WASHINGTON (MNI) – The following is the text of the Minneaopolis
section of the Federal Reserve’s Beige Book report on current financial
conditions released Wednesday:

NINTH DISTRICT–MINNEAPOLIS

The Ninth District economy grew modestly, but activity was
disrupted by widespread flooding and a temporary Minnesota state
government shutdown that started on July 1. Increased activity was noted
in consumer spending, residential construction, commercial and
residential real estate, services, manufacturing, energy and mining.
Mixed activity was noted in tourism and agriculture, while commercial
construction was steady. Private sector hiring grew modestly, and wage
increases continued to be moderate. Overall price increases were
moderate, although pressure remains on a number of input prices.

Consumer Spending and Tourism

Consumer spending posted measured growth. A major Minneapolis-based
retailer reported that same-store sales in June increased over 4 percent
compared with a year earlier. Two Minneapolis area malls noted that
recent sales were trending above year-ago levels. A representative of an
auto dealers association in Montana indicated that sales activity at
dealerships during the past few months increased over last year. A
Minnesota auto dealer noted that sales and service volumes were up from
last year. Summer tourism activity was mixed. In western South Dakota,
wet weather dampened the start to the season, but summer reservations
for RV camping were up about 2 percent. A travel agency in Minnesota
noted that both corporate and leisure business were up from a year ago.
However, Minnesota state parks were closed during the government
shutdown. Flooding in North Dakota has slowed tourism activity,
including cancelation of this summer’s state fair in Minot.

Construction and Real Estate

Several contacts from across the District reported that recent
commercial construction activity was steady at low levels, while
construction had stalled in flooded areas. A nutritional supplement
producer is building a major addition in Montana. However, construction
in the Minnesota transportation sector stalled during the state
government shutdown. Some private nonresidential construction was
delayed by lack of state government building inspectors. Residential
construction increased from last year. The value of residential building
permits in June increased 19 percent from the same period a year earlier
in the Sioux Falls, S.D., area; in Minneapolis-St. Paul, the value of
June permits increased significantly from a year ago.

Commercial real estate markets increased slightly since the last
report. Minnesota commercial real estate industry representatives expect
higher rents and lower vacancy rates, according to a May survey by the
University of St. Thomas. Retail real estate industry analysts expect a
slight increase in absorption, but decreases in rent over the summer in
the Minneapolis-St. Paul area. Residential real estate markets grew.
Home sales during June in Minneapolis-St. Paul and Billings, Mont., were
up from last year’s post-tax-credit lull in sales. June pending sales of
homes in the Sioux Falls area increased from June 2010, but new listings
and the median sales price decreased.

Services

Professional business services firms reported increased activity
over the past three months. Results of a mid-July Minneapolis Fed ad hoc
survey of 55 professional services firms indicated that 47 percent of
the respondents saw increased sales, while 29 percent saw decreased
sales. Respondents noted that profits and employment also increased. The
respondents expected this trend to continue over the next three months.
However, a few contacts commented that the Minnesota state government
shutdown negatively affected their business.

Manufacturing

The manufacturing sector grew modestly. A survey of purchasing
managers by Creighton University (Omaha, Neb.) showed that manufacturing
activity increased in June in Minnesota and South Dakota, while activity
declined in North Dakota, due in part to flooding disruptions. Nearly 70
percent of manufacturing respondents to the Minneapolis Fed ad hoc
survey said their sales increased in the past three months. However, in
North Dakota, an electric vehicle plant closed in June to consolidate
production in Iowa, and a military equipment plant will close in August.

Energy and Mining

Activity in the energy and mining sectors was steady. A renewable
energy firm recently announced that it will acquire a biodiesel plant in
southern Minnesota, which has been idle since 2008, and resume
operations there. Wind-energy development projects continued since the
last report, including the opening of a 40-megawatt wind farm in
Minnesota. However, a utility announced that it was canceling plans for
a $38 million wind farm in western South Dakota. Mid-July oil
exploration activity decreased slightly from early June. Mining activity
continued at a strong pace across the District.

Agriculture

Agriculture was mixed. While production in western portions of the
District was hampered by severe flooding, prices for agricultural
outputs remained strong. Preliminary estimates suggest that 6.3 million
acres in North Dakota may have gone unplanted due to flooding. Contacts
suggested that impacts on hay and feed crops could increase costs for
some cattle producers, but a bank director noted that overall hay
production in Montana and the Dakotas will be very strong due to
moisture conditions. In other parts of the District, crop progress has
fared better recently than early-season indicators suggested, but is
still behind last year’s pace. Prices for some District agricultural
commodities increased since the last report, including corn, soybeans
and dairy products; however, cattle and wheat prices decreased recently.

Employment, Wages and Prices

While private sector hiring grew modestly, the Minnesota government
shutdown resulted in 22,000 temporary layoffs of state government
employees. In Minnesota, a company recently announced plans to build a
data center that is expected to provide more than 100 jobs, and a steel
producer will add 60 jobs this year. According to a survey by an
employment services firm, 20 percent of respondents in Minneapolis-St.
Paul expect to increase staffing levels during the third quarter, while
3 percent expect to decrease staff. Businesses in eastern Montana and
western North Dakota continued to have difficulty finding workers due to
strong oil drilling activity in the region.

Wage increases were moderate. Recent settlements with labor unions
generally included modest wage increases over the next two to three
years. According to respondents to a recent St. Cloud (Minn.) Area
Business Outlook Survey, 34 percent expect to increase employee
compensation at their companies over the next six months, up from last
year’s survey, when 24 percent expected increases.

Overall price increases were moderate, although pressure remains on
a number of input prices. Mid-July Minnesota gasoline prices were about
the same as early June, but were $1 per gallon higher than a year ago.
Meanwhile, prices for copper, lead, nickel and zinc increased. A
Minnesota-based food producer reported that food ingredients are
expected to rise at least 10 percent over the next year.

** Market News International Washington Bureau: 202-371-2121 **

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