July 29, 2009 Federal Reserve Districts Ninth District--Minneapolis

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The Ninth District economy contracted since the last report. Decreases in activity occurred in the retail spending, tourism, services, residential construction, agriculture, mining and manufacturing sectors. The commercial construction sector was stable at low levels, while the energy and residential real estate sectors saw moderate increases. Labor markets slackened since the last report, and wage increases were moderate. While a number of prices were lower than a year ago, prices have generally remained stable since the last report. Consumer Spending and Tourism Retail spending remained constrained. A major Minneapolis-based retailer reported that same-store sales in June were down 6 percent compared with a year earlier. Recent same-store sales at a Minnesota-based hair care company dropped 4 percent, and sales at a Montana mall were flat to down slightly from a year ago, according the mall manager. Meanwhile, sales at a North Dakota mall were down about 3 percent in June compared with a year earlier. A representative of a Minnesota-based food retailer noted that consumers were value-focused and cautious with their spending. A Minnesota-based high-end seafood restaurant chain recently filed for bankruptcy. Auto sales picked up slightly since the last report. Auto repair and auto parts businesses reported an increase in activity. Three domestic auto dealers, two in Minnesota and one in northwestern Wisconsin, noted increases in sales during June and early July. However, a western Montana auto dealer noted that sales were down more than 50 percent compared with the past couple of years. Tourism activity was down from a year ago. Summer tourism activity in the Upper Peninsula of Michigan dropped about 15 percent, according to a tourism official. Occupancy at hotels and resorts in northeastern Minnesota was down 5 percent to 20 percent. Hotels in western Montana noted occupancy down 4 percent to 10 percent; hotels were discounting prices to draw people to their facilities. The number of tourists in northwestern Wisconsin was equal to or greater than last summer, but overall sales activity was slow. Services Services sector activity fell since the last report. Several law firms reported reduced demand. A software development company based in Minnesota cut back on development. Architects reported continued slow demand for their services. However, demand for health services picked up, and accountants who deal with business workouts reported increased activity. Construction and Real Estate Commercial construction was stable at low levels. A Bank director noted that bidding activity was up in the Helena, Mont., area but that large contractors were mostly bidding on smaller jobs. A number of civic projects were under construction around the District. However, commercial permits in Sioux Falls, S.D., decreased 40 percent in value in June from a year earlier. Residential construction was slower. June housing permits were down 25 percent in value from a year earlier in Minneapolis-St. Paul and decreased 30 percent in Fargo, N.D. Commercial real estate markets were slow. A representative of a state bankers' association said the number of troubled commercial property loans has increased. Vacancies were particularly pronounced in retail and industrial markets throughout the District. Several contacts reported that tenants were asking for rent decreases. Residential real estate activity increased. Closed home sales in Minneapolis-St. Paul increased 20 percent in June from a year earlier, but the dollar volume of sales was flat, as median sale prices were down more than 15 percent. Realtors in western Montana said sales were steady there for lower-priced homes, but slow for high-end properties. Manufacturing Manufacturing activity decreased since the last report. A June survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that activity declined in Minnesota and the Dakotas. A Minnesota specialized-equipment company reduced production. A South Dakota producer of skid-steer and front-end loaders cut production in response to weak demand. However, a Minnesota diversified manufacturer reported that sales have stabilized after its customers drew down inventory earlier in the year. Energy and Mining Activity in the energy sector increased slightly, while the mining sector continued to fall. Early July oil and gas exploration edged up from early June. New wind energy projects were announced since the last report. As iron ore inventories have accumulated at the shipping ports, a mine in northern Minnesota plans to shut production for about a year. Agriculture Agricultural conditions weakened since the last report. Potato growers in the Red River Valley could lose 20 percent of their crop due to heavy rains, while drought conditions persist in northern Wisconsin. Corn, soybean and wheat prices are expected to fall, according to the U.S. Department of Agriculture. District production of wheat and barley is expected to drop significantly in 2009 from strong 2008 levels. In addition, progress for the District corn and soybean crops was behind its five-year average pace. Employment, Wages, and Prices Labor markets slackened since the last report. The University of Minnesota recently announced plans to reduce the school's workforce by 1,200 positions over the next year, mostly through attrition, but 370 employees are expected to be laid off. Also in Minnesota, a trucking company with 200 employees recently announced it will close by the end of August, a Minnesota-based regional airline plans to furlough up to 110 pilots and a health insurance company will lay off 100 workers. A Montana sawmill recently closed, resulting in 85 lay-offs. A work platform lifts plant in North Dakota will shut down this fall, resulting in 61 lost jobs. A temporary staffing agency survey of Minneapolis-St. Paul businesses showed that 13 percent of respondents expect to hire workers during the third quarter, while 19 percent expect to reduce staff. A Minnesota staffing services company noted that the pace of business in early July was much slower than usual. However, another placement company noted an increase in demand for experienced information technology workers. Wage increases were moderate. According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 24 percent expect to increase employee compensation over the next six months, down from 35 percent in last year's survey. A Minnesota bank branch cut pay by 5 percent for all salaried staff. While a number of prices were lower than a year ago, prices have generally remained stable since the last report. Metal prices held relatively stable since the last report, although recent increases in some copper and steel products were noted. Minnesota gasoline prices in early July were 17 cents per gallon lower than a month ago. Return to top St. Louis Kansas City