slow, in part due to warm weather. A major Minneapolis-based retailer reported same-store sales up 5.6 percent in September compared with a year ago. While overall car sales in North Dakota have been positive year to date, recent sales were spotty, according to a representative of an auto dealers association. In Minnesota an auto dealers association representative reported that customer traffic was slow at dealerships during September and early October. Late summer and fall tourism was above year-ago levels. A tourism official in Montana reported good fall tourism conditions; people were spending more. After a slow summer overall, favorable weather has helped prop up fall tourism in the Upper Peninsula; crossings over the Mackinac Bridge were up 7 percent in September compared with a year earlier. In South Dakota, a member of the Advisory Council for Small Business and Labor reported that tourism business operators were generally pleased with late-summer activity, but noted that spending increases lagged gains in attendance at major destinations. Manufacturing Manufacturing activity increased. A September survey of purchasing managers by Creighton University (Omaha, Neb.) indicated overall improved manufacturing activity in the Dakotas and Minnesota. In Minnesota, a company that produces product labels plans to add a second shift due to a surge in orders over the last month. "The industrial economy is very good," said a contact from a large metal-services company in Minnesota. In the Upper Peninsula of Michigan, a plastic injection molding company indicated that sales volume was up 7 percent for the month of September compared with a year ago. In northwestern Wisconsin, a lumber mill plans to add two dry kilns, a diaper manufacturer plans to expand, but a mattress factory plans to shut down. Energy and Mining Activity in the energy sectors remained strong, and mining activity was mixed. Early-October district oil production increased from early September. Increases in oil prices spurred companies to increase drilling activity in the district. Iron ore mines continued to produce at capacity, and investments to expand production are planned at two mines in northern Minnesota. The operating mines in Montana experienced some difficulties as the quality of ore at some mines decreased somewhat, and bottlenecks with new equipment hampered output. "It has been a tough month," a Montana mining official commented. Agriculture Agriculture was up. The U.S. Department of Agriculture forecast that the corn harvest will set new records in Minnesota and North Dakota, with near-record production in South Dakota. District soybean production is expected to be considerably higher than last year. The wheat harvest is anticipated to increase in Montana and slightly decrease in North Dakota. In South Dakota, production of dry beans and sunflowers is forecast to increase 35 percent and 36 percent, respectively. However, the dry bean and sunflower harvests in Minnesota and North Dakota are expected to decrease significantly. The Minnesota sugar beet harvest is predicted to come in 5 percent below last year, with some farmers voicing concerns over the sugar content. Also, the forecast is more uncertain this year than in previous years; due to this year's cool summer, crop immaturity is causing harvesting delays. Prices are mixed. The USDA forecast decreases in prices for corn and soybeans and an increase in wheat prices. Employment, Wages and Prices The number of net new jobs grew modestly. A representative of a Minneapolis-St. Paul employment service recently indicated that labor markets have tightened for a number of industries. Strong demand for upper-level finance-related jobs was noted by industry observers. In northwestern Montana, some local employers noted that finding people to fill job openings is becoming more of a challenge. Meanwhile, temporary and permanent placements were up, according to a recruiting and employment services company in Minneapolis-St. Paul. Initial claims for unemployment insurance dropped 18 percent in Minnesota during September compared with a year ago. In contrast, a major Minnesota-based electronics manufacturer recently announced plans to lay off about 75 to 100 employees. A St. Paul-based software company said that it will reduce its workforce by about 50 jobs at its headquarters this fall. Also in Minnesota, workers at a pickup truck assembly plant were furloughed for five weeks beginning in October due to declining sales, and a food processing plant will lay off about 100 workers. A Montana telemarketing company recently closed, affecting 64 workers. Wage increases were moderate. Manufacturing wages were up 2.8 percent in district states for the three-month period ending in August compared with a year ago. Price increases were noted in manufacturing and construction materials, retail food, heating fuel and petroleum. Manufacturing and construction materials prices edged up, including aluminum, copper, diesel fuel, steel, lumber and lumber products. Retail food prices increased 4 percent in the third quarter, according to a survey by the American Farm Bureau Federation. Prices of natural gas for November delivery were up about 40 percent compared with a year ago. October prices for heating oil in Minnesota were up almost 45 percent from a year ago. Gasoline prices in Minnesota in the beginning of October were 20 percent higher than a year earlier. Return to top St. Louis Kansas City