|
The Ninth District economy edged up since the last report. Growth was noted in consumer spending, tourism, commercial real estate and construction, services, manufacturing, energy and agriculture. Residential construction and real estate activity decreased, and mining was flat. Labor market conditions were mixed, and overall wage increases were moderate. Significant price increases were noted for gasoline and copper.
Consumer Spending and Tourism
Consumer spending increased modestly. A mall manager in North Dakota reported that sales were up in April and early May compared with a year ago and seemed to be above the national trend. Memorial Day weekend traffic at a Montana mall was fairly strong, according to the manager. A member of the Minneapolis Fed's Advisory Council on Small Business and Labor noted solid retail activity in northwestern Minnesota. Same-store sales at a major Minneapolis-based retailer are expected to increase by about 6 percent in May compared with a year ago. However, recent traffic at a Minneapolis area mall was down slightly from a year ago. Vehicle sales were generally slower compared with previous years, but were holding steady recently, according to a representative of an auto dealers' association in South Dakota.
Despite high gas prices, tourism businesses are optimistic for the summer season. Reservations at a lodge near Glacier National Park were going strong, according to the manager. Businesses reported stronger sales in May after a slow April in northwestern Wisconsin; inquiries for summer tourism were at solid levels, according to an official. Tourism in 2007 has been slow in the Upper Peninsula of Michigan; however, good weather led to stronger activity in May.
Services
The professional business services sector saw growth compared with last year. Preliminary results of the Minneapolis Fed's May annual survey of professional services companies showed that revenues and profits increased from a year ago and are expected to increase over the next year. In addition, respondents indicated that productivity remains strong and finding qualified workers is difficult.
Construction and Real Estate
Commercial construction grew as the primary building season moved into full swing. There are 1 million square feet of office space under construction in Minneapolis-St. Paul. However, a general contractor in Minnesota and South Dakota noted slowing growth this year. Home building remained at a low level in most parts of the District. Year-to-date home building permits were down significantly in Rochester, Minn., and Fargo, N.D. Permits in Sioux Falls, S.D., were about even with last year. In contrast, a western Montana home builder expects business to be up as much as 40 percent from a year ago.
Commercial real estate was solid. A Minneapolis-St. Paul commercial real estate firm reported strong demand for office and industrial space. A major software firm announced it would absorb an additional 60,000 square feet of office space in Fargo; a commercial developer there said the demand for industrial space is strong, while the market for retail space is soft. Respondents to the professional services survey indicated a small increase in demand for office space. However, District housing markets were mostly weak. April home sales in the Minneapolis-St. Paul area were down 10 percent from a year earlier, and sale prices were down 4 percent. In Bismarck, N.D., by contrast, the number of homes sold was about even with last year, while home values were on track to increase almost 9 percent. A survey of District rental markets showed lower vacancy rates and increased rents compared with last year.
Manufacturing
Activity in the manufacturing sector grew since the last report. A May survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased manufacturing activity in Minnesota and the Dakotas. In Minnesota, an electronics manufacturer is adding a production facility, a fiberglass product producer is expanding production and a pump maker noted increased orders. In addition, a global steel company plans to invest $1.6 billion to build an iron-to-steel mill. However, a window maker, a paper plant and a manufacturer of stone-cutting machines in Minnesota reduced production, and a lumber mill in Montana closed.
Energy and Mining
Activity in the energy sector increased since the last report, and mining was flat at high levels. Oil and gas exploration and production in the District increased from previously reported amounts. Several new wind energy projects were announced, and many are either planned or in development across the District. Mining production remained at near capacity across the District, but constraints to expansion were evident due to difficulties obtaining needed equipment, especially oversized tires for mining vehicles.
Agriculture
Solid conditions and strong prices aided the agricultural sector. Most of the District received precipitation since the last report, which aided crop conditions. Crop emergence is ahead of the five-year average for corn and soybeans. Dairy producers benefited from significantly higher milk prices. The U.S. Department of Agriculture predicted that 2007 prices would be higher than 2006 prices for corn, soybeans, wheat, cattle and hogs. Responses to the Minneapolis Fed's first-quarter (April) agricultural credit conditions survey indicated that overall agricultural income would increase during the second quarter. However, higher input costs for feed, fuel and fertilizer have agricultural producers concerned.
Employment, Wages and Prices
Labor markets were mixed. Unemployment rates in Minnesota and Wisconsin increased by 0.5 percentage points in April from a year ago. A data-storage product manufacturer recently announced plans to cut 40 research-and-development jobs in Minnesota and 390 jobs at a North Dakota plant. Also in Minnesota, a newspaper recently announced plans to cut 145 positions. Initial claims for unemployment insurance in Minnesota were up 14 percent in late April and May compared with a year ago.
In contrast, labor markets continued to tighten in the Dakotas and Montana. The unemployment rate in Montana was 2.2 percent in April, the lowest in the nation, compared with 3.3 percent a year earlier. A mine operator in Montana noted it is taking longer to fill job vacancies. A major software firm recently announced plans to expand facilities in North Dakota, which will provide space for 600 more workers. Call centers were using a variety of incentives to attract and retain employees in Sioux Falls.
Wage increases were generally moderate. According to preliminary results of the professional services survey, wages are expected to increase about 3 percent over the next 12 months. A contract agreement reached in May between registered nurses and hospitals in the Minneapolis-St. Paul area included an 11 percent raise over three years.
Significant price increases were noted for gasoline and copper. Gasoline prices at the end of May in Minnesota were 62 cents per gallon higher than a year ago. A contact noted that copper prices have increased significantly since the beginning of the year. About half of respondents to the professional services survey expect inflation to increase over the next 12 months.
|
St. Louis