The following is the text of the Federal Reserve Board’s Ninth District--Minneapolis.
The Ninth District economy grew at a modest pace since the last report. Increased activity was noted in consumer spending, tourism, professional services, construction and real estate, while activity slowed slightly in the manufacturing and energy sectors. Agriculture was mixed, while mining was steady at high levels. Overall labor market conditions were steady since the last report, and wage increases were modest. Prices were relatively stable.
Consumer Spending and Tourism
Consumer spending grew since the last report. Same-store sales at a Minnesota-based retailer increased 3 percent in July compared with a year ago; a company representative noted that back-to-school shopping activity has been positive. July same-store sales at a Montana mall increased slightly compared with a year ago. Recent same-store sales at a Minnesota-based restaurant chain were up about 7 percent compared with a year ago. New car and light truck registrations in Minnesota were more than 10 percent higher recently compared with last year. However, a higher-end retailer announced plans to close a Minnesota store next year.
Summer tourism activity increased from last year. Fishing license sales and visits to campgrounds and outdoor state parks and recreation areas in South Dakota were on a record pace. A resort in northwestern Wisconsin reported solid bookings. Tourism activity in the Upper Peninsula of Michigan was up 10 percent to 20 percent. Visits to Glacier National Park and Yellowstone National Park increased 20 percent and 10 percent, respectively. Activity at several other Montana tourism attractions was also tracking ahead of last year. Meanwhile, strong attendance levels were reported at the North Dakota State Fair in late July.
Construction and Real Estate
Commercial construction activity increased since the last report. The value of commercial building permits in the Billings, Mont., area in July more than doubled from the same period last year. Commercial permits in the Sioux Falls, S.D., area more than doubled in value in July from a year earlier. New industrial and warehouse building projects were in progress in the Minneapolis area. Residential construction increased from a year ago. The value of residential building permits in the Sioux Falls area in July was up 39 percent from the same period last year. Residential permits increased in value and number in the Minneapolis-St. Paul area in July; both single-family and multifamily permits increased. Several counties in Montana reported large increases in home building in 2012 compared with 2011, and the value of residential permits issued in July more than doubled in Billings.
Commercial real estate markets continued to expand. Vacancy rates for Minneapolis office and industrial properties declined over the past year and were expected to decline further, according to a real estate consulting firm. Several large transactions were announced since the last report. Residential real estate market activity was brisk. Home sales in early August were up 20 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale was down 30 percent. In the Sioux Falls area, July home sales were up 29 percent, inventory was down 14 percent and the median sales price rose 6 percent relative to a year earlier.
Activity at professional business services firms grew somewhat since the last report. According to a mid-August Minneapolis Fed ad hoc survey, District professional business services firms noted gains in revenue and profits over the past three months and expect this to continue over the next three months.
Manufacturing activity slowed. Surprisingly, a July survey of purchasing managers by Creighton University (Omaha, Neb.) showed a decrease in manufacturing activity in Minnesota and South Dakota for the first time in three years; activity in North Dakota increased, but at a slower pace than in recent months. However, most respondents to a Minneapolis Fed ad hoc survey of manufacturers conducted in mid-August had a mildly optimistic outlook for the near term. Several contacts indicated that orders dropped in early July, but have returned to previous levels. A long-planned beef-packing plant in South Dakota was put on hold following reports that it would open soon. A Minnesota manufacturer that makes equipment for the scrap metal industry will reduce production due to a stagnant scrap metal market and a glut of new steel.
Energy and Mining
The energy sector moderated somewhat. Oil and gas exploration in North Dakota decreased in early August, while it increased slightly in Montana; production remained at record levels. Producers of wind-energy components reported slow demand attributed to uncertainty over the renewal of a tax credit. A Minnesota ethanol plant was idled because of high corn input costs. A coal-fired power plant in South Dakota was also shut down. Mining activity remained steady at high levels. Minnesota iron ore mines and taconite producers continued to operate at high capacity, although some operations were idled for standard annual maintenance. Sand mines in western Wisconsin remained very busy due to strong demand from oil and gas producers.
The agriculture sector was mixed. Preliminary results from the Minneapolis Fed’s second-quarter (July) survey of agricultural credit conditions showed that nearly 90 percent of lenders said farm incomes increased or stayed the same in the past three months, with similar results for household and capital spending. While severe drought hit the Midwest, much of the District has been spared relative to other areas. Most of the corn, soybean and spring wheat crops in Minnesota and North Dakota were in good or excellent condition. South Dakota and Wisconsin fared somewhat worse. District cattle producers have been selling more animals because of high feed costs. Margins also tightened for dairy producers. Prices received by farmers in July increased from a year earlier for corn, wheat, soybeans, hay, dry beans, poultry, eggs, cattle and hogs; prices decreased for potatoes and dairy products.
Employment, Wages and Prices
Overall labor market conditions were steady since the last report, but tightening continued for some regions and occupations. Bank directors noted that many District companies have not adjusted their hiring plans for the second half of 2012. Manufacturers throughout the District continued to have a number of welding positions open. A business process outsourcing firm recently announced plans to locate up to 400 jobs in Minnesota. A Minnesota manufacturer hired 250 workers over the past seven months. In contrast, a Minnesota food retailer plans to lay off 50 workers, and two North Dakota manufacturers are holding back on hiring plans.
Wage increases were modest, with some exceptions. Wage rates in the oil-drilling area of western North Dakota and eastern Montana continued to climb. A Minnesota manufacturer noted that workers with higher skills were getting some increases in wages, while wages for lower-skilled workers were flat.
Prices were relatively stable. Metals prices were down somewhat since the last report. However, mid-August Minnesota gasoline prices were up about 30 cents per gallon from early July.