WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Ninth District, published
Wednesday:

NINTH DISTRICT–MINNEAPOLIS

The Ninth District economy expanded modestly since the last report.
Increased activity was noted in construction and real estate, consumer
spending, tourism, and professional services. Energy and mining were
steady at high levels, while agriculture varied widely, with crop
farmers generally in better condition than animal producers. Meanwhile,
activity slowed slightly in the manufacturing sector. Labor markets
tightened somewhat. Overall wage increases remained subdued, although
stronger increases were reported in some areas. Price increases were
generally modest.

Consumer Spending and Tourism

Consumer spending increased moderately. Same-store sales at a
Minnesota-based retailer increased 4 percent in August compared with a
year ago. A Minneapolis area mall manger reported that sales over the
past two months were up about 4 percent compared with a year earlier,
while another Minneapolis mall reported that while traffic was flat,
sales were up somewhat. In North Dakota, a mall manager reported that
sales in August and September were up more than 5 percent from last
year. Recent sales increased at a Minnesota-based women’s apparel store.
A domestic auto dealer reported strong sales activity near the end of
September and solid commercial fleet sales. A representative of an auto
dealers association in North Dakota reported strong vehicle sales across
the state.

Tourism activity was above year-ago levels. In response to an
end-of-summer survey of lodging and camping businesses by Minnesota’s
tourism office, 46 percent of businesses reported higher occupancy than
last summer, while 31 percent reported that occupancy was the same. In
addition, the number of visitors to the Minnesota State Fair fell just
short of a record. Tourism officials in Montana reported strong
occupancy levels during the summer and expect this year to finish ahead
of last year.

Construction and Real Estate

Commercial construction activity increased since the last report.
The value of commercial building permits issued in August more than
quadrupled from the same period last year in both the Sioux Falls, S.D.,
and Billings, Mont., areas. A Minneapolis area construction contact
noted interest in building a regional warehouse, while a research and
development building was also planned. Residential construction
increased from a year ago. The value of residential building permits in
the Sioux Falls area in August was up 11 percent from the same period
last year. The number of residential permits more than doubled in the
Minneapolis-St. Paul area in August compared with a year ago. The value
of residential permits issued in August more than doubled in Billings.

Commercial real estate markets expanded at a slow pace. Vacancy
rates for Minneapolis office, industrial and retail properties declined
slightly since the last report, according to local real estate
professionals. Residential real estate market activity was brisk. Home
sales in mid-September were up 18 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, August home sales were up
44 percent, inventory was down 14 percent and the median sales price
rose 5 percent relative to a year earlier.

Services

Activity at professional business services firms grew slightly
since the last report. According to an architecture firm, demand for
services picked up recently. An information technology consulting
company noted a recent uptick in the number of projects. A data center
opened in northern Minnesota. An environmental consulting firm noticed
increased activity primarily due to oil and gas pipeline analysis. A
logistics consulting firm noted that recent freight volumes are about
the same as last year.

Manufacturing

The manufacturing sector weakened slightly since the last report. A
survey of purchasing managers by Creighton University (Omaha, Neb.)
found that manufacturing activity decreased in Minnesota and South
Dakota in August for the second month in a row, though the rate of
contraction was not as sharp as in July. Activity increased in North
Dakota, but at a slower pace than the previous month. In contrast, an
agricultural equipment maker announced that it will open operations in
Minnesota, and a machining firm expanded operations in Michigan’s Upper
Peninsula.

Energy and Mining

Activity in the energy and mining sectors remained strong. Oil and
gas exploration decreased slightly in North Dakota and increased in
Montana; however, North Dakota oil production hit a new record. A large
railroad increased its capacity for carrying crude oil out of North
Dakota’s Williston Basin. Several large transmission-line projects were
under way around the District. In contrast, another Minnesota ethanol
plant shut down, and a North Dakota wind-turbine producer cut
production, citing reductions in demand and uncertainty over the
expiration of a federal tax credit. District iron ore mines continued
operating at near capacity. Sand mines saw increased demand from oil and
gas producers.

Agriculture

Agriculture was mixed, as crop farmers saw strong prices but widely
varying yields, while animal producers saw tighter profit margins.
Harvests were well ahead of schedule for crops around the region, thanks
to hot and dry conditions late in the summer. District sugar beet
producers were expecting a record harvest. The condition of the corn and
soybean crops remained much better in Minnesota and North Dakota than in
core corn belt states. However, portions of Wisconsin and South Dakota
were hit much harder by drought. In addition, meat and dairy producers
struggled with higher feed costs. Prices received by farmers increased
for most agricultural outputs in September compared with a year earlier;
the primary exceptions were milk and hogs, which saw price decreases.

Employment, Wages and Prices

Labor markets tightened modestly. According to a survey by an
employment services firm, 20 percent of respondents in Minneapolis-St.
Paul expect to increase staffing levels during the fourth quarter, while
6 percent expect to decrease staff. A year ago, 12 percent anticipated
increases, while 11 percent expected decreases. A recent Minnesota
Chamber of Commerce survey showed that only 49 percent of companies
responding said that the state has enough skilled workers in their
respective industries. In Minnesota, a foreign information technology
consulting firm plans to add 300 workers and a telecommunications
company recently announced that it will add 150 call-center employees.
In contrast, a North Dakota wind turbine manufacturer announced that it
will lay off 300 workers. A hardboard plant in Minnesota closed,
affecting 140 workers, and a medical devices company laid off 80 of its
Minnesota workers as part of a reorganization plan.

Overall wage increases remained subdued, although stronger
increases were reported in some areas. For example, a health care system
recently offered substantial bonuses to recruit registered nurses in
eastern North Dakota.

Price increases were generally modest, with some exceptions noted.
Late September Minnesota gasoline prices increased almost 20 cents per
gallon since late August. Metals prices increased somewhat since the
last report, as well as some lumber prices.

** MNI Washington Bureau: 202-371-2121 **

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