June 9, 2010 Federal Reserve Districts Ninth District--Minneapolis

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The Ninth District economy grew at a steady pace since the last report. Consumer spending, tourism, residential real estate and construction, services, manufacturing, energy, mining and agriculture saw increases. Commercial real estate was flat at low levels, and commercial construction activity was slow. Some signs of strengthening were noted in labor markets. Wage increases were subdued, and overall prices remained level. Consumer Spending and Tourism Consumer spending increased moderately since the last report. A major Minneapolis-based retailer reported that same-store sales in April and March combined were up 3 percent compared with a year earlier. A Minnesota-based manufacturer of outdoor maintenance equipment reported a strong start to the spring selling season. Meanwhile, a North Dakota mall reported that April sales were up about 3 percent, and a Montana hardware store operator noted that recent sales were above year-ago levels. Retail sales dipped slightly during April in some areas in part due to a relatively early Easter. For example, traffic at two Minneapolis area malls was down 3 percent and 7 percent, respectively, in April after increasing in March. Automotive dealers in the Minneapolis-St. Paul area reported that car sales and maintenance and repair business were up from a year earlier. April new car sales were up significantly higher from March in Montana and the Upper Peninsula of Michigan, but were down slightly in western Wisconsin. Tourism contacts are optimistic for the summer season. An official in the Upper Peninsula reported that tourism traffic was starting to look pretty good and a strong summer season is expected. The number of nonresident visitors to Montana is expected to increase 2 percent compared with a year ago after a flat year in 2009, according to state tourism officials. Inquiries about summer tourism activities were strong in Duluth, Minn. However, recent leisure bookings by a Minnesota travel agency were down during April and May, and advanced bookings for the summer season were slow. Construction and Real Estate Commercial construction was weak. April nonresidential permits fell dramatically in Sioux Falls, S.D. Several contacts in infrastructure building noted that the volume of publicly funded work is declining. However, a commercial builder in northeastern Minnesota and northwestern Wisconsin said that while most sectors were weak, demand for industrial construction was stronger. Residential construction continued to rebound. Housing permits in the Minneapolis-St. Paul area nearly doubled in value in May from the previous year; April permits rose 20 percent in value in Sioux Falls. The number of permits issued in and around Bismarck, N.D., increased from a year earlier. Commercial real estate was slow. The amount of unused space in the retail market in Minneapolis increased by 135,000 square feet during the first quarter. An industry contact in northern Wisconsin noted that nearly every sector in his area was overbuilt. Residential real estate saw continued slow growth. April home prices increased in Minneapolis-St. Paul for the fourth consecutive month, the longest period of increasing prices since 2004. Brokers in Fargo, N.D., and Duluth, Minn., noted increased activity in April as home buyers took advantage of the federal tax credit before its expiration. Contacts around the District reported increased housing short sales for distressed properties. Services Contacts from various services firms noted a recent increase in business. Preliminary results of the Minneapolis Fed's annual survey of professional services companies in May showed that sales revenue, space usage, and profits are expected to increase over the next year. A small North Dakota information technology firm commented that the "outlook is good." Manufacturing Manufacturing output was up since the last report. An April survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity increased significantly in Minnesota and South Dakota and increased slightly in North Dakota. A computer component plant in western Wisconsin planned to increase capital expenditures significantly in 2010. An expansion of a food processing facility is under way in North Dakota. Energy and Mining Activity in the energy and mining sectors increased since the last report. Late May oil exploration increased from early April. Wind energy projects continued to be planned and built in the western portion of the district. Iron ore production in Minnesota increased about 5 percent in April from March. Agriculture Agricultural activity increased. Across most of the District, crops were planted earlier than the five-year average and are emerging at a faster pace. However, the Minneapolis Fed's first-quarter (April) survey of agricultural credit conditions indicated that lenders expect overall agricultural income and capital spending to decrease in the second quarter. Employment, Wages and Prices Some signs of strengthening were noted in labor markets. In Minnesota, a shoe manufacturer recently announced plans to hire up to 80 more workers, and a manufacturer of windows and doors increased the workweek for employees after reducing their time during the economic downturn. About three-quarters of respondents to a Minneapolis Fed survey of temporary employment firms in Minnesota, North Dakota, and Wisconsin reported an increase in the number of customers and employed workers. Placements at industrial firms showed the largest increase. At a Montana employment office, more businesses were looking to hire employees, but overall hiring activity remained relatively slow. Despite signs of improvement, overall labor markets remained weak. In Montana, a recent job fair attracted hundreds of job seekers for openings at almost 50 companies. A wood furniture factory and chain of stores in Montana recently went out of business, affecting over 60 workers statewide. Almost 50 workers were laid off by a defense contractor in Minnesota. Wage increases were subdued. According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, only 18 percent expect to increase employee compensation at their companies over the next six months. In last year's survey, 21 percent expected to increase compensation. Several temporary staffing firms noted flat to lower wages. The majority of respondents from the Minneapolis Fed's preliminary survey of professional business services firms indicated no increases in wages for the next year. A nurses union in Minneapolis-St. Paul recently approved a one-day strike in response to negotiations with area hospitals, which had proposed to change work rules, cut pensions, and reduce health benefits. Overall prices remained level. Some price pressures were noted in materials for large construction projects; however, in recent weeks, prices for oil, copper, and some steel products decreased. In addition, fertilizer prices were down from a year ago. Return to top St. Louis Kansas City