October 17, 2007 Federal Reserve Districts Ninth District--Minneapolis

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The Ninth District economy grew modestly since the last report. Growth was noted in tourism, services, manufacturing, energy, mining and agriculture. Consumer spending and commercial real estate growth slowed, while commercial construction was steady. Residential construction and real estate continued to weaken. Employment growth was mixed, with tightening conditions in Montana and the Dakotas, but with unemployment rates higher than a year ago in Minnesota and Wisconsin. Overall wage increases were moderate, while prices increased for diesel fuel and decreased for gasoline and lumber. Consumer Spending and Tourism Consumer spending increased at a slower pace than the previous report. A major Minneapolis-based retailer reported it expects same-store sales to increase about 2 percent in September compared with a year ago, down from an earlier forecast of a 4 percent to 6 percent increase. Car sales in North Dakota were relatively steady across the state, according to a representative of an auto dealers association. In contrast, September sales at a North Dakota mall were up about 7 percent compared with a year ago, according to the manager. End of summer tourism activity increased from last year. Several South Dakota tourism-related businesses reported activity up anywhere from 5 percent to 10 percent, according to an official. Late summer and fall tourism activity was up from last year in northwestern Wisconsin; an official noted that travelers were staying closer to their homes. A representative of a travel company based in Minnesota noted that business travel was up about 5 percent year-to-date through September compared with the previous year. Services Contacts from professional business service firms were upbeat. Planning consultants in Minnesota noted strong demand from city and county governments. An architectural design firm noted that despite the downturn in residential real estate, other areas continued to grow. Several accounting and actuarial firms planned to expand staff and space due to increased demand. Construction and Real Estate Commercial construction was steady. A Minneapolis commercial developer said activity was up recently, but is expected to decrease as inventory grows. A number of large retailers have recently built or announced plans to build locations in the Rochester, Minn., area. September commercial permits in Sioux Falls, S.D., were up 13 percent in value from the previous year. Residential construction remained slow. The value of permitted units in the Minneapolis-St. Paul area was down 38 percent in August from a year earlier. In contrast, a representative of a western Montana builders' association described recent activity there as consistent with recent strong years. In Sioux Falls the value of new residential construction in September was down slightly from the previous year. Commercial real estate softened. Contacts in Minneapolis-St. Paul indicated new leasing activity appeared to be down for office space and flat for industrial, while retail vacancy continued to be high. Retail vacancy was also a growing concern for contacts in Fargo, N.D., and Sioux Falls, but other segments of the market in those areas were robust. Residential real estate markets experienced continued sluggishness. Pending sales in early September were down 15 percent from the previous year in Minneapolis-St. Paul. Realtors in Michigan's Upper Peninsula reported mostly slower sales, with the exceptions of the Marquette area and the second home market. However, in Fargo, closed sales in September were up about 6 percent from the previous year, and Sioux Falls Realtors were having another record year. Manufacturing The manufacturing sector grew since the last report. A September survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased manufacturing activity in Minnesota and the Dakotas. A Minnesota metal fabricator plans to increase investment in plant and equipment due to strong sales and rising exports. In North Dakota, an agricultural equipment plant saw a large increase in demand. In western Wisconsin, a manufacturer that supports the oil and gas industry and a machine maker are both expanding investment in plant and equipment due to robust demand. However, the slump in wood product manufacturing and other producers that support the housing industry continued across the district. Energy and Mining Activity in the energy and mining sectors grew since the last report. Oil and gas exploration and production in the District continue at a strong pace. Several alternative energy projects are planned or are under construction. Most mines continue to operate at near capacity and are investing in additional equipment. Agriculture Strong agricultural conditions were reported across the District. The harvest was ahead of schedule for major District crops and planting of winter wheat had begun. A near record crop of cranberries was expected in Wisconsin. The U.S. Department of Agriculture increased its yield estimates for corn and soybeans. Estimated small grain yields in Montana were larger than a year ago. In addition to strong yields, high prices for many crops were driving up estimated agricultural revenues. Employment, Wages, and Prices Employment growth was mixed. Labor markets generally continued to tighten in Montana and the Dakotas, but unemployment rates were higher than a year ago in Minnesota and Wisconsin. In addition, August nonfarm employment growth was stronger in Montana and the Dakotas (above 2 percent) compared with Minnesota and Wisconsin (below 1 percent). A bank director and an economist noted that many employers in Montana were having difficulty filling low-skill jobs. A staff person in a municipal human resources department described the job market as the tightest in the past 15 years, while a medical claims processing company and an Internet printing service business each plan to add about 100 new employees in Montana. Representatives from a temporary employment agency in the health care sector noted difficulty finding quality workers in Sioux Falls. In Minnesota, a medical devices company recently announced plans to eliminate several jobs. August seasonally adjusted initial claims for unemployment insurance in Minnesota were 7 percent higher than a year earlier. A temporary staffing agency survey of Minneapolis-St. Paul businesses showed that 44 percent of respondents expected to hire workers during the fourth quarter, while 24 percent expected to reduce staff. In last year's survey, 36 percent expected increased hiring and 11 percent anticipated decreases. Overall wage increases were moderate. After a 13-day strike, clerical, health care and technical workers at the University of Minnesota agreed to annual raises of 2.25 percent to 2.5 percent for two years. Price increases were generally modest. However, early October diesel fuel prices in the Midwest increased almost 20 cents since the last report and were 60 cents higher than a year ago. In contrast, Minnesota gasoline prices at the beginning of October were about 30 cents lower than early September and just slightly higher than a year ago. Hardwood and softwood lumber prices decreased since the last report. Return to top St. Louis Kansas City