September 3, 2014
The Ninth District economy grew moderately since the last report. Increased activity was noted in consumer spending, tourism, construction, commercial real estate, professional services, manufacturing, and energy. Agricultural conditions were mixed, while activity was steady in mining and down in residential real estate. Labor markets continued to show signs of gradual tightening. Overall wage increases were moderate, and prices were generally level.
Consumer Spending and Tourism
Consumer spending increased moderately. A Minneapolis-area mall reported slightly higher recent sales compared with a year earlier; summer items were largely sold out. A restaurant chain reported recent same-store sales up about 8 percent compared with a year ago. Several new chain restaurants were moving into Rapid City, S.D. Recent vehicle sales were solid in many parts of North Dakota, with brisk sales continuing in the western part of the state. Auto dealers in rural areas were concerned about a potential drop in sales activity if crop prices remain relatively low.
Summer tourism activity was above year-ago levels. According to officials, tourism in northwestern Wisconsin has been solid since mid-June after a slow start; tourism was above year-ago levels in western North Dakota. Summer tourism activity in the Upper Peninsula of Michigan was about the same as last year, according to an official. Hotel and motel occupancy was up from a year ago during the early part of the summer season in western South Dakota; however, in recent weeks, some tourism businesses observed slower activity relative to last year.
Construction and Real Estate
Commercial construction activity increased. Compared with a year ago, the value of commercial permits issued in July in Bismarck, N.D., increased significantly, but industrial permits were relatively flat. Commercial permits in Billings, Mont., more than doubled in value in July from a year earlier. In Sioux Falls, S.D., the value of July commercial permits increased significantly from a year ago. Residential construction increased from last year. The value of July housing permits increased in Bismarck from a year ago, primarily due to multifamily building. July single-family residential building permits in Billings increased 67 percent in value from last year, but multifamily building was down. The value of July residential permits in Sioux Falls increased 24 percent from the same period last year. However, in the Minneapolis-St. Paul area, the value of July residential permits decreased 8 percent compared with July 2013. Based on a Minneapolis Fed mid-August survey of Ninth District contacts, a large majority of respondents from the construction sector thought sales revenue would increase over the next four quarters.
Activity in commercial real estate markets increased since the last report. A real estate analytics firm noted that Minneapolis-St. Paul office, retail, and hotel vacancy rates dropped in the second quarter from the first quarter of 2014. According to the mid-August survey, half of the respondents from the real estate sector expect increased sales revenue over the next four quarters, while 29 percent expect a decline. Residential real estate market activity decreased since the last report. In the Sioux Falls area, July home sales were down 15 percent, inventory increased 9 percent, and the median sales price increased 5 percent relative to a year earlier. July home sales were down 6 percent from the same period a year ago in Minnesota; the inventory of homes for sale increased 12 percent, and the median sales price rose 4 percent. The Minneapolis-St. Paul multifamily vacancy rate increased in the second quarter from the first quarter of 2014.
Services
Activity at professional business services firms increased since the last report. According to the mid-August survey, respondents from the professional services sector experienced increased sales activity over the past four quarters and expect increased sales activity over the next four quarters. Professional services respondents also expect increased profits and productivity over the next four quarters.
Manufacturing
District manufacturing continued to increase since the last report. A manufacturing index released by Creighton University (Omaha, Neb.) fell slightly from the previous month in July for Minnesota and the Dakotas, but remains at a level consistent with expansion in activity. About two-thirds of manufacturers responding to the Minneapolis Fed's mid-August survey reported that their sales increased over the previous four quarters, and more than half expect continued growth over the next year. In Minnesota, a heating, ventilation, and air conditioning manufacturer and a custom precision manufacturing machine producer recently announced capacity expansions.
Energy and Mining
Activity in the energy sector grew briskly since the last report. Mid-August oil and gas exploration activity increased from a month earlier. North Dakota oil production jumped 2 percent in June from the previous month to a new record. Regulators in North Dakota recently approved a 150 megawatt wind turbine project. Mining activity held steady since the last report. July production at Minnesota iron ore mines increased from June, but was down slightly from a year earlier. Since the last report, a copper-nickel mining and processing operation in the Upper Peninsula made its first ore shipments.
Agriculture
Agricultural conditions were mixed since the last report. Most of the District's corn and soybean crops were in good or excellent condition in mid-August, with strong yields forecasted. Livestock and dairy producers continued to benefit from higher output prices and lower feed costs. A majority of lenders responding to the Minneapolis Fed's second-quarter (July) survey of agricultural credit conditions reported lower farm incomes compared with the previous quarter. Relative to a year earlier, prices received by farmers in July were lower for corn, soybeans, and wheat; prices increased for hay, cattle, hogs, poultry, eggs, and milk. A mildew outbreak in North Dakota may reduce sunflower yields.
Employment, Wages, and Prices
Labor markets continued to tighten gradually since the last report. A recreational vehicle manufacturer will add 100 new employees, and an industrial equipment manufacturer announced plans to hire more than 30 new workers. A snack food manufacturer in a rural area has hired 60 foreign workers with seasonal work visas in order to fill open positions. A job-placement firm noted increased demand recently for workers across a number of industries. According to the mid-August survey, over half of all respondents expect to keep the same number of full-time employees on staff over the next 12 months, while about a third anticipate increased employment.
In contrast, an agribusiness firm recently announced that it will cut about 170 information technology jobs and outsource the work to a company overseas, a fast-food products company recently cut 66 jobs, and a medical device firm announced 40 job cuts.
Overall wage increases were moderate since the last report. According to the mid-August survey, the pace of wage increases over the next 12 months is expected to remain generally the same as during the preceding 12 months. Also, some trucking firms in the District noted that they raised wages over the past few months to attract drivers.
Prices were generally level, with some exceptions noted below. A construction contractor noted that construction costs are expected to increase 6 percent in the Minneapolis-St. Paul area over the next 12 months. Mid-August Minnesota gasoline prices were down about 15 cents per gallon both from mid-July and from a year earlier. Slight gains in some metals prices were noted since the last report, except for copper prices, which decreased slightly.