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U.S. Federal Reserve Beige Book: Minneapolis District (Text)
The following is the text of the Federal Reserve Board’s Ninth District-- Minneapolis.
The Ninth District economy grew moderately since the last report. Increased activity was noted in consumer spending, tourism, professional services, construction, real estate, and agriculture. Growth was also positive, but slightly slower than in the previous reporting period, in the manufacturing, energy, and mining sectors. Some tightening was noted in labor markets, and wage increases were moderate. Price increases were modest, and some decreases were noted.
Consumer Spending and Tourism
Consumer spending grew moderately. Same-store sales at a Minnesota-based retailer increased 2 percent in June compared with a year ago. Sales at a North Dakota mall during June were up over 5 percent compared with a year earlier. A number of new retail store and restaurant openings were reported in North Dakota. Recent new car and truck sales were up at dealerships in Montana, according to a representative of an auto dealers association. However, recent same-store sales at a Minnesota- based women’s apparel retailer were down 15 percent from a year earlier.
Tourism activity increased from a year ago. Tourism officials in the Upper Peninsula of Michigan predicted that summer activity will surpass last year’s levels. In northwestern Wisconsin, resorts were full and sales at other tourism-related businesses posted strong increases. Visits to the Minnesota Zoo for the 12- month period ended in June reached record levels, according to officials. A Minnesota-based travel agency noted that leisure travel was down somewhat, while corporate travel was steady; overall revenue was up. However, restaurant and hotel owners in the Duluth, Minn., area noted a decrease in visits following a major flood in the region.
Construction and Real Estate
Commercial construction activity increased since the last report. The value of new commercial building permits issued in Fargo, N.D., so far in 2012 increased compared with the same period in 2011. Commercial permits in the Sioux Falls, S.D., area were up substantially in value in June from a year earlier. Numerous new commercial building projects were in early stages in the Minneapolis area, including a new headquarters for a large utility and a major expansion at an area hospital. Residential construction increased from a year ago. The value of residential building permits in the Sioux Falls area in June more than doubled from a year earlier. Residential permits increased in value and number in the Minneapolis-St. Paul area in June; the single-family sector saw a surprising rebound. Several large multifamily housing projects were under way in Fargo.
Commercial real estate markets saw continued strength. A Minneapolis property on which a mixed-use development has been stalled since 2003 recently sold to a new investor. Prices for commercial property in the oil boom areas of the District continued to increase. Residential real estate market activity increased as well. Home sales in May were up 27 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale was down 31 percent, and the median sales price rose by 11 percent. In the Sioux Falls area, May home sales were up 32 percent, inventory was down, and the median sales price rose nearly 3 percent relative to a year earlier.
Activity at professional business services firms grew somewhat since the last report. According to a Minneapolis Fed ad hoc survey, District professional business services firms noted gains in revenue and profits over the past three months, while the amount of space occupied held relatively steady. Respondents were mildly optimistic about the upcoming three months regarding revenue and profits. Some contacts noted that competition in the sector has lowered prices and driven down margins, yet projects were more complex and customer expectations were higher than five to 10 years ago.
Growth in the District manufacturing sector moderated slightly from the last report. A June survey of purchasing managers by Creighton University (Omaha, Neb.) found that manufacturing activity expanded in Minnesota and the Dakotas, but at a slightly slower pace than in recent months. A medical equipment maker near Minneapolis announced an expansion into a previously idle facility. A pipe producer announced plans to build a new plant in South Dakota. Plans moved ahead for a potential $1 billion fertilizer plant in North Dakota that would make use of natural gas from the state’s oil patch.
Energy and mining
Activity in the energy and mining sectors slowed slightly. Oil and gas exploration activity decreased in North Dakota and Montana since the last report, but oil production was at record levels. Reports surfaced of ethanol producers idling plants in response to sharp increases in corn prices in late June and early July, along with declining gasoline prices. District coal- mining operations also saw reductions in demand as electricity generation shifted toward natural gas. A mining company suspended its involvement in a joint project to develop a copper, zinc, and gold mine in Michigan’s Upper Peninsula. However, hard rock mines in Montana and iron ore producers in northern Minnesota remained busy.
District farmers mostly continued to benefit from favorable weather conditions. Drought that was threatening corn and soybean production throughout the Midwest has not had much effect on Minnesota and North Dakota, where most of those crops were rated in good or excellent condition. However, crop quality was somewhat weaker in Wisconsin and in South Dakota, where drought conditions were more prevalent. Prices received by farmers in June--prior to drought damage in other parts of the Midwest--increased from a year earlier for soybeans, hay, dry beans, poultry, and cattle; prices decreased for corn, wheat, hogs, and dairy products.
Employment, Wages, and Prices
Some tightening in labor markets was noted since the last report. Across the District, some health care organizations indicated they were planning to hire more workers, a number of retailers noted difficulty finding sales associates to fill open positions, and manufacturers continued to struggle to find skilled welders. According to the aforementioned ad hoc survey of professional business services firms, 28 percent expect to increase hiring over the next three months, while 8 percent expect decreases in staff levels. However, in Minnesota an electronics retailer will lay off an unspecified number of store and technical support workers in the state, a paper company laid off about 260 workers following an explosion at the plant, and a cable company laid off almost 70 salespeople.
Wage increases were moderate. Some contacts noted that compensation increases were now similar to prerecession levels as wages and benefits generally held steady during the past few years. Unionized grocery workers in Montana reached labor agreements that include about a 2.5 percent pay increase and added contributions to health and pension plans. Meanwhile, a nearly year-long lockout continued at a sugar beet processing plant after union workers recently voted to reject the management’s offer for a third time. Wages for truck drivers posted larger increases.
Overall price increases were modest, and some decreases were noted. Early July Minnesota gasoline prices decreased more than 10 cents per gallon since the end of May. Metals prices, as well as several other input costs, remained relatively level. One exception was a substantial increase in the price of tires for mining machinery.