WASHINGTON (MNI) – The following is the the text the Minneapolis
section of the Federal Reserve’s Beige Book report on current financial
conditions released Wednesday:

NINTH DISTRICT–MINNEAPOLIS

The Ninth District economy grew at a firm pace since the last
report. Strength was noted in consumer spending, professional services
firms, commercial and residential real estate and construction,
manufacturing, energy and mining, and agriculture. Lack of snowfall
reduced tourism activity. Some more firms announced plans to expand
hiring, while wage increases were modest. Overall prices were level, but
some increases were noted.

Consumer Spending and Tourism

Consumer spending was solid. Same-store sales at a Minnesota-based
retailer increased about 4 percent in January compared with a year ago.
A Minneapolis area mall manager reported relatively strong traffic
during January. A Minnesota-based restaurant and bar chain reported that
same-store sales were off to a good start in January and February. A
fast food chain recently announced plans to add more restaurants in
Minnesota. A representative of an auto dealers association in Montana
noted that recent vehicle sales were higher than a year ago and that
availability of new and used cars has improved. Repair shops in eastern
Montana were very busy repairing oil-drilling-related vehicles. However,
due to the surprisingly mild winter, many District auto repair shops
reported a decrease in business because of fewer snow- and ice-related
accidents. Tourism was down due to low snowfall in much of the District.
The lack of snow in Minnesota and Wisconsin has stymied snowmobiling and
cross-country skiing. Snowmobile dealerships reported a sharp drop in
sales from a year ago. However, a Minnesota travel company reported
strong demand for both corporate and leisure travel in January; interest
in traveling to Europe and other overseas destinations was up. Another
travel agency noted that recent corporate travel sales were up almost 25
percent compared with a year ago.

Construction and Real Estate

The unusually warm weather aided construction activity. The value
of commercial building permits in the Sioux Falls, S.D., area was up in
January from January 2011. A major Minnesota-based commercial real
estate company expects more construction of retail and warehouse
structures. Residential construction increased from a year ago. The
value of residential building permits increased significantly in the
Sioux Falls area in January. The number of single-family building
permits increased in Minnesota and North Dakota in December 2011,
compared with December 2010. Multifamily construction in the Minneapolis
area is in a “boom,” according to a major real estate firm. Commercial
real estate market activity increased.A large warehouse property manager
noted increased transaction activity over the past few months. A major
Minnesota-based broker noted increased leasing of office space. Home
sales in January were up from the same period a year ago in the
Minneapolis-St. Paul area, and the inventory of homes for sale continued
at low levels. Several brokers noted that the low end of the market
appeared to shift to a “sellers’ market.” The multifamily market
continued to strengthen in the fourth quarter of 2011 as rents increased
and vacancy rates decreased in many markets, according to a real estate
research firm.

Services

Activity at professional business services firms increased at a
solid pace since the last report. Of the 33 firms that responded to a
mid-February ad hoc survey, 63 percent saw revenues increase over the
past three months, while only 16 percent experienced revenue drops. Over
the next three months, 59 percent expect increased revenues and only 6
percent expect sales to drop. A human resources consulting firm noted
increased activity with “more proposals and opportunities.” An
architectural firm noted increased activity and demand, but said the
competition remains “fierce.”

Manufacturing

District manufacturing expanded at a firm pace. A January survey of
purchasing managers by Creighton University (Omaha, Neb.) found that
manufacturing activity increased in Minnesota and the Dakotas. An
electrical equipment producer is opening a new facility in Minnesota. An
aerospace firm announced plans to locate a plant in Montana. A producer
of automotive cooling systems is expanding operations in South Dakota.

Energy and Mining

Activity in the energy and mining sectors continued at strong
levels. District oil and gas exploration increased since the last
report. In Montana, construction began on what will be the state’s
largest wind energy development. In addition, regulators in Montana
approved an $86 million wind energy project. Iron mines in northern
Minnesota were operating at near capacity. A Canadian mining company
discovered large iron and titanium deposits near Duluth, Minn., but any
mining operations are several years away.

Agriculture

Agriculture remained strong. January prices received by farmers for
corn and cattle increased. Prices declined somewhat for wheat, soybeans,
hogs, dairy products, eggs and poultry, but all prices were above their
January 2011 levels. According to preliminary results from the
Minneapolis Fed’s fourth-quarter (January) survey of agricultural credit
conditions, 67 percent of District lenders reported that farm incomes
increased in the previous three months; 10 percent reported decreases.
However, drought conditions spread in Minnesota, the Dakotas and
District portions of Wisconsin. Low snowfall combined with erratic
temperatures were having an uncertain effect on the District’s winter
wheat crop.

Employment, Wages and Prices

Some more firms announced plans to expand hiring. An airplane
manufacturer announced plans for a new facility in northwestern
Wisconsin that will initially create 300 jobs. A marketing company plans
to expand its operations in Minnesota and eventually hire 200 more
workers. Also in Minnesota, a clothing supplier will add 150 employees
at a new facility, and a boat manufacturer expects to rehire former
employees laid off during the recession.

However, some employment cutbacks were announced. A Minnesota-based
food retailer will cut about 200 jobs at the company’s headquarters. A
bank will lay off almost 70 employees at an auto-debt-collection unit in
South Dakota.

Wage increases were modest. Workers at two food operations recently
agreed to a new contract that includes some wage increases over a
five-year period. Bank directors recently reported that business
contacts expected wage increases between 2 percent and 3 percent in 2012
compared with 2011 after remaining level over the past couple of years.
Larger increases were noted in the oil-drilling area of western North
Dakota and eastern Montana, particularly for welders who were in short
supply.

Overall prices were level, but some increases were noted. Minnesota
gasoline prices were up 15 cents per gallon since early January. Bank
directors noted that health insurance costs were up between 6 percent
and 8 percent over a year ago, with some reports of steeper increases.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]