Beige Book Report: Minneapolis
September 6, 2017
Summary of Economic Activity
The Ninth District economy grew modestly overall since the last report. Employment grew modestly, despite tight labor conditions. Wage pressure was moderate, while price pressure was modest overall. The District economy showed growth in services, real estate, manufacturing, residential construction, tourism, and energy. But consumer spending and commercial construction were mixed, and agriculture remained weak.
Employment and Wages
Employment grew modestly since the last report, despite continued tight labor conditions. Seasonally adjusted employment in July grew in a majority of District states; Minnesota added 7,700 jobs, and June job growth was also revised significantly higher. But South Dakota and Montana saw total employment dip slightly in July, due at least in part to constrained labor supply. Montana workforce development offices saw one-third fewer active job seekers in July compared with a year earlier. District-wide, initial unemployment claims dropped by 14 percent over the most recent six-week period compared with a year earlier, and continuing claims dropped 12 percent; every District state saw significant declines in both categories. In Mankato, Minn., labor is "the number one concern," according to a business source. A Minneapolis-St. Paul staffing firm said that "lots of needs go unfulfilled" and business was being turned away because of tight labor. Labor retention continued to be a problem. A South Dakota human resources consultant said most businesses were hiring, but more often "to replace turnover and retirements than to increase headcount." An ad hoc poll of ag bankers in southwestern Minnesota found that 60 percent were hiring, but the large majority were doing so because of labor turnover; 90 percent said they were having difficulty finding qualified labor.
Wages grew moderately since the last report. A South Dakota contact said there was pressure to boost wages and companies "seem to be willing to pay a bit more" for talent. A staffing contact said that the recently passed $15-per-hour minimum wage in Minneapolis--being implemented over five years--was rippling across wage expectations of workers earning below or near that level. Some wage sentiment was softer, however. The aforementioned poll of ag bankers found that two-thirds believed 2017 wage increases would be between 1 and 3 percent. A Minnesota construction company said that office personnel wages "had very modest increases this year for some, and none for others."
Prices
Price pressure remained modest since the last report. Retail fuel prices in District states increased slightly. A commercial contractor reported that construction materials prices were steady, but he was budgeting for a 2 percent increase in construction costs largely due to labor costs. Rental rates for apartments in Minneapolis-St. Paul have increased 4 to 5 percent over the last 12 months, according to industry sources, while increases in other commercial segments have been more modest, especially of late. Prices received by farmers for wheat, hay, milk, hogs, cattle, chickens, and eggs increased in June compared with a year earlier; prices for corn, soybeans, and turkeys decreased.
Consumer Spending and Tourism
Consumer spending was mixed since the last report. The most current data on statewide gross retail sales showed a decline in recent summer months in South Dakota and Wisconsin compared with a year earlier; however, sales tax revenue in North Dakota increased in July. While store closures grabbed headlines, retail expansions were also seen in many metro markets in the District. A mall manager in Minnesota reported that business was "good overall," despite the loss of an anchor tenant.
Summer tourism has been generally positive. South Dakota's annual Sturgis Motorcycle Rally saw an uptick in attendance of almost 5 percent over last year. Most regional and state fairs have seen increased attendance. Glacier National Park summer visits were up 25 percent over last year's record attendance. But attendance at other District national parks was spotty. Minnesota hotel occupancy rates in July were strong overall compared with a year earlier, but some weakness was seen in St. Cloud and northern Minnesota.
Services
Activity in the professional services industry increased moderately since the last report. Providers of data analytics for agriculture reported a jump in demand this year as farmers sought to control input costs through more precise application of fertilizer and chemicals. A Minnesota accounting and professional services firm said it was seeing "pretty significant growth" among clients looking for one-stop services. A provider of telehealth services reported that demand was increasing from rural areas.
Construction and Real Estate
Construction was mixed since the last report. Industry data suggested that spending has slowed for commercial and heavy construction in the District compared with a year ago. A southern Minnesota contractor said the company's commercial construction volume was down one-quarter from last year due to delays for several projects. However, commercial permits in July--suggestive of future activity--were higher in a majority of the District's larger cities, with the notable exception of Minneapolis. Residential building, on the other hand, saw modest but widespread growth since the last report. Increases in the number of permitted, single-family homes in July were seen in a majority of larger cities, while the Minneapolis-St. Paul region was flat but saw strong multifamily permitting. Labor shortages were reportedly holding back more construction. A Minnesota developer said his company could have built 40 to 45 homes this year, but was on track to build just 32 due to a lack of available labor.
Commercial real estate grew modestly since the last report. Industrial vacancy rates were at very low levels in Minneapolis-St. Paul, though rental rates were flat. Office vacancy rates were flat to slightly lower. Despite continued strong multifamily construction, vacancy rates in Minneapolis-St. Paul and Missoula, Mont. remained low. Residential real estate sales slowed in July compared with a year earlier. Though increases were seen in a few markets (northern Wisconsin; Missoula and Bozeman, Mont.), most markets saw declines, including a 5 percent drop across Minnesota, which was widely attributed to low inventory.
Manufacturing
District manufacturing activity increased moderately since the last report. An index of manufacturing conditions indicated increased activity in July compared with a month earlier in Minnesota and the Dakotas. An annual survey of Montana manufacturers indicated a positive outlook among respondents for production, sales, profits, and employment over the next year. A producer of precast concrete products announced a large new plant in South Dakota, and a pipe manufacturer announced a new plant in Minnesota. Several suppliers to the wind power industry described demand as strong. Contacts in agricultural equipment said that activity remained slow overall, but conditions have improved from a year ago, as demand for some types of equipment picked up and inventories dropped.
Agriculture, Energy, and Natural Resources
District agricultural conditions remained weak overall since the previous report. In spite of recent rains, severe drought conditions persisted in the Dakotas and Montana. Farmers in many areas were cutting failed cereal crops for hay, while livestock producers were selling off parts of their herds due to a lack of feed. Meanwhile, crop conditions remained much better in eastern parts of the District, and sugar beet growers in Minnesota and North Dakota were anticipating a potential record crop. Activity in the energy and mining sectors increased slightly since the last report. Montana coal production increased in recent months compared with a year earlier. District oil and gas exploration as of mid-August was flat compared with the previous report. Regulators approved a major expansion at a natural gas processing plant in the Bakken oil patch.