Bloomberg News

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

March 06, 2013

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

The Ninth District economy showed signs of moderate growth. Increased activity was noted in consumer spending, tourism, professional services and manufacturing. Construction and real estate posted strong growth, while agricultural producers were in mostly strong condition. Activity in the energy sector was mixed, while mining slowed. Labor markets tightened modestly, and wage increases were moderate. Prices were generally stable with some exceptions noted.

Consumer Spending and Tourism

Consumer spending posted modest gains. Same-store sales at a Minnesota-based retailer increased 3 percent in January compared with a year ago. A Minnesota-based restaurant and bar chain reported 2 percent sales gains during January and early February compared with last year. A Minneapolis area mall manager noted that traffic was slower in January due to the cold weather, but winter apparel and jewelry sales have been strong. Store owners at a South Dakota mall noted that recent business appears to be doing well. An increase in inclement winter weather boosted business at auto body repair shops.

Improved snow cover spurred winter tourism activity since the last report. Snowmobiling and cross country skiing picked up over the past few weeks in northwestern Wisconsin, according to an official; the last weekend in February brought up to 30,000 people to the region for the American Birkebeiner cross country ski race. A Minnesota ski resort reported that lift ticket sales and lodging were “well ahead of last year, but not breaking any records.”

Construction and Real Estate

Commercial construction activity increased at a robust pace since the last report. A real estate forecasting firm expects 600,000 square feet of industrial construction in the Minneapolis-St. Paul area in 2013 compared with 200,000 square feet in 2012. Some of that construction is speculative. Residential construction increased rapidly from a year ago. The value of January residential building permits in Billings, Mont., more than doubled from last year, and the value of January permits in Sioux Falls, S.D., was up over 400 percent from a year ago, mainly due to apartment construction. In the Minneapolis-St. Paul area, January residential permits were up almost 70 percent compared with January 2012.

Commercial real estate markets continued to strengthen. A major commercial real estate firm forecast that Minneapolis-St. Paul area office vacancy rates will drop to 15.5 percent by the end of 2013 compared with 17.6 percent at the end of 2012. The same firm forecast industrial vacancy rates to drop to 7.6 percent from 8.5 percent. Residential real estate market activity increased at a strong pace. Home sales in January were up 11 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale was down 32 percent, and median sale prices rose 14 percent. A Minnesota Realtor commented, “Tight housing market with more buyers looking than sellers selling.” In the Sioux Falls area, January home sales were up 88 percent, inventory was down 21 percent and the median sale price increased 4 percent relative to a year earlier. Sales of vacation homes in northern Wisconsin posted strong gains in January.

Services

Activity at professional business services firms increased at a modest pace since the last report. Several financial planners noted an increase in business due to clients gaining employment. Some architects noted an increase in bidding activity. A freight trucking company noted a recent slight uptick in traffic primarily due to increased e-commerce traffic. However, mortgage refinancing brokers reported a decrease in activity.

Manufacturing

District manufacturers saw modest growth since the last report. A January survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity increased in Minnesota and the Dakotas. The rate of increase was slower in Minnesota from the previous month, due mostly to weaker nondurable goods production. A vehicle plant in North Dakota saw faster-than-expected production increases, and it plans to renovate its facilities. Another vehicle maker in Minnesota also reported increased sales, but weakened its outlook for the coming year slightly. However, a structural steel producer in Montana is closing.

Energy and Mining

Activity in the energy sector was mixed, while mining slowed. Oil and gas exploration increased in North Dakota and decreased in Montana since the last report, while production remained at historically high levels. Developers are considering building a large oilfield waste facility in western North Dakota. A Minnesota electricity producer recently closed one coal-fired plant and converted another to natural gas to meet expected future pollution control rules; the utility has also built more wind turbines in North Dakota. Tight corn supplies put pressure on ethanol producers; two plants in Minnesota and one in North Dakota have idled in the last year. Two potential new fracking sand mines were proposed in southeastern Minnesota. Minnesota iron ore production in 2012 exceeded levels from the previous year. However, production at the end of the year came in lower than earlier months, and some facilities are planning to slow production in 2013.

Agriculture

Agricultural producers in the District remained in mostly strong condition. Despite the drought, the USDA reported that 2012 corn production broke records in Minnesota and North Dakota. South Dakota corn and soybean production were down from the previous year, but came in higher than earlier estimates. The Minnesota sugar beet and North Dakota soybean crops were the highest on record. Prices received by farmers in January increased from a year earlier for wheat, corn, soybeans, cattle, milk, eggs and poultry; prices for hogs, turkey and dry beans were below their year-earlier levels.

Employment, Wages and Prices

Labor markets tightened modestly since the last report. Representatives from two technology companies in Minnesota described the labor market for high-tech workers as “at full employment” with fewer qualified applicants applying for open positions. A trucking broker recently announced plans to expand in Minnesota and add 500 more staff over the next several years. A regional airline announced plans to relocate its headquarters to Minnesota, which will bring a few hundred jobs to the state. In North Dakota, an insurance company recently announced that it expects to create 200 new jobs. In contrast, a home mortgage operation in Minnesota will close this spring, affecting over 200 employees. A medical device company recently announced plans to lay off a substantial number of workers in Minnesota. In Montana, the closure of two food distribution warehouses will lead to over 100 job losses.

Overall wage increases remained moderate. According to a survey of business activity in the Fargo, N.D., area, 72 percent of respondents expect a slight to moderate increase in compensation, while 20 percent expect no change in compensation. Labor unrest was noted in Minnesota, where a union representing 6,000 janitors and security officers was poised to strike at the end of February in response to a lack of progress on contract negations.

Prices were generally stable with some exceptions noted. Mid-February Minnesota gasoline prices were up almost 80 cents per gallon compared to mid-January. Contacts noted that some freight shipping costs recently increased.

SOURCE: Federal Reserve Board


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