Beige Book Report: Minneapolis
November 30, 2016
The Ninth District economy grew moderately overall since the last report. Growth was noted in consumer spending, tourism, real estate, residential construction, professional services, and energy. Manufacturing and mining activity were mixed, while commercial construction and agriculture slowed. Employment was flat overall since the last report, wage pressures were moderate, and price pressures were modest.
Consumer Spending and Tourism
Consumer spending was moderate. There were numerous reports of openings of retail stores, conveniences stores, and restaurants throughout the District, including in Minot, N.D., Sioux Falls, S.D., Minneapolis-St. Paul, and northern Minnesota. An electronics retailer based in Minnesota saw online revenue jump 24 percent in the third quarter. At the same time, a national department store closed its doors in Wisconsin, and automobile and truck sales were down across the Ninth District.
Tourism activity was strong overall for this transitional season. In Helena, Mont., big game hunting licenses sold out for nonresident hunters, a change from previous years. The increase was attributed to higher numbers of deer and elk, along with improvements in the overall economy, according to a state official. In Whitefish, Mont., two new hotels added a jump in tax revenue collection, a continuation of a very good tourism season in the area. In northern Minnesota and the Upper Peninsula of Michigan, warm weather extended the tourism season and tourism officials reported "noticeably increased traffic," which was considered a "bright spot in an overall great tourism year."
Construction and Real Estate
Commercial construction activity continued to slow since the last report. A contact in Minneapolis-St. Paul believed construction activity there had peaked, with the pullback "more of regression to the mean" after several years of very strong activity. Contacts in southeastern Minnesota and western Wisconsin also reported slow activity, which "is okay because all of our employees need a break after so many projects," said one source. The value of commercial permits dropped considerably in October over a year earlier in Duluth, Minn., Fargo, N.D., and Sioux Falls. Residential construction rose modestly. A source in Eau Claire, Wis., reported that home building was strong and that lot sales were up. In Minneapolis-St. Paul, single-family permits in September-October rose over the previous year, though multifamily units permitted slowed. Single-family permits were also up in St. Cloud, Minn., and Rapid City, S.D.; activity was flat in Rochester, Minn., and down in Billings, Mont.
Commercial real estate activity was moderate since the last report. In Minneapolis-St. Paul, industrial space leasing was strong and vacancy rates remained low in the third quarter, but both retail and office space saw weaker demand and higher vacancies. Sales activity and total sales values continued to be robust. In Rapid City, leasing and sales have also been strong, according to a local source. "I don't see any slowdown anywhere." Residential real estate activity was modest. After a strong September, Minnesota home sales declined slightly in October. A similar September-October pattern was seen in western Wisconsin and the Sioux Falls and Bozeman, Mont., regions. Sources pointed to shrinking inventory as a major impediment. New listings in October dropped by almost 10 percent in Minneapolis-St. Paul compared with October 2015, and total statewide inventory was 17 percent lower, sparking faster selling and higher median prices in many markets.
Services
Service-providing industries reported strong activity since the last report. A Minnesota-based health insurance company posted a 23 percent increase in sales in the third quarter. In Sioux Falls, several service providers posted positive growth: A call center was "just booming," a real estate insurance company reported that "everything is up," and an app developer was opening a new office in Sioux Falls, which extended the company's expansion into a third market in the Ninth District.
Manufacturing
District manufacturing was mixed since the previous report. An index of manufacturing conditions by Creighton University indicated decreased activity in October in Minnesota and the Dakotas. A Minneapolis-St. Paul area industrial supplier reported a "sales slump" recently. A producer of recreational vehicles reported weaker-than-expected sales so far this year. Manufacturing activity in southern Minnesota had slowed within the past few months, according to a hiring contact there. However, several industrial component producers were planning to add capacity in order to meet demand. An ammunition maker in Minnesota also announced an expansion. Contacts in the plastics industry reported strong demand.
Energy and Mining
Activity in the energy sector was up slightly since the last report. District oil and gas exploration activity as of early November increased slightly from low levels a month earlier. An oil refinery announced plans for a large expansion. Several new solar power farms began operations in Minnesota, and a utility announced plans for four new wind farms. Mining activity was mixed since the last report. Output at a precious metals mine in Montana increased in the third quarter from a year earlier, and an expansion was under way. Shipments of iron ore on the Great Lakes in September were more than 5 percent below levels a year earlier.
Agriculture
District agricultural conditions remained weak overall. Among respondents to the Minneapolis Fed's third quarter (October) survey of agricultural credit conditions, 85 percent reported that farm incomes decreased from a year earlier, with the remainder reporting flat incomes. District states saw strong harvests of corn and soybeans, hitting records in some cases, but these were generally not expected to offset the impact of continued low commodity prices. Prices received by farmers decreased in September from a year earlier for corn, wheat, hay, cattle, hogs, turkeys, eggs, and milk; prices for soybeans increased from a year earlier.
Employment, Wages, and Prices
Employment was flat overall since the last report. October employment in Minnesota fell; however, initial unemployment claims from mid-September through October were lower in every District state except for South Dakota. Three staffing agencies covering portions of Wisconsin and Minnesota all reported strong October job orders, though each also reported significant difficulty finding necessary workers. A health services firm in western Wisconsin announced that it expected to double its workforce--adding 1,200 workers--over the next year. But job demand was slower in some sectors and regions. October online job openings in North Dakota were almost 20 percent lower than a year ago. A Minnesota commercial construction firm that hired "many new people" in May and June recently laid them off because of slowing work.
Wage pressure was moderate since the last report. Employers in western Wisconsin have become "very favorable" toward increasing wages, said a staffing contact. Several manufacturers in the District reported wage increases between 2.7 percent and 4 percent, while annual wage increases at a large hog processor ran as high as 5 percent. A Minnesota construction source expected a 2017 labor union contract to increase wages by at least 4 percent. Price pressure was modest since the last report. Certain construction materials, like concrete, have reportedly seen increases of as much as 10 percent. Overall, however, "we are seeing materials prices be steady or slightly lower," said an energy construction contractor. Two grocery contacts said prices for dairy, eggs, and meat continued to be weak. Jokingly, said one, "the carton costs more than the eggs" being sold now.