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 grew at a modest to firm pace since the
last report. Strength was noted in consumer spending, tourism,
professional services, real estate, construction, manufacturing, energy
and mining, and agriculture. Firms reported difficulties hiring
qualified candidates, although wage increases remained modest. Price
increases were generally subdued.
Consumer Spending and Tourism
Consumer spending increased modestly. Same-store sales at a
Minnesota-based retailer increased just over 1 percent in April compared
with a year ago; the soft gains were attributed to an earlier Easter
holiday and warmer weather in February and March, which likely pulled
sales earlier into the year. Recent sales were up slightly at a
Minneapolis area mall where a number of stores were undergoing or
planning renovations. A Montana bank director reported that vehicle
sales were up from a year earlier and a representative of an auto
dealers association in North Dakota reported strong sales during the
past two months, particularly in the western part of the state. Recent
sales at grocery stores owned by a Minnesota-based company were down
slightly. Meanwhile, a Minnesota-based electronics retailer announced
plans to close six stores in Minnesota. Tourism officials and businesses
were cautiously optimistic about the upcoming summer season. According
to a survey of Minnesota lodging and camping properties, 39 percent of
respondents expect summer occupancy to be up, while 15 percent expect
decreases from a year ago. Officials in South Dakota reported an
increase in the number of tourism information requests; early warm
weather increased visits to a number of attractions.
Construction and Real Estate
Construction activity increased from a year ago. The value of
commercial building permits in the Sioux Falls, S.D., area was up in
April from a year earlier. The value and number of new commercial
permits increased in Fargo, N.D., during 2012 compared with the same
period in 2011. Several new commercial building projects are under
consideration in the Minneapolis area. However, respondents to the
University of St. Thomas’s semiannual Minnesota Commercial Real Estate
Survey (May) expected higher land and building costs, which could dampen
growth in construction. Residential construction increased from a year
ago. The value of residential building permits increased significantly
in the Sioux Falls area in April. The number of single-family building
permits increased in Minnesota in March 2012, compared with March 2011.
Numerous new multifamily projects were planned for several parts of the
District. Commercial real estate market activity increased. According to
the aforementioned University of St. Thomas survey, respondents expected
growth in commercial rents and occupancy. Several large Minnesota
companies recently renewed or signed new leases for additional office
space. A real estate consultancy reported that industrial vacancy rates
in the Minneapolis area decreased in the first quarter of this year
compared with the fourth quarter of last year; however, office and
retail vacancy rates increased. Increases in residential real estate
sales continued across most of the District. Home sales in April were up
7 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 the median
sales price rose by 12 percent. In the Sioux Falls area, April home
sales were up 11 percent, inventory was down and the median sales price
rose 4 percent relative to a year ago.
Services
Activity at professional business services firms increased slightly
since the last report. An engineering and design firm near oil producing
areas of the District reported extremely strong demand for construction
developments. Preliminary results of the Minneapolis Fed’s annual survey
of professional services companies in May showed that sales revenue,
space usage, and profits are expected to increase over the next year. A
mediumsized Minnesota services firm commented that they “feel optimistic
and are trying to improve efficiency.”
Manufacturing
Manufacturing activity continued to expand since the last report.
An April survey of purchasing managers by Creighton University (Omaha,
Neb.) found that production expanded in Minnesota and the Dakotas. A
light industrial manufacturer in South Dakota reported the strongest
capital expenditure levels in 10 years as it developed a successful
niche business line. A cement factory in Rapid City, S.D., is
considering a $100 million expansion. A steel mill in Minnesota
announced a $50 million investment in upgrades. Energy and mining
Activity in the energy and mining sectors grew. Oil and gas exploration
activity increased in North Dakota and Montana since the last report. A
biodiesel refinery in Minnesota announced a $20 million upgrade to
switch feed stocks from soybean oil to waste fats. District iron ore
mines continued to operate at near capacity. Montana hard-rock mines
were also busy, with numerous expansions underway across the state.
However, District limestone quarries were still suffering from reduced
cement demand.
Agriculture
The agricultural sector maintained its strength. Warm spring
weather allowed farmers to get into fields early and plantings of corn,
spring wheat and soybeans in mid-May was well ahead of average in
District states. In addition, recent rains alleviated drought conditions
that had persisted until recently in Minnesota and the Dakotas. The
Minneapolis Fed’s first quarter (April) survey of agricultural credit
conditions indicated that most lenders saw continued increases in farm
household income and capital spending, though respondents expect growth
to moderate over the next three months. Agricultural output prices have
come down somewhat recently. April prices received by farmers for
soybeans, cattle and chickens increased from a year earlier; prices
declined for wheat, corn, hogs, dairy products and eggs.
Employment, Wages and Prices
A number of employers with open positions noticed tightening in the
labor market. Manufacturers in several areas reported difficulty
recruiting skilled workers, particularly welders. Agriculture operations
in the western part of the District noted difficulty finding workers for
certain positions. An aircraft maintenance company recently confirmed
plans to expand its operations in Minnesota with potential hiring of up
to 225 people. In North Dakota an equipment manufacturer announced plans
to create 200 jobs and in northwestern Wisconsin a recreational vehicle
manufacturer will add almost 90 jobs. In contrast, a surprising number
of lay-offs were reported recently. A food manufacturer announced plans
to cut over 400 positions in Minnesota as part of a restructuring
strategy. Also in Minnesota a medical devices company will lay off 220
employees and a cleaning products manufacturer laid off 70 information
technology workers. An aerospace manufacturer will close a plant in
northwestern Wisconsin, affecting 130 workers.
A larger number of businesses reported wage increases, but the size
of increases remained modest. According to a recent Minneapolis Fed ad
hoc survey of business contacts, 65 percent reported that their
companies were facing higher wages. Larger wage increases were reported
in the oil drilling region of western North Dakota and eastern Montana.
Price pressures were generally subdued since the last report,
although 73 percent of respondents to the Minneapolis Fed’s ad hoc
survey reported upward input cost pressures. Late-May Minnesota gasoline
prices were about 15 cents per gallon lower than mid-April and 35 cents
per gallon lower than a year ago. A number of metals prices decreased
since the last report. A recent budget proposal for the University of
Minnesota includes a 3.5 percent increase for in-state undergraduates,
the smallest percentage increase in 12 years.
** MNI Washington Bureau: 202-371-2121 **
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