Bloomberg News

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

January 16, 2013

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

NINTH DISTRICT--MINNEAPOLIS

The Ninth District economy grew moderately since the last report. Increased activity was noted in consumer spending, tourism, professional services, manufacturing and energy. Construction and real estate experienced continued strong recovery. Activity was steady in agriculture and slowed slightly in the mining sector. Labor markets tightened modestly. Wage increases were moderate. Overall price increases were subdued.

Consumer Spending and Tourism

Overall consumer spending was up slightly relative to a year ago. The holiday shopping season was somewhat stronger than last year, with bigger gains in North Dakota and Montana. Same-store sales at a Minnesota-based retailer were flat in December compared with a year ago. A Minneapolis area mall reported that holiday traffic was level from a year ago, but sales were up. Activity at a shopping center in South Dakota was relatively level from a year earlier. A North Dakota mall manager reported that December sales were about 10 percent higher than last year; jewelry sales were particularly strong. Retailers in the Great Falls, Mont., area generally reported a solid holiday season. According to the Minneapolis Fed’s business outlook survey, 30 percent of respondents expect increases in consumer spending in their communities during 2013; 25 percent expect decreases. These results were similar to last year’s survey.

Recent new car and truck registrations in Minnesota were higher than a year ago. In Montana, vehicle sales remained steady during the past few months, according to a representative of an auto dealers association.

Winter tourism activity was strong in areas with snow, but lackluster in dry areas. A Montana ski resort reported that visits were up and reservations were looking good for the rest of the winter. However, in the Upper Peninsula of Michigan, activity was soft due to marginal snow conditions. The winter tourism season got off to a slow start because of a lack of snow in western South Dakota; recent snowfall should help spur activity, according to an official.

Construction and Real Estate

Commercial construction activity increased at a solid pace since the last report. The permitted value of new commercial construction in December was up 26 percent in Sioux Falls, S.D., and the value of November permits more than doubled in Billings, Mont. A major outlet mall is planned for the Minneapolis-St. Paul area. Residential construction increased considerably from a year ago. The value of November residential building permits in Billings was up 70 percent from last year, and the value of December permits in Sioux Falls was up 39 percent from a year ago. In the Minneapolis-St. Paul area, December residential permits were up 17 percent compared with December 2011.

Commercial real estate markets continued to tighten. A major commercial real estate firm forecast that Minneapolis-St. Paul area office vacancy rates will dip to 17.7 percent at the end of 2012 compared with 19.1 percent at the end of 2011. The same firm forecast industrial vacancy rates to drop to 9.9 percent from 11.2 percent. Residential real estate market activity increased. Home sales in November 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 29 percent, and median sale prices rose 17 percent. In the Sioux Falls area, November home sales were up 20 percent, inventory was down 14 percent and the median sale price increased 9 percent relative to a year earlier.

Services

Activity at professional business services firms grew since the last report. Services sector respondents to the business outlook poll expect sales volumes and capital investment at their firms to grow in 2013. An appraisal company noted that demand is increasing for its services, and the backlog continues to increase. Another appraiser noted, “I am turning down more business than I am accepting.”

Manufacturing

District manufacturing increased slightly since the last report. According to a December survey of purchasing managers by Creighton University (Omaha, Neb.), manufacturing activity increased in Minnesota and South Dakota after five consecutive months of decreases. Activity also increased in North Dakota, but at a slower pace than in recent months. The Minneapolis Fed’s 2012 survey of manufacturers indicated that respondents on average expect orders, production, employment and profits at their operations to increase in the coming year. The outlook for capital investment was flat. A company announced that it is opening a 40,000-square-foot cereal ingredient processing facility in South Dakota.

Energy and Mining

Activity in the energy sector continued to grow, while mining slowed. District oil production remained at record levels. An oil refinery in Minnesota announced plans for a $400 million upgrade in order to process more oil. Late-December oil and gas exploration activity decreased slightly in North Dakota and increased in Montana from the previous month. A railroad put on hold its plans to expand a coal-shipping line from Wyoming, citing a weaker outlook for domestic coal. Iron ore production remained strong in northern Minnesota; however, recent months were down from levels earlier in 2012. A large mining company announced that it will idle some of its production at operations in Minnesota and the Upper Peninsula in 2013, citing lower ore prices and reduced global demand. A mining company increased its estimate of deposits at a potential copper, nickel and precious metals mine in northern Minnesota.

Agriculture

Agriculture was steady at high levels. Crop prices came down somewhat recently but remain relatively high, a slight relief to livestock and dairy producers who have been hammered by high feed costs. The selloff of livestock herds continued. Sugarbeet producers in Minnesota and North Dakota saw a record crop in 2012, but prices were down. Prices received by farmers increased in December from a year earlier for corn, wheat, soybeans, chicken, dairy products and cattle. Prices for hogs, turkey, eggs and dry beans decreased. According to the Minneapolis Fed’s third-quarter (October) survey of agricultural credit conditions, farmland prices continued their rapid rate of increase.

Employment, Wages and Prices

Labor markets tightened modestly since the last report. A manufacturer in Minnesota recently announced plans to open a new facility that would employ 400 new workers. Up to 300 employees are expected to eventually work at a call center in Minnesota. However, an iron ore plant idled 125 workers, and a high tech company laid off over 40 employees in Minnesota due to a slowing in demand. According to respondents to the business outlook poll, 28 percent expect to increase hiring during 2013, while 15 percent expect to decrease staff, similar to last year’s poll.

Wage increases were moderate. According to the business outlook poll, 93 percent of respondents expect wages in 2013 to increase no more than 3 percent. Business contacts in South Dakota and Montana expected to generally increase wages between 2 percent and 3 percent in 2013 from a year earlier. However, wage increases in the oil-drilling areas of North Dakota and Montana are expected to be higher.

Overall price increases were subdued. Minnesota gasoline prices at the end of December were down about 20 cents per gallon since the end of November and were about 10 cents per gallon less than a year ago. A Minnesota-based food maker said it expects ingredient cost inflation of up to 3 percent. Some metals prices increased since mid-November. According to the survey of manufacturers, 37 percent of respondents expect to increase selling prices in 2013, while 16 percent expect to decrease prices.

SOURCE: Federal Reserve Board


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