March 4, 2020
Summary of Economic Activity
Economic activity in the Ninth District increased moderately since the last report. Employment rose moderately, and wage pressures were also moderate overall, while price pressures remained modest. The District economy saw growth in consumer spending, tourism, commercial and residential construction and real estate, and manufacturing. Energy activity held steady, while agricultural conditions were stable at low levels.
Employment and Wages
Employment rose moderately since the last report. Hiring demand appeared to be quite strong to start the year. Job postings rose across District states, with North Dakota seeing a double-digit increase in January over a year earlier. Two January hiring indexes saw notable improvements in Minnesota and the Dakotas over the previous month. Multiple surveys and ad hoc polls in January by the Minneapolis Fed had similar findings. A poll of firms across the District found a greater share were increasing employment levels compared with those reporting decreases. An ad hoc poll of St. Paul-area businesses found that 75 percent were hiring or expecting to hire in the coming six months. A large majority of construction firms polled in Minnesota and Wisconsin said they were trying to add to their head count, with varying success rates given tight labor markets. Surveys of manufacturing, tourism, and hospitality businesses in Minnesota in January found that hiring demand was more muted, but still solidly net-positive overall. Initial unemployment insurance claims fell by almost 8 percent across District states over the first five weeks of the year (through early February), with Minnesota and Wisconsin both seeing steep declines compared with the same period a year earlier. The number of mass layoff events, as well as the number of workers affected, were lower in Minnesota and Wisconsin in January compared with the previous year.
Wage pressures were moderate overall. A majority of firms across multiple surveys and ad hoc polls in January reported that wages grew by less than 3 percent over the past year, and they reported similar expectations for the coming year. There was variation in each poll, however. A small majority of construction firms said wage increases were above 3 percent, but increases were more modest at manufacturing, tourism, and hospitality firms. Benefit increases were also reported. A Montana accounting firm reported that more businesses were starting to put in retirement plans to help recruit workers, and a nonprofit in that state implemented half-day Fridays in lieu of salary increases “as a creative way to keep staff.”
Prices
Price pressures remained modest since the previous report. Three in five respondents to a recent survey of tourism and hospitality contacts reported that retail prices increased by 2 percent or less over the past year. However, some contacts in the industry reported that they were passing increased labor costs on to customers, particularly in food service. Retail fuel prices as of late February were slightly lower in most areas of the District relative to the previous reporting period. Prices received by farmers in December increased from a year earlier for corn, soybeans, dry beans, milk, cattle, hogs, and turkeys, while prices for wheat, lentils, hay, chickens, and eggs decreased.
Consumer Spending
Consumer spending increased modestly overall since the last report. January gross sales in South Dakota and Wisconsin both grew about 1 percent to 2 percent compared with a year earlier; January sales tax receipts in Minnesota were also slightly higher than forecast. A handful of regional airports reported that January activity showed strong increases over the previous year, with most seeing double-digit increases. Preliminary results of a survey of Minnesota tourism and hospitality firms showed that activity from December through mid-February was soft overall compared with a year earlier, but firms were optimistic about expected activity in the coming months. Vehicle sales at dealerships in the western portion of the District rose modestly overall in December and January (year over year), with new vehicle sales seeing slightly better performance over the two-month period. However, sales of both recreational and powersport vehicles were lower across District states in the fourth quarter.
Snow conditions have generally been favorable across the District, benefiting snowmobile and ski tourism. However, ice conditions have been less favorable this season in Minnesota and Wisconsin, cutting into spending from fishermen and snowmobilers in areas where trails cross lakes. The Montana ski season has reportedly been good. One resort had to discontinue selling walk-up tickets because it had “too many customers.” Accommodation and lodging taxes in Montana were also slightly higher in January versus a year ago.
Construction and Real Estate
Commercial construction grew moderately since the last report. Construction starts in December and January increased compared with a year earlier, according to industry figures. The number of new and active projects as of mid-February was slightly lower than the same period a year ago, but still at strong levels. Ad hoc polls of construction firms in Minnesota and Wisconsin found higher overall activity of late compared with the same period a year earlier. A large majority also expected the first half of 2020 to be stronger than last year. Anecdotally, contacts were reporting strong project backlogs, and January commercial permits offered additional evidence, with Rochester, Minn., Bismarck, N.D., and Sioux Falls, S.D., all seeing strong activity. Residential construction was modestly higher on the strength of the Minneapolis-St. Paul market, which saw strong January gains in single-family permits compared with a year earlier. Elsewhere in the District, however, residential building was mostly flat or slightly lower for the month.
Commercial real estate was modestly higher. Industrial property in Minneapolis-St. Paul continued to see strong demand, pushing vacancy rates to very low levels. Despite strong multifamily development across the District, vacancy rates remained very low in most markets, and rent growth has been healthy. The office market in Minneapolis-St. Paul has been seeing redeveloped properties come back onto the market, which has pushed up vacancy rates somewhat, but overall leasing and space absorption rates have been healthy, according to industry sources. Retail markets continued to experience flux. A national retail chain announced the closure of 15 stores across the District. Residential real estate was modestly higher. Higher January home sales were seen across Minnesota, northern and western portions of Wisconsin, and Sioux Falls. But lower or flat sales were seen in Fargo, N.D., and larger Montana markets.
Manufacturing
District manufacturing activity increased moderately relative to the last report. An index of manufacturing conditions indicated increased activity in January compared with a month earlier in Minnesota and the Dakotas. Several electronic component producers reported a substantial uptick in orders and production recently. Producers of home fixtures and residential building inputs continued to report solid business. In contrast, a manufacturer of food truck and mobile concessions equipment noted that new orders fell.
Agriculture, Energy, and Natural Resources
District agricultural conditions were stable at low levels. More than half of Ninth District agricultural lenders reported that farm incomes decreased in the previous three months relative to a year earlier, while 60 percent reported decreased capital spending, according to the Minneapolis Fed’s fourth-quarter 2019 survey of agricultural credit conditions (conducted in January 2020). District oil and gas exploration activity held steady since the previous report. The number of active drilling rigs as of mid-February was up slightly from the last report, but the most recent figures (as of December) indicated that oil production decreased slightly from its recent peak. District ethanol producers reported steady demand and increased production.