U.S. Federal Reserve Beige Book: Minneapolis District (Text)

The following is the text of the Federal Reserve Board’s Ninth District-- Minneapolis.

NINTH DISTRICT--MINNEAPOLIS

The Ninth District economy posted moderate growth. Increased activity was noted in consumer spending, tourism, commercial construction and real estate, professional services and manufacturing. Residential construction and real estate grew at a fast pace, the energy and agriculture sectors were steady and mining decreased. Labor markets tightened since the last report, particularly in the western part of the district. Wage increases were generally modest, and overall prices were stable, with some exceptions noted.

Consumer Spending and Tourism

Consumer spending grew slightly due in part to a late spring. A Minneapolis area mall reported that recent traffic was level with a year ago, but sales for most tenants were up. A mall manager in Montana noted that apparel sales were slow, but jewelry sales were much higher than a year ago. A Minnesota-based retailer reported that the extended winter weather slowed spring sales of apparel and other items. A Minnesota auto dealer reported level sales over the past couple of months. A representative of an auto dealers association in Montana noted moderate growth in recent auto sales compared with a year earlier at dealerships in the state.

Winter tourism finished very strong in northern Wisconsin and Minnesota as snowpack remained into May in some areas. A tourism official in northwestern Wisconsin noted that summer bookings at resorts were strong. Recent hotel occupancy in Billings, Mont., was down somewhat from 2012, but still at high levels compared with the prior few years.

Construction and Real Estate

Despite the inclement weather, commercial construction activity continued to increase since the last report. The value of April commercial permits in Billings increased 11 percent from last year, while hotel building rose to $11 million in April compared with zero in the first four months of 2012. In Sioux Falls, S.D., April permits were up 2 percent from a year ago. A Minnesota manufacturer plans to build an office building. However, in the Minneapolis-St. Paul area, April nonresidential construction activity decreased from a year ago, according to a market research firm. Residential construction increased rapidly over past year. The value of April residential permits in Sioux Falls more than quadrupled from a year earlier. In the Minneapolis-St. Paul area, April residential permitted units more than doubled compared with April 2012. The value of April residential building permits in Billings was up 77 percent from last year, mostly due to multifamily building.

Activity in commercial real estate markets increased since the last report. A real estate analytics firm noted that Minneapolis-St. Paul area industrial vacancy rates dropped in the first quarter and are forecast to fall throughout 2013. Residential real estate market activity increased at a solid pace. In the Sioux Falls area, April home sales were up 28 percent, inventory was down 19 percent and the median sale price increased 6 percent relative to a year earlier. Recent home sales were up 16 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale was down 28 percent, and median sale prices rose 12 percent. Multifamily vacancy rates in Minneapolis-St. Paul dropped in the first quarter, but are forecast to rise for the remainder of 2013.

Services

Activity at professional business services firms increased at a moderate pace since the last report. Preliminary results of the Minneapolis Fed’s annual survey of professional services companies (conducted in May) showed that over the past four quarters, sales revenue, space usage, productivity and profits grew, and these are expected to increase over the next year. Contacts from the trucking industry expect minimal growth in freight volumes during the second half of the year.

Manufacturing

Manufacturing activity continued to expand moderately. An April survey of purchasing managers by Creighton University (Omaha, Neb.) found that manufacturing activity increased in Minnesota and the Dakotas at a slightly faster pace than in recent months. A Minnesota tractor manufacturer announced a $43 million expansion plan, while a vehicle producer is investing $20 million to expand research and development at a North Dakota facility. Plans were announced for a $1 billion fertilizer plant in North Dakota.

Energy and Mining

The energy sector remained strong, while mining activity slowed. Late-May oil and gas exploration activity increased in North Dakota and was flat in Montana compared with the last report. In North Dakota, a $400 million oil refinery will break ground this spring and a 120-car rail terminal is in the works to handle crude oil. Exports of coal from Montana’s Powder River basin hit record levels even as domestic demand dwindled. Meanwhile, production at Minnesota iron ore mines through April was about 5 percent lower than for the same period in 2012.

Agriculture

While a late spring delayed planting, recent rains brought drought relief for District agricultural producers. According to the Minneapolis Fed’s first-quarter (April) survey of agricultural credit conditions, nearly 90 percent of respondents said farm incomes increased or held steady over the previous three months, with similar results for farm household and farm capital spending. Expectations for the second quarter were more moderate. District corn, soybean and spring wheat planting progress was behind average for late May, but producers were catching up quickly after a delayed spring. Prices increased from a year earlier for corn, wheat, soybeans, hay, eggs, chicken and dairy products; prices fell for hogs, turkey and dry beans, while cattle prices were flat. USDA forecasts call for substantially lower prices for corn and soybeans for the coming year, with slight reductions in wheat prices.

Employment, Wages and Prices

Labor markets tightened since the last report, particularly in the western part of the District. Labor markets remained very tight in and near the oil boom area in western North Dakota and eastern Montana, although some easing in the pace of growth was noted over the past six months. Contacts in manufacturing and agribusiness in eastern South Dakota expect to increase employment slightly over the next six months. Results from the aforementioned professional services survey show that respondents saw employment growth over the past 12 months and expect more growth in the next year.

Meanwhile, employment levels declined in Minnesota during March and April, partially due to extended winter weather. A Minnesota employment services firm noted that temporary placements in light industrial companies were level during the second quarter after posting strong gains since early 2012. A paper mill in northern Minnesota recently announced 300 layoffs. Wage increases were generally modest. The professional services survey indicated that respondents on average expect wages and benefits to increase 2 percent over the next 12 months.

Overall prices remained stable, with some exceptions noted. Lumber prices decreased since the last report after making strong gains since October 2012. Gold and silver prices also decreased since the last report. Average Minnesota gasoline prices spiked to $4.34 per gallon toward the end of May, about 85 cents per gallon higher than a month earlier, as major refineries that supply the Midwest closed for maintenance.

SOURCE: Federal Reserve Board

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