January 18, 2017
Summary of Economic Activity
The Ninth District economy grew modestly overall since the last report. Employment was mixed, with notable hiring and layoff events, but an optimistic outlook overall among different sources. Wage pressure was moderate, while price pressure was modest overall. The District economy showed growth in manufacturing, real estate, commercial construction, energy, and tourism. But consumer spending dropped, residential construction slowed, and agriculture remained weak.
Employment and Wages
Employment was mixed since the last report, but labor markets continued to be tight, and the 2017 hiring outlook was positive. Initial unemployment claims in the five-week period ending in mid-December were unchanged in Minnesota and Montana relative to a year earlier, but were higher in the Dakotas. A retail distribution center in Minnesota announced plans to hire 1,000 full-time employees in the coming year, and energy companies were reportedly hiring again in the oil fields of western North Dakota. Results from the Minneapolis Fed's annual survey of manufacturers, conducted in November and December, showed that hiring activity was flat in 2016, though the outlook was positive as one-third of respondents planned to increase employment in the coming year. A Montana staffing agency reported solid hiring expectations among clients. "There is a level of optimism I haven't seen in a long time," said a source there. A survey of employers by a multistate staffing firm found a positive, but somewhat softer hiring outlook for the first quarter of 2017 in the District compared with earlier surveys. In Minnesota more than a half-dozen layoff events occurred, or were announced, involving between 60 and several hundred workers, including a transportation company, health care provider, boat manufacturer, medical device firm, and private higher education firm. Eight department store closures were also announced.
Wage pressure was moderate since the last report. The survey of manufacturers found that 2016 wages and benefits rose by an average of 2.5 percent to 3 percent, with slightly smaller increases expected in the coming year. A smaller ad hoc survey of professional services firms produced roughly similar results, though the outlook for 2017 wages was somewhat higher. A Minneapolis-St. Paul staffing contact said wages "increased slightly" during the fourth quarter as employers competed for labor, especially in the retail sector. A North Dakota source said that although unemployment was still very low, wage pressure "appeared to have leveled off" with slightly slower demand there for labor.
Prices
Price pressure was modest since the last report. The majority of respondents to the Minneapolis Fed's manufacturing survey reported that prices were unchanged over the past year, but one-third expected to increase their prices in 2017. One manufacturer noted that steel prices have been flat for two years, but cement prices have increased around 15 percent. Home heating costs were expected to be as much as 30 percent higher this winter than last year, due to a combination of colder weather and higher fuel prices. Most prices received by farmers decreased in November from a year earlier, with the exception of chickens and soybeans.
Consumer Spending
Consumer spending across the District was down modestly since the last report. A mall manager in Minneapolis-St. Paul reported a "very odd" holiday season for consumer spending in recent months; overall spending was down roughly 2 percent to 3 percent. Contributing factors included unfavorable weather, holiday timing that corresponded with a weekend, and increased online shopping. Weather was warm in November, "so there was no Christmas feel in the air" and weather in December was "too cold to encourage shopping." Conditions were similar in Fargo, N.D., where consumer spending was down 4 percent to 5 percent, according to a mall manager there. "Cold weather and storms deterred many shoppers, especially because 40 percent of our mall shoppers live outside of the city limits." Clothing retailers, in particular, have seen a drop in sales; one national clothing retailer has closed five stores in the Minneapolis-St. Paul region. Automotive sales were modest since the last report. A car dealership in Devils Lake, N.D., reported that new car sales were down slightly, but used-car sales made up for the small loss. "We're all pretty optimistic for 2017; 2016 ended up doing pretty well."
Tourism
Tourism conditions were up moderately since the previous report. Snowy weather had a positive impact on winter tourism activity. Ski lodges and restaurants in Montana, Minnesota, and Michigan's Upper Peninsula reported ideal conditions for winter activity, including low fuel prices for travelers. Since the last report, hotel occupancy rates have flattened as reported by owners in Billings, Mont., and Minneapolis-St. Paul. A tourism official in northern Wisconsin reported that December businesses experienced strong demand. A tourism official in the Upper Peninsula said, "We are having a terrific start to the new year; looks like we will have the best winter conditions that we've had in five years."
Construction and Real Estate
Construction activity was mixed since the last report. Projects out for bid through mid-December were at similar levels to a year earlier, according to an industry database. Industrial and retail space currently under construction in Minneapolis-St. Paul was higher than a year ago, while office space construction was significantly lower. Multifamily permits in November-December rose considerably over a year earlier in Minneapolis-St. Paul and Rochester, Minn., along with Rapid City and Sioux Falls, S.D. Activity in highway and other heavy construction sectors was slower. A construction supply contact in Minnesota said firms working on infrastructure projects statewide "are feeling the pinch" because of delayed public funding. A Montana source said the building sector there "has been fairly robust," but the highway sector has slowed significantly because of lower-than-expected state fuel tax collections. This has curtailed maintenance projects and postponed project lettings. Residential construction slowed, as total single-family permits fell in November-December compared with a year earlier in Billings, Fargo, Bismarck, N.D., Minneapolis-St. Paul, and Rochester. Only Sioux Falls saw a slight uptick over this period.
Real estate activity was moderate to strong since the last report. Sales of office, industrial, and apartment properties in Minneapolis-St. Paul were strong, though office vacancy rates there have ticked higher as several major tenants vacated space for new, build-to-suit space. Home sales in November were higher relative to a year earlier, including double-digit increases in 18 northern Wisconsin counties, the Flathead Valley region in Montana, and across Minnesota.
Manufacturing
District manufacturing increased modestly since the previous report. An index of manufacturing conditions produced by Creighton University indicated increased activity in December in Minnesota and the Dakotas. Although respondents to the Minneapolis Fed's annual manufacturing survey indicated that 2016 demand and production was flat to slightly down, respondents expected orders, production, investment, productivity, and profits to increase in the coming year. A supplier of machinery used in producing heavy equipment for forestry and other uses indicated recent demand was up dramatically.
Agriculture, Energy and Natural Resources
District agricultural conditions remained weak, with bountiful harvests offset by low commodity prices. Some District logging operations were reducing production in response to low timber prices. Activity in the energy sector was up slightly. Regulators approved an environmental permit for a large wind power development in South Dakota. District oil and gas drilling as of late-December was roughly unchanged from a month earlier; however, reports indicated that multiple firms were hiring oilfield service crews.