Beige Book Report: Minneapolis
October 19, 2016
The Ninth District economy grew slightly overall since the last report. Growth was noted in real estate, residential construction, professional services, and energy. Manufacturing and mining activity was flat, while consumer spending and tourism sectors were mixed. Commercial construction and agriculture slowed. 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, since the last report, was mixed. A national clothing chain based in Minnesota reported a "tough" third quarter even as sales grew 1 percent since the last report. A national retail chain was closing six stores in the District--three each in South Dakota and Minnesota--out of 64 stores closing nationwide. A new redevelopment plan in Missoula, Mont., will feature the opening of a tire store and two new restaurants. Minneapolis-St. Paul continued to see consumer spending growth, mostly as a reflection of shifting demographics, according to one industry source. More households were established in the metro area over the past year, prompting more grocery stores and home goods stores to open in recent months. In North Dakota, automotive and truck sales have been "in a trough," overall, but a representative reported "seeing a slight uptick." Sales in Fargo were "excellent even with the downturn in oil," and Grand Forks realized a "flat to slight uptick" in sales.
Tourism conditions were mixed since the previous report. Air passenger ridership was up just slightly at the Kalispell, Mont., airport, reflecting the increase in traffic at Glacier National Park. In North Dakota, airline passenger traffic overall dropped 13 percent; some airports saw a significant drop, such as Dickinson (56 percent) and Williston (28 percent), while other airports in Grand Forks, Fargo, and Bismarck saw a slight increase. Hotel occupancy rates and gaming revenue each fell more than 4 percent in Deadwood, S.D., compared with the same time last year.
Construction and Real Estate
Commercial construction activity slowed since the last report. The value of nonresidential construction in July and August fell in Minnesota and the Dakotas while rising in Montana, where larger cities were reporting strong activity. The number of projects out for bid in August and September in the District was lower overall compared to a year earlier. Residential construction rose moderately. Total permitted single-family units rose 9 percent in August and September in Minneapolis-St. Paul. Other, smaller metros across the District saw mixed single-family activity. Multifamily permitting has slowed from very high levels in much of the District. Over the last four quarters, 5,000 new units have been completed in Minneapolis-St. Paul; close to 4,000 units were expected over the coming year.
Commercial real estate activity was strong since the last report. Total sales value and square footage for industrial and office property in Minneapolis-St. Paul were robust in the third quarter, and vacancy rates remained low. Residential real estate rebounded from a mid-summer pause in much of the District. August sales were 9 percent higher in Minnesota than a year earlier, and 11 percent higher in western and northern Wisconsin counties. Low inventory continues to hold back higher sales, and one Montana contact reported that more pending sales were falling through as buyers failed to qualify for financing.
Services
Professional services activity increased moderately since the last report. Clinics and urgent care centers in Minnesota proliferated across the state, with one provider alone responsible for 20 percent of the growth. The growth, according to industry sources, "reflects a shift toward retail-style medical services." A legal services representative in Rapid City, S.D., reported that business has been "solid" due to regulation and compliance cases. An information technology representative in Grand Forks indicated that consulting services have seen an "upward trend" over the past few months due in large part to the growing unmanned aerial systems industry.
Manufacturing
District manufacturing was flat overall since the previous report. An index of manufacturing conditions by Creighton University indicated decreased activity in September in Minnesota and North Dakota, while the index pointed to increased activity in South Dakota. A contact in southern Minnesota reported that orders from larger clients were slowing. However, contacts in the food processing industry reported solid activity. A medical device maker was expanding into a new facility in Minnesota, and a producer of packaging equipment reported that demand was up due to companies seeking to automate.
Energy and Mining
Activity in the energy sector increased slightly since the last report. District oil and gas exploration activity as of late September increased slightly from low levels a month earlier. A utility announced plans to expand wind power capacity by 60 percent within four years. However, a large oil pipeline project was cancelled. Mining activity was steady since the last report. Production at Minnesota iron ore mines was ahead of expectations earlier in the year, but still well below levels of a year earlier.
Agriculture
District agricultural conditions weakened since the last report. Harvests of corn and soybeans were on schedule overall in much of the District, though heavy rains delayed progress in some areas. Wheat and small grain production for 2016 was generally down in many areas from a year earlier in spite of strong yields due to farmers planting fewer acres. Contacts reported that the extended period of low crop prices continued to put pressure on farm incomes and that this was beginning to spill over to rural areas more broadly. Prices received by farmers decreased in August from a year earlier for corn, soybeans, wheat, hay, cattle, hogs, chickens, eggs, and turkeys; prices for milk increased from a year earlier.
Employment, Wages, and Prices
Employment grew modestly since the last report. Average weekly initial claims for unemployment insurance from August through mid-September fell modestly in Minnesota and Montana from levels a year earlier, but were slightly higher in the Dakotas. A survey of Wisconsin employers found that a slightly smaller percentage expected to add staff in the fourth quarter compared with the previous quarter. Some types of construction work in Minnesota have slowed recently, according to a trade union representative. A Montana staffing firm reported that job orders were lower compared with last year due to the loss of two large manufacturing accounts and difficulty finding workers for available jobs. A recent Minnesota report showed that job vacancies remained high, but were slightly below levels of a year ago. A central Minnesota health care organization with about 500 employees reported that "there are 50 openings at all times." Numerous job fairs across the District gave mixed signals, according to contacts. A western Minnesota job fair reported fewer employers this year "and maybe a few less job seekers," while two job fairs in the Twin Cities reportedly saw strong attendance, although employer demand exceeded capacity. Companies were gearing up for seasonal hiring; a transportation company expected to hire almost 1,300 seasonal workers in the Twin Cities.
Wage pressure was moderate since the last report. Among numerous contacts, most reported wage increases of 2 percent to 3 percent; one trade union reported that a new, three-year contract had wage increases of 3.5 percent to 4 percent. In Montana, strong construction in larger markets was reportedly putting upward pressure on wages but, said one contact there, "they haven't gone crazy." Price pressures were modest overall since the last report. Large grocery operators reported downward pressure on food prices, especially dairy, eggs, and meat. A Minnesota manufacturing source said input prices were up 2 percent to 5 percent over a year earlier, and an agricultural source said costs have adjusted to low commodity prices, with lower fertilizer costs and stable seed and chemical costs.