January 16, 2002 Federal Reserve Districts Ninth District - Minneapolis

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Economic activity in the Ninth District over recent months has been somewhat mixed. Commercial construction has slowed while residential construction is up slightly. While consumer spending has grown, manufacturing, agriculture, tourism, energy and mining are either mixed or down slightly. Meanwhile, from mid-November to early January, labor markets weakened and overall wages and prices are stable. However, decreases in heating costs and increases in health insurance rates were noted. Construction and Real Estate Commercial construction activity is down. Contracts awarded for heavy construction projects in Minnesota and the Dakotas decreased 10 percent during the three-month period ending in December compared with last year. The construction of an extended-stay hotel and an upscale condominium project were both recently suspended in the Minneapolis area due to uncertainties caused by the Sept. 11 attacks. An architectural firm in Minnesota noted decreased interest in private building construction for 2002. According to a commercial real estate representative, recent retail store openings and renovations in the Minneapolis/St. Paul area are at lower levels than a year ago. Residential construction and sales are up from a year earlier. Bank directors noted that recent homebuilding and home sales are solid in many parts of the district. Rochester, Minn., recorded the second-biggest November for the number of home permits issued. Home sales in Minneapolis-St. Paul were up 23 percent in November and housing permits issued were up 7 percent in December compared with a year earlier. Consumer Spending and Tourism Holiday sales were generally higher at several district malls; however, some clothing stores and shopping centers reported soft sales. Managers and storeowners at three Montana malls reported solid holiday sales. A representative of a Minneapolis area mall estimated holiday sales were up 5 percent compared with a year ago, while another Minneapolis area mall reported traffic up over 10 percent. A North Dakota mall reported generally strong holiday sales with some softness in apparel compared with last year. Retail sales at restaurants and stores were strong during the week following Christmas, according to a chamber of commerce official in northwestern Wisconsin. However, a manager of a Minneapolis area mall reported sales were down 3 percent in December compared with a year earlier. A department store manager in Duluth, Minn., reported flat holiday sales compared with last year. Winter attire sales during the holidays were slow due to warm weather, according to a clothing store owner in Minnesota. While auto sales were strong in October and November, a bank director noted that sales slowed during early December. An auto dealer association representative in Minnesota reported that sales of new cars were softer in December compared with the previous two months, while inventories of used cars were up due to a high number of trade-ins during October and November. Low snowfall levels have decreased winter tourism in several areas. Snowmobile trails remained ungroomed as of early January in northwestern Wisconsin and several lodging establishments there reported lower revenues in December compared with past years. In contrast, a ski resort in northern Minnesota reported solid numbers of skiers in December, while January bookings are ahead of last year. A Montana ski resort reports strong activity due to favorable snow conditions in December; however, advanced bookings for the rest of the season are down compared with last year. Manufacturing Overall manufacturing activity is down. A December survey of purchasing managers by Creighton University indicated decreases in manufacturing activity in Minnesota and South Dakota and increased activity in North Dakota. In Minnesota, a cabinetmaker and plastics producer both announced factory closings, while a bus manufacturer plans to cut production. In addition, a circuit board plant will be closed in western Wisconsin and a grain equipment factory in South Dakota will shut down. Mining and Energy Activity in the energy and mining sectors is down somewhat. Late December district oil and natural gas exploration levels are slightly behind the levels of mid-November. Meanwhile, an iron ore mine in the Upper Peninsula of Michigan and a mine in Northern Minnesota both extended a shutdown, while another mine in Northern Minnesota ended an eight-week shutdown in December, but at reduced production levels. In contrast, December production at a Montana palladium/platinum mine was about even with November levels. Agriculture Overall agricultural activity is mixed. Early January futures prices for most district agricultural commodities were little changed from late November. Meanwhile, mild winter conditions across most parts of the district have aided livestock production, but lack of adequate snow cover has concerned winter wheat growers. Employment, Wages, and Prices Labor markets are softer than last reported as several firms have announced layoffs. A Minnesota-based airline carrier recently shut down its operations, which left 900 employees jobless. A financial services company will eliminate 400 positions in Minnesota. A commercial insurer will eliminate 250 positions at its St. Paul headquarters. A survey by a major temporary staffing agency showed that only 12 percent of firms polled in Minneapolis-St. Paul are planning to add staff during first quarter 2002, down from 34 percent in last year's survey. Initial claims for unemployment insurance in Minnesota for the four-week period ending December 15 were up 38 percent compared with a year ago. According to results of the Minneapolis Fed's annual business conditions survey (conducted in November), only 15 percent of respondents expect employment levels to increase at their companies in 2002, down from 30 percent in last year's survey. However, several medical centers in the district continue to report difficulty filling positions for nurses. Wage increases are modest. Only 5 percent of respondents to a survey of manufacturers in Minnesota, Wisconsin and the Dakotas reported increased wages in December compared with 48 percent a year ago. Wages for district manufacturing workers increased 2.2 percent for the three-month period ending in November compared with a year ago, the smallest year-over-year increase in almost three years. Bank directors expect wages to increase no more than 2 percent to 4 percent in 2002. Price increases are moderate, with significant price decreases noted in winter heating and increases in health insurance rates. About 22 percent of respondents to a survey of manufacturers in Minnesota, Wisconsin and the Dakotas reported higher product prices in December, down from 40 percent a year ago. Recent natural gas prices for residential customers are down 35 percent to 50 percent in many parts of the district compared with last year. Bank directors reported significantly higher health insurance rates in their areas. Return to top St. Louis Kansas City