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Beige Book Report: Minneapolis

July 16, 2014

The Ninth District economy grew moderately since the last report. Increased activity was noted in consumer spending, tourism, commercial construction and real estate, professional services, manufacturing, and energy and mining. Activity in residential real estate and agriculture was mixed, while decreased activity was noted in residential construction. Hiring outpaced layoffs in most areas of the district. Wage increases were generally modest, while overall prices remained relatively level.

Consumer Spending and Tourism
Consumer spending increased modestly on net. Sales at a Minnesota-based apparel retailer were up slightly from a year earlier, while comparable sales in stores at a Minneapolis area mall were down slightly. A Minnesota-based food producer recently reported a slight decrease in sales. Meanwhile, a manager of a mall in Montana reported that recent sales were up about 7 percent compared with a year ago. An auto dealer in Montana noted that sales have recently picked up after a slow start to the year.

Tourism activity was up from a year ago. Some Montana tourism-related businesses noted an increase in reservations at campgrounds and for outfitting and guiding services during the early part of the summer. According to a survey conducted by the Minnesota state tourism office, 38 percent of respondents from lodging and camping properties expect summer occupancy to be higher than a year ago, while 13 percent expect decreases; the outlook was slightly more positive than last year's survey. During the first five months of 2014, occupancies in the tourist destination of Deadwood, S.D., were up 5 percent compared with a year earlier. Relatively strong hotel occupancy rates were reported in the Minneapolis-St. Paul area.

Construction and Real Estate
Commercial construction activity increased since the last report. Several new commercial developments were planned across the District. A few examples include a medical office building planned in South Dakota, an industrial building in eastern North Dakota, a mixed-use development in Minnesota, and a natural resource processor in Montana. The value of May commercial permits in Billings, Mont., more than quadrupled from last year. However, in Sioux Falls, S.D., commercial permits in June were down from a year ago. Residential construction decreased from last year. In the Minneapolis-St. Paul area, the value of June residential permits decreased slightly compared with a year earlier. The value of permits issued in May decreased in the Bismarck, N.D., area from a year ago. The value of May single-family residential building permits in Billings was down from last year, but multifamily building was up. In contrast, the value of May residential permits in Sioux Falls increased more than 40 percent from a year earlier.

Activity in commercial real estate markets increased since the last report. Several commercial real estate sales and leasing transactions were announced since mid-May. An office building in Minneapolis will be sold for a city record of $365 per square foot. Residential real estate market activity was mixed. In the Sioux Falls area, May home sales were down 7 percent, inventory increased 7 percent and the median sales price increased 4 percent relative to a year earlier. May home sales were down 10 percent from the same period a year ago in Minnesota; the inventory of homes for sale increased 3 percent and the median sales price rose 7 percent. However, in Eau Claire, Wis., May home sales were up 9 percent from the same period a year ago and the median sales price dropped 3 percent. May home sales increased relative to a year ago in the Bismarck area.

Activity at professional business services firms increased since mid-May. Engineering contacts reported increased activity as a result of widespread flooding. An architect noted a slight increase in bidding activity since the last report. Trucking contacts reported increased demand due in part to rail capacity constraints.

Growth in the manufacturing sector continued. Respondents to a June survey of purchasing managers by Creighton University (Omaha, Neb.) reported increased manufacturing activity in Minnesota and the Dakotas; the index for Minnesota reached its highest level since prior to the recession. Contacts from the metal forming industry reported that business growth in 2014 was faster than 2013's pace; demand from the auto sector moderated, while demand from other industries was up, with the notable exception of agricultural equipment, which fell. Contacts who produce capital equipment for manufacturers noted that demand for machinery was strong and that the market for used equipment had "dried up."

Energy and Mining
Activity in the energy sector remained strong, while mining was steady. Late-June oil and gas exploration activity decreased in Montana and increased in North Dakota from a month earlier. Oil production bounced back up after dipping during the extreme winter cold. Two new pipelines to carry oil from North Dakota were proposed. Falling corn prices have been a boon to ethanol producers, according to industry contacts. Output at Minnesota iron ore mines was roughly level with last year and was slightly below expectations. Activity was restrained in part because of the winter and a rail backlog, but demand from the steel industry also appears to have slowed. In contrast, exploration or permitting was under way for several planned nonferrous mines throughout the District.

District crop producers made progress catching up on a late spring, but flooding due to heavy rains led to crop losses in some areas. Corn and soybean emergence rates were consistent with five-year averages, and most crops were in good or excellent condition. District producers planted fewer acres of corn and more soybeans this year, in line with expectations. The USDA forecasts solid harvests and a slight reduction in crop prices by the end of the year. Prices received by farmers fell in June from a year earlier for corn, soybeans, wheat, and hay; prices increased for cattle, hogs, poultry, eggs, and milk.

Employment, Wages and Prices
Hiring outpaced layoffs in most areas of the District. A number of business contacts noted increased difficulty finding qualified employees for open positions. In Minnesota, a call center was hiring 160 new workers, a bus manufacturer announced an expansion that will create over 150 new jobs, a pharmaceutical research firm is establishing a new facility that will create 100 new jobs, a safety equipment manufacturer was adding 100 jobs, and a financial services firm was expanding its information technology staff by 50 workers. However, a printing operator announced that it will close a facility in Minnesota, affecting 280 workers.

Wage increases were generally modest. For example, wages for manufacturing workers in District states were up about 1 percent for the three-month period ended in May compared with the same period a year earlier.

Overall prices remained relatively level. End-of-June gas prices in Minnesota were slightly higher than prices in mid-May. Metals prices were generally flat since the last report, while lumber prices decreased slightly.