July 13, 2016
Economic activity in the Ninth District increased at a moderate pace since the last report. Growth was noted in consumer spending, tourism, construction, real estate, manufacturing, and professional services, while energy, mining, and agriculture increased from low levels. Employment grew modestly since the last report, wage pressure was moderate, and price pressures were modest overall.
Consumer Spending and Tourism
Consumer spending across the District was up modestly since the last report. A Minnesota-based retailer realized increased sales of 9 percent over the past three months; this rise stands in contrast to a difficult quarter at this time last year. In Sioux Falls, S.D., three new fast food chains have opened since the last report; three major retailers are opening this season in a small community 30 minutes outside the city. In the suburbs of Minneapolis, a 41,000-square-foot specialty golf shop opened in recent weeks. Minot, N.D., saw renewal of a shopping center, after five years of neglect to the facility, in spite of slowed activity in nearby oil fields. In contrast, casinos in Deadwood, S.D., experienced a 9 percent drop in activity for the past two consecutive months. Sales of new vehicles at a dealership in Rapid City, S.D., were off by 50 percent and used-vehicle sales were off by 30 percent since January due to layoffs in Wyoming coal mines and oil fields in North Dakota.
Tourism conditions were up since the previous report. Duluth, Minn., tourism grew and was "strong and resilient," according to a hotel developer. Three hotels will open in the city this season, increasing the number of rooms by 10 percent. In the Upper Peninsula of Michigan, the tourism season started earlier than usual, according to a tourism official. "June started out strong from one end of the U.P. to the other." The official expected this season to be up 8 percent, like last year, if not better. Visits to Glacier National Park spiked 32 percent last month and were up 18 percent for 2016 overall; increased visitor rates were reportedly fueled by favorable gas prices and the added attraction of the National Park Service centennial.
Construction and Real Estate
Commercial construction activity was moderate since the last report. Total nonresidential building in April and May rose strongly in Minnesota and Montana over the same period a year ago, while falling in the Dakotas, according to industry data. Heavy construction firms in Montana were busy but had a weak outlook, an industry contact reported. Construction activity was low in the Bakken oil region, but commercial permitting in Fargo, N.D., was on par with two previous strong years. In St. Cloud, Minn., commercial permit values through early June were the highest in four years. Residential construction rose moderately, but saw pockets of strong activity. Single-family housing permits in Minneapolis-St. Paul in May and June were about one-fourth higher than a year earlier. In Rochester, Minn., single-family permits in April and May were their highest since the recession. However, permit activity in Billings, Mont., and Rapid City was lower than a year earlier.
Commercial real estate activity was moderate to strong since the last report. A Minneapolis-St. Paul broker said that activity has slowed somewhat "from white-hot to a slow simmer." Significant new square footage has come online this year, but vacancy rates remained low. Sales of apartment buildings in Minneapolis-St. Paul have been strong in the second quarter, according to industry data. In Fargo, a local broker said that commercial real estate "is still pretty hot, but not as hot as last year." A Rapid City source described commercial real estate activity as strong. Residential real estate activity was moderate. May home sales in Minnesota rose 5 percent compared with a year ago. A source described Minneapolis-St. Paul as a "seller's market" because of low inventory, with buyers paying more than asking price. May home sales were higher in Bismarck, N.D., and Missoula, Mont., compared with a year earlier, but lower in northern and western Wisconsin counties as well as in Sioux Falls and Bozeman, Mont.
Services
Activity at professional business services firms increased since the last report. According to a mid-year professional services survey conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development, nearly half of respondents reported increased sales activity over the past year; 40 percent anticipated higher sales activity for the coming year. Respondents also expected increased profits and productivity in the coming year. In Minneapolis, a local dog-wash chain has expanded to three locations in recent months.
Manufacturing
District manufacturing increased modestly since the last report. An index of manufacturing conditions by Creighton University increased in May to levels indicating expansion in Minnesota and South Dakota, but contraction in North Dakota. A pillow producer opened a new factory in Minnesota, and a plant that makes water valves announced an expansion. A furniture maker and a producer of exercise equipment also announced expansions in Minnesota. In contrast, weakness was noted among producers of transportation equipment and machinery for oil production. A lumber and plywood mill in Montana announced that it will close.
Energy and Mining
Activity in the energy sector increased slightly from low levels. The number of active drilling rigs in the District in late-June increased from the previous month but was well below the level of a year earlier. North Dakota daily oil production in April fell 6 percent from a month earlier. Numerous solar-power projects were under development in Montana, and several large wind-power projects were under way in North Dakota. Mining activity was up slightly since the last report. An idled Minnesota iron ore mine announced that it will return to full production in November. A gold-mining firm began exploration at sites in Minnesota. Meanwhile, regulators announced that they would not renew mineral leases for a copper-nickel project in Minnesota.
Agriculture
District agricultural conditions improved slightly, thanks to strong growing conditions and small increases in some commodity prices from their recent lows. Coming off an early start to planting, most of the District's corn, soybean, and wheat crops were rated in good or excellent condition as of late-June. A chicken processing plant in Minnesota was undergoing a major expansion. Prices received by farmers increased in May from a year earlier for corn, soybeans, and turkeys; prices for wheat, hay, cattle, hogs, chickens, eggs, and milk fell from a year earlier.
Employment, Wages, and Prices
Employment grew modestly since the last report, hampered by labor availability. In Michigan's Upper Peninsula, June construction jobs posted with a local agency grew by almost half compared with a year earlier. Oil-field companies in the Bakken were reportedly starting to hire again, though a North Dakota source said construction firms were not adding workers because of uncertain future demand. A staffing agency owner in Minneapolis-St. Paul said billable hours fell in May and early June over the same period a year earlier, but added, "We have a ton of open orders, but not nearly enough qualified and/or willing workers."
Wage pressure was moderate since the last report. The aforementioned professional services survey found average wage increases of nearly 3 percent in the past year; respondents expected slightly slower growth rates over the coming year. A regional labor market representative said that starting wages for many firms were rising to attract necessary workers. A health care union in Minnesota announced a three-year contract with 2 percent annual wage increases, along with benefit improvements. Price pressure was modest overall, but housing costs were accelerating. Bids on Montana highway projects "have been consistently lower than engineers' estimates," said a source there. A survey of Minneapolis-St. Paul commercial real estate brokers expected a slowing of inflation for construction materials. Home prices, however, were accelerating. Median sale prices in Minnesota were up 8 percent in May over a year earlier.