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Despite big challenges, firms optimistic

Overall results were largely upbeat, but some stark differences show up in the experiences and sentiments of large versus small firms

September 7, 2021


Ron Wirtz Director, Regional Outreach
General Business Survey key
Despite big challenges, firms optimistic

The Federal Reserve Bank of Minneapolis surveys people across the Ninth District to gauge their recent economic activity and their outlook for the future. Our most recent general business conditions survey finds an overall net-positive outlook among businesses throughout the Ninth District for the next six months. However, labor availability, rising prices, and supply chain disruptions remain key concerns.

Ninth District firms expect revenue growth will continue

Businesses reported positive revenue growth overall during the last three months compared with both the same period last year and the previous three-month period this year. In both comparisons, about twice as many firms saw revenue gains as those seeing revenue declines. The outlook for the coming three months was even more upbeat, with almost half expecting revenue gains over last year, and just 20 percent projecting revenue decreases.

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Sector performance was more balanced than it has been in the past; while some variation among sectors exists, every sector saw net revenue growth among respondents. Larger firms reported significantly more-positive performance virtually across the survey, and performance tended to decline as firm size shrank. This has been a persistent finding in this survey since the start of the pandemic. Some sectors that were hard hit during the pandemic—particularly accommodation and food services—reported very strong recent activity.

The performance of minority- and women-owned businesses (MWBEs) continued to lag White-owned firms in virtually all metrics, including revenue, hiring, wage growth, and outlook. Some of this is likely attributable to the smaller average size of MWBEs (see firm-size discussion); about 70 percent of responding MWBEs had 10 or fewer employees, compared with 46 percent for White-owned firms.

Big challenges persist, but firms remain optimistic

Nearly 60 percent of respondents said they are somewhat or very optimistic for the coming six months, while only 20 percent are pessimistic. Large firms, again, are most optimistic.

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When asked to identify the biggest challenges to operating capacity and productivity, most respondents raised three concerns that have become familiar for businesses across the Ninth District: labor availability, price increases, and supply chain disruptions. Each of these far outranked the fourth-place option (and usual pre-pandemic favorite), government taxes and regulation.

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Large firms raise wages, increase workforce

Overall, firms reported relatively moderate wage increases. About 35 percent said wages had risen by 3 percent or more over the last year. Wage growth was much stronger among larger firms. Among firms with fewer than 10 employees (56 percent of respondents, including sole proprietors), only about 25 percent increased wages by 3 percent or more, and about half gave no wage increase at all. In contrast, among employers with at least 50 employees, close to half gave wage increases of at least 3 percent, and only 13 percent gave no wage increase.

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Somewhat surprisingly, firms overall reported no net growth in workforce over the last three months; a similar share (about 22 percent) reported both increases and decreases in staffing levels compared with three months ago. However, large firms – which employ a majority of all workers – reported strong net staffing growth.

While most respondents said the labor market is moderately (30 percent) or extremely (50 percent) tight, most remain upbeat about expected staffing levels over the next six months. Nearly one-third expect workforce growth, while 17 percent predict decreases. Hiring was more upbeat among large firms, but all categories of firms with employees expect net head count growth over the next six months.

About the Minneapolis Fed general business conditions survey

Conducted July 16–29, 2021, the Minneapolis Fed general business survey received 492 responses from across the Federal Reserve’s Ninth District, which includes Minnesota, Montana, North Dakota, South Dakota, the Upper Peninsula of Michigan, and northwestern Wisconsin.

About one-third of responses came from firms based in Minneapolis-St. Paul. Responses were modestly over-represented among firms in the Upper Peninsula of Michigan. Every other region or state had at least 25 responses. Given that the survey closed in late July, the results likely do not capture any changes in perspectives related to the COVID-19 delta variant, which accelerated in August. Because of these factors, readers should exercise appropriate caution interpreting results.

Ron Wirtz
Director, Regional Outreach

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.