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The Ninth District economy grew at a steady pace since the last report. Increases
in activity were noted in consumer spending, manufacturing, tourism, construction,
mining, energy, agriculture, and commercial real estate. Meanwhile, residential
real estate softened. Since the last report, the pace of employment and wage
growth increased slightly. Significant price increases were noted for fuel and
some construction materials.
Consumer Spending and Tourism
Overall consumer spending showed solid growth since the last report. A major
Minneapolis-based retailer reported same-store sales up about 6 percent in May
compared with a year ago. A mall manager in North Dakota said that traffic on
Mother's Day weekend was fairly brisk. In contrast, same-store sales at a Minneapolis
area mall in April were lower than a year ago.
Car dealers in south-central Montana noted that while consumers are more interested
in purchasing four-cylinder cars, sales of trucks and SUVs were still solid.
At a Minnesota dealership, May sales were strong, especially for fuel-efficient
vehicles.
Spring tourism activity posted modest increases, while tourism officials are
cautiously optimistic for the summer season despite higher gas prices. In Duluth,
Minn., recent tourism spending was up about 5 percent compared with a year ago,
and inquiries for summer activities were strong; business convention spending
was about even with a year ago. Tourism businesses in northwestern Minnesota
reported a positive outlook for summer activity. Tourism in Montana is expected
to grow 2 percent in 2006. According to a tourism official in the Black Hills
area of South Dakota, advanced summer bookings started slow but recently reached
normal trends.
Construction and Real Estate
Construction was robust. Commercial construction was about level with last year's
strong building season in Bismarck, N.D. Developers announced plans for a 1.3-million-square-foot
office and commercial development in a Minneapolis suburb. The Minnesota Legislature
approved funding for two large stadiums in Minneapolis-St. Paul. Construction
began on downtown condos in both Sioux Falls, S.D., and Fargo, N.D. More than
$94 million in spending on road and bridge construction and $84 million on state
university projects is planned in Montana this summer. However, April year-to-date
residential and commercial permits for Rochester, Minn., were down 12 percent
in value from last year.
Residential real estate continued to cool. New listings in Minneapolis-St.
Paul during the third week of May were up 18 percent over last year, while pending
sales were down 21 percent. Inventories in Sioux Falls were up 18 percent from
a year ago. In contrast, home sales remained strong in western Montana. The
commercial real estate market grew steadily. A bank director reported office,
retail, and industrial real estate in Sioux Falls as strong overall but down
from last year's record levels. In Minneapolis, commercial office absorption
continued to increase; for example, a large company is moving to a 188,000-square-foot
office tower downtown. A representative of a commercial real estate firm in
Minneapolis-St. Paul noted that businesses that require relatively high volumes
of office space were having difficulty finding openings.
Manufacturing
Manufacturing activity expanded. A May survey of purchasing managers by Creighton
University (Omaha, Neb.) indicated strong growth of manufacturing activity in
the Dakotas and Minnesota. A safety gear manufacturer in Minnesota is expanding
into a new plant. Meanwhile, a sewing company in the Upper Peninsula of Michigan
reported strong demand and is planning to add space. A commercial bakery in
Montana is adding production space, machinery, and equipment.
Energy and Mining
Activity was up slightly in the energy and mining sectors. The number of oil
rigs operating in the District increased since the last report. In addition,
several new coal-fired power plants, wind farms, and ethanol distilleries are
under construction or in the permitting process. One Minneapolis Fed Agriculture
Advisory Council member noted that ethanol and biodiesel plants are "springing
up like popcorn." Meanwhile, nearly all open mines in the District are producing
at near full capacity. Several companies are exploring or permitting new mining
sites throughout the District.
Agriculture
Agricultural activity increased slightly since the last report, but prospects
for farm income have deteriorated. A good calving and lambing season is mostly
complete across the District, with some minor losses reported in areas due to
inclement weather. The U.S. Department of Agriculture reported that crop plantings
and progress are slightly ahead of last year's pace in most District states.
Spring storms aided moisture conditions across most of the District, although
central South Dakota is dry. This year's estimated winter wheat yields per acre
are up, but production in Montana is down 14 percent from 2005. Responses to
the Minneapolis Fed's first-quarter (April) agricultural credit conditions survey
indicate that overall agricultural income will be down in the second quarter
of 2006 due to higher costs of fertilizer, fuel, and machinery. Meanwhile, the
USDA recently estimated that prices of corn, soybeans, and cattle will decrease
this year compared with last year.
Employment, Wages, and Prices
Employment grew moderately since the last report. In North Dakota, a wind turbine
blade plant will soon add up to 130 jobs, and in South Dakota, a communications
company is adding 120 jobs. Two business schools in Minneapolis-St. Paul reported
an approximate 20 percent increase in the number of graduates with job offers
this year; accounting and finance were among the top areas. North Dakota members
of the Minneapolis Fed's Advisory Council on Small Business and Labor noted
difficulty finding available labor, particularly low-skilled workers. Preliminary
results of the inaugural Minneapolis Fed's May survey of professional services
companies indicated increased employment and decreased availability of labor
for the next four quarters.
A slight increase in the pace of wage raises was noted since the last report.
In the Minneapolis-St. Paul area, wages for many trades, hospitals, and manufacturers
were up by about 3 percent to 4 percent. A bank director noted that the starting
wage for unskilled workers in Bozeman, Mont., is $6.50, well above the minimum
wage. Preliminary results of the professional services survey show an expected
average wage increase of about 3 percent during the next four quarters.
Significant price increases were noted in fuel, health insurance, and some
construction materials. Gasoline prices in Minnesota were up 79 cents at the
end of May compared with a year ago. Freight fuel surcharges have increased
to as high as 27 percent of total mileage, according to a Montana bank director.
A number of construction materials increased in price, including copper, insulation,
steel, and wallboard; in contrast, some lumber prices softened. Preliminary
results of the professional services survey reveal that 73 percent of respondents
expect overall inflation to increase during the next four quarters.
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