Collecting on-the-ground insights

The Federal Reserve Bank of Minneapolis convenes and maintains advisory groups to gain insights into the Ninth District’s economy. Members of the Ninth District Advisory Council (NDAC) represent a diverse group of industry leaders from across the district. This group advises the Bank on regional economic conditions. The Community Depository Institutions Advisory Council (CDIAC) advises the Bank on conditions affecting community banks, and its membership consists of leaders of thrifts, credit unions, and banks with assets of less than $10 billion.

At the groups’ most recent meetings this fall, Minneapolis Fed President Neel Kashkari spoke about the Federal Open Market Committee’s September 2024 decision to lower the target range for the federal funds rate by 50 basis points. He discussed the progress the Federal Reserve has made in reducing inflation and mentioned labor market indicators that have shifted the focus from high inflation toward a softening in the labor market. Council members shared their insights into current conditions in labor markets, credit conditions, and consumer confidence.

Current conditions noted by community depository institutions

Meeting participants reported that labor markets had continued to ease since the council’s spring meeting. While conditions varied across the district, the overall sentiment was that employers were able to recruit from larger and more qualified pools of applicants across industries. Participants also reported fewer employers offering recruitment bonuses and less turnover across sectors.

While housing inventory remains historically low in most parts of the district, CDIAC members noted houses lingering slightly longer on the market, with fewer offers being received, particularly offers above asking price.

Consumer confidence remains positive, and consumers continue to spend, though meeting participants noted a change in how consumers are financing their spending, with a shift from debit card transactions to credit card transactions. Rising delinquencies on credit cards, auto loans, and residential real estate were noted, as well as an increase in use of home equity lines of credit.

Participants noted that low- and moderate-income consumers continue to struggle with the cost of groceries, with one participant noting more need at the local food pantry.

CDIAC members also discussed consumer use of person-to-person payment applications and the challenges with implementation of those services from a regulatory and risk perspective. Smaller financial institutions are moving into the instant payment space cautiously to ensure they can mitigate the risks associated with adoption of the technology.

More insights from district businesses

Members of the NDAC reported that labor markets continued to ease across the district. Some notable exceptions included the skilled trades, which have been hit by both retirements and an ongoing shortage of skilled workers. Additionally, hospitality continues to see fewer job applicants post-COVID. One participant noted that there is some rightsizing in the event and hospitality industry, leading to some employers only filling positions as needed based on demand.

Council members reported that labor remains tight in the agriculture sector across the district. However, members reported that due to growing connectivity in rural areas, farmers and ranchers are better able to adopt technology to alleviate some of the labor demand.

Similar to CDIAC members, NDAC members reported seeing changes in consumer spending habits and noted that small businesses are feeling this shift more acutely than large retailers. Additionally, members noted that businesses have been less willing to make large purchases or build new buildings due to ongoing uncertainty in the economy. One member noted that insurance premiums for health care are impacting growth options for small and medium-sized businesses.

Council members discussed the economic outlook for the coming year, and while responses varied across participants, the overall outlook was positive. The construction industry remains strong, and there is still demand for commercial and private work, in addition to many public projects coming online offering additional stability for that industry. The technology sector is growing, and layoffs from large firms have provided some softening to the labor demand for that industry. Members are optimistic that consumers will continue to travel and bolster the hospitality and tourism industry.

A help to monetary policymaking

As Federal Open Market Committee members continue their work to promote maximum employment and stable prices, insights from these two advisory groups provide real-time, ground-level perspectives to complement the data that the Fed studies. These insights can help identify emerging trends not yet visible in the data and ensure multiple perspectives are represented in the monetary policymaking process.