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The Ninth District economy was sluggish from mid-October through mid-November. Consumer spending was weak, and mining and commercial construction activities were down. Agriculture was mixed, while energy, manufacturing, residential construction, and tourism grew. Over this period, labor markets were soft, while wage and price increases were modest. However, significant price increases were noted in gasoline and insurance.
Construction and Real Estate
Commercial construction was down. The value of contracts awarded for new construction projects in Minnesota and the Dakotas was off 8 percent for the three-month period ended in September compared with last year. The vacancy rate for office space increased to 15.7 percent during the third quarter in the Minneapolis-St. Paul area, up from 12.2 percent at the end of 2001, according to a commercial real estate firm. Empty office space was up by over 2 million square feet during 2002 in the Minneapolis-St. Paul area, according to a commercial real estate association. In addition, construction activity for the first nine months of 2002 was down by more than 50 percent from a year ago.
Activity in homebuilding and residential real estate was solid. Housing units authorized in District states were up 11 percent for the three-month period ended in September compared with a year ago. A Minneapolis-area builder reported that the housing market still sees plenty of demand for new construction and contractors are busy. The number of homes sold in St. Cloud, Minn., was up 12 percent for the first nine months of 2002 compared with last year; home prices were up 6.3 percent for the same period.
Consumer Spending and Tourism
Overall retail spending was weak. A major Minneapolis-based department store retailer reported that overall same-store sales were up 1.5 percent for October compared with a year ago. Fall retail sales were soft in northwestern Wisconsin, according to a chamber of commerce official. A representative of a package shipping business noted that mail orders for holiday sales were "big time down"; some mail-order companies reported recent sales down 40 percent from a year ago.
However, several mall managers in the District reported higher sales in October. A mall manager in the Minneapolis area described October sales as strong, while a St. Paul-area mall manager said that although restaurants reported business down a little, most retailers were doing well. Sales were up 3 percent in October compared with a year ago at a mall in Montana.
Auto sales were slower. A Minnesota car dealer reported fewer auto sales in October and early November than during the summer. In Montana, a car dealer reported slow sales and low inventory levels in October compared with a year earlier.
Fall tourism was up in many parts of the District, and prospects for the winter season were generally positive. In the Upper Peninsula of Michigan, fall tourism was up over a year ago, while inquiries for winter activities were solid, according to an official. Tourism and convention activity was up about 4 percent this fall in Duluth, Minn., compared with last year. October traffic and retail sales at a visitor center in South Dakota were up from a year ago, according to a tourism official. Inquiries for winter tourism were comparable to a year ago in Montana.
Manufacturing
Manufacturing activity was up slightly. An October survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased manufacturing activity in Minnesota and the Dakotas. In addition, preliminary results of the Minneapolis Fed's annual (November) business conditions outlook poll revealed that manufacturers expect conditions to strengthen in 2003. Fifty-nine percent of the manufacturing respondents anticipate increased sales in 2003 over 2002 compared with 10 percent who expect sales to decrease. Advisory council members from the Upper Peninsula of Michigan plan to expand production at their manufacturing facilities. In Montana, an aluminum smelter expanded production, and a steel manufacturer planned a major expansion. However, a lumber mill will close in Montana, and a major food processor announced plans to shut a frozen bakery goods plant in Minnesota. In addition, a soft drink bottling plant in Minnesota closed.
Energy and Mining
Activity in the energy sector was up slightly, while the mining sector was down somewhat. Early November District oil and natural gas production levels were up since early October, but exploration has been flat. Meanwhile, due to weak orders, an iron ore mine in northern Minnesota placed all capital improvement projects on hold for the remainder of 2002.
Agriculture
The agricultural economy was mixed. With the fall harvest nearly complete, crop producers were generally seeing higher output, prices, and expenses. The U.S. Department of Agriculture (USDA) forecasts big increases in 2002 from 2001 in corn, soybean, and wheat production in most District states. However, "High drying expenses, more fuel use during combining, and big repair bills are expected to cut into the increased income available from better prices per bushel this year," wrote the USDA about Minnesota crop conditions. Meanwhile, livestock producers continued to suffer from low prices. The USDA projects 2002 prices to decrease from 2001 by 8 percent for choice steers and 26 percent for hogs. "It is a rare time for all of livestock to suffer while the row crops could have dramatic income and acre increases over past years," commented a Minnesota lender in the Minneapolis Fed's third-quarter (September) survey of agricultural credit conditions.
Employment, Wages, and Prices
Labor markets remained soft since the last report, with some layoffs noted. A circuit board and semiconductor plant in northern Wisconsin reported that it plans to lay off 225 people by the end of November. A Montana semiconductor plant recently announced the reduction of 170 jobs. In Minnesota, a business software company will lay off 130 workers, and a brokerage firm will lay off 55 employees. A mine in northern Minnesota recently laid off 37 workers. According to a recent survey conducted by the St. Cloud (Minn.) Area Quarterly Business Report, 62 percent of area business leaders expect their employment to remain flat over the next six months; 25 percent plan to increase staffing levels. According to preliminary results of the Minneapolis Fed's outlook poll, 66 percent of respondents predict the number of employees at their companies will remain unchanged in 2003 from 2002.
However, in South Dakota a call center recently announced plans to hire as many as 120 workers, and an insurance company expects to add 60 workers during 2003. Fast food restaurants were having difficulty finding employees in Billings, Mont., according to a bank director. Initial claims for unemployment insurance in Minnesota dropped 12 percent in October compared with a year ago.
Wage increases were modest. Wages for manufacturing jobs increased only 1.7 percent during the three-month period ended in September. Almost 70 percent of respondents to the Minneapolis Fed's outlook poll anticipate wages and salaries in their communities to increase between 2 percent and 3 percent in 2003.
Price increases were also modest, with the exception of significant increases in health insurance and gasoline. Only 25 percent of respondents to the Minneapolis Fed's outlook poll expect their product prices to increase next year, while 58 percent project prices to remain unchanged. A city in the Upper Peninsula recently budgeted an increase of 20 percent for health-care insurance costs in 2003 compared with the current year. During the first week of November gasoline prices in Minnesota were 20 percent higher than a year earlier.
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St. Louis