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

NINTH DISTRICT–MINNEAPOLIS

The Ninth District economy grew moderately since the last report.
Strong growth was reported in the agriculture, energy and mining
sectors. Modest to moderate growth was noted in consumer spending,
tourism, residential and commercial construction, residential real
estate and professional services. Activity in commercial real estate was
flat, while manufacturing was mixed. Labor markets showed some signs of
tightening, while wage increases remained moderate. Prices generally
were level.

Consumer Spending and Tourism

Consumer spending grew moderately. A major Minneapolis-based
retailer reported that same-store sales in October increased about 3
percent compared with a year earlier. A Minneapolis area mall reported
that recent sales were up between 3 percent and 5 percent, as cooler
weather inspired shoppers to buy fall goods. According to the University
of St. Thomas Holiday Spending Sentiment Survey, Minneapolis-St. Paul
households are predicted to spend 3.4 percent more on holiday gifts than
last year. Auto sales in the Minneapolis-St. Paul area increased since
the last report, according to a domestic auto dealer. However, a
Minnesota-based clothing retailer announced plans to close several
stores and reduce its workforce. Preliminary results of the Minneapolis
Fedfs business outlook poll indicated that respondents expect slight
increases in consumer spending in their communities and increased sales
of their businessesf products and services.

Tourism activity was up from a year ago. According to officials,
momentum from a very good summer tourism season in Montana continued
into the fall. Occupancy at Minnesotafs hotels and motels increased
almost 5 percent during the third quarter compared with a year ago.

Construction and Real Estate

Commercial construction activity increased modestly since the last
report. Respondents to a November Minneapolis Fed ad hoc survey of
commercial construction contacts reported an increase in construction
activity for health care facilities and industrial buildings. However,
the value of commercial building permits in the Sioux Falls, S.D., area
was down slightly in October from October 2010. Residential construction
increased from last year. Several multifamily construction projects were
announced or are under construction in the Minneapolis-St. Paul area.
The number of permitted residential units in Minnesota was up in
September from a year ago.

However, in the Sioux Falls area, the value of residential building
permits in October was level with the same period a year earlier.

Commercial real estate markets were flat. Respondents to the
Minneapolis Fedfs ad hoc survey noted flat revenues and profits over
the past three months. The commercial real estate sector is still very
weak, particularly in office space. “Very little expansion by
companies, so the only activity seems to be companies shopping for lower
rates,. commented a Minneapolis-St. Paul area contact. Residential real
estate markets grew. Home sales in October were up significantly from
the same period a year ago in the Minneapolis-St. Paul area, while the
inventory available for sale shrank.

Services

On balance, professional business services firms expect increased
activity. Based on results from the business outlook poll, respondents
from the services sector expect to increase sales and capital investment
in 2012. “Things generally are better,. commented a Montana
professional services firm.

Manufacturing

Manufacturing activity was mixed since the last report. An October
survey of purchasing managers by Creighton University (Omaha, Neb.)
showed that production increased in Minnesota and North Dakota, but
unexpectedly contracted slightly in South Dakota. Bank Directors noted
that manufacturing was doing well with some equipment backlogs extending
throughout 2012. Producers of storage bins for agricultural use reported
strong demand. However, a window maker announced that it will lay off
workers due to weak home construction. A large printing operation in
Minnesota halted expansion plans due to uncertainty about the economy.

Energy and Mining

The energy and mining sectors saw continued strong growth. Oil
exploration activity increased in Montana since the last report, but
decreased slightly in North Dakota. In North Dakota, regulators approved
plans for a 105-megawatt wind farm, and three other wind energy projects
are under review. A short line railroad reported that it saw strong
demand growth from the wind energy and oil drilling sectors. District
mines continued to operate at very high capacity utilization rates.

Agriculture

Agricultural conditions remained generally strong. Farm financial
conditions were very strong due to high commodity prices. Prices for
hogs, cattle, turkeys and eggs increased in October; prices for corn,
soybeans and wheat declined, but remain substantially above their
year-earlier levels. The harvest went quickly, thanks to recent dry
weather. District corn production was roughly even with 2010; however,
soybean production was down more than 12 percent. Wheat production was
down dramatically in some areas of the District.

Employment, Wages and Prices

Labor markets showed some signs of tightening. In a recent survey
of Minnesota manufacturers, 45 percent of respondents reported that
skilled-worker shortages were a moderate or serious problem,
particularly for skilled production and IT workers. A Minnesota
recreational vehicle manufacturer reported that it isnft running a
plant at capacity because of a surprising shortage of workers. A
representative of a Minnesota employment services firm noted robust
demand for temporary light industrial positions during September and
October; demand for permanent positions was volatile. A South Dakota
manufacturer reported difficulty finding qualified workers in order to
expand operations. In Montana, a job fair indicated that employers were
recruiting recent college graduates with engineering, business and
computer science majors. According to the business outlook poll, 36
percent of respondents consider securing workers a challenge or serious
challenge in 2012, up from 24 percent in last yearfs poll. Wage
increases were moderate. Members of a South Dakota county highway union
recently agreed to a 5 percent pay cut in 2012. The business outlook
poll shows that 96 percent of respondents expect wages and salaries in
their communities to increase no more than 3 percent. However, some fast
food restaurants in western North Dakota were offering wages as high as
$15 per hour to attract employees. Prices generally remained level,
although some exceptions were noted. Minnesota gasoline prices continued
to decrease since the last report, but were still 54 cents per gallon
higher than a year ago. Meanwhile, a South Dakota manufacturer noted
that steel prices have softened recently. According to respondents to
the business outlook poll, 41 percent expect to increase prices for
their businessesf products and services in 2012, up from 35 percent
last year.

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

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