Hiring slows as businesses continue to face high costs

Businesses have continued to feel pressure from increased prices and heightened operating costs, according to the most recent General Business Survey by the Federal Reserve Bank of Minneapolis.

The January survey received 568 responses from business owners across the Ninth District. Companies reported that profits and revenue declined, and some observed that additional economic uncertainty made already price-sensitive customers more skittish.

Amid this uncertainty, more businesses reported pulling back on hiring but for varying reasons. Many respondents mentioned that heightened labor costs hindered their ability to hire, while others noted that improved labor availability and slower turnover lessened their hiring needs.

Businesses also said that price increases moderated since last year, and their outlook was solidly positive.

Revenue and profits lower than last year

Revenue declined for 44 percent of firms compared with the same quarter last year (see Figure 1). Profits were also reportedly lower for nearly half of firms.

Expectations for future revenue and profits leaned negative as well, with 36 percent of respondents expecting declines in revenue over the next quarter and 30 percent expecting revenue to increase.

Respondents noted that heightened input and labor costs continued to chip away at their profits. Many also mentioned that their customers or clients were increasingly tightening their belts and unwilling to make large purchases.

“It appears that inflation is really having an effect on people’s spending,” observed the owner of a Minnesota accommodation business. “People generally have less to spend, thus we have seen a decrease in our gross revenue.”

Other respondents mentioned that increased economic uncertainty, especially due to proposed changes in federal policy, was creating concerns about future input costs and demand. “We are anxious about any possible tariffs,” wrote a North Dakota alcohol beverage retailer. “We significantly felt the impacts of the last round of tariffs in 2018 [and] 2019. We tried to stock up in advance of price increases to be competitive.”

Unusual winter weather patterns also continued to impact businesses in different ways. Some retail and accommodation businesses that depend on winter weather saw improved snow coverage and lower temperatures this year. “We are a motel that caters to winter sports enthusiasts, the amount of snow this year … has made a significant increase in business,” commented a respondent in the Upper Peninsula of Michigan (U.P.).

Other businesses, even within the same state, weren’t so lucky with snowfall. A resort owner further west in the U.P. reported poorer snow conditions: “We took on this business because past numbers looked good,” but there’s “no winter up here and no winter tourism anymore.”

Hiring continues to slow among firms

As heightened costs and economic uncertainty strained firms, hiring slowed to its lowest levels in the last three years. Nearly half of businesses were not hiring, and of those that were, only 18 percent were looking for new full-time workers (see Figure 2).

The reasons for this pullback in hiring varied among respondents. Many pointed to declining revenue and difficulties affording wages. “Employees expect better pay. I’m not saying they don’t deserve [it]. Just that we can’t afford it,” wrote the owner of a Twin Cities construction firm.

Notably, most businesses were still reluctant to reduce staff despite declining revenue and heightened costs. Only 8 percent indicated they were actively cutting staff, and a majority expected numbers to simply stay flat in the next six months.

Some business owners mentioned other ways of alleviating labor costs without reducing staff. “We’ve been on reduced hours in our manufacturing area … due to reduced customer orders,” wrote a manufacturer in the U.P.

“We had to cancel health care & other insurance coverage for our staff due to high costs,” added the owner of a Minnesota retail business.

Other firms pulled back on hiring because they had success in becoming fully staffed as labor availability improved. Turnover was reportedly flat for three-fourths of firms, and the share of respondents that said getting new hires was “extremely difficult” was at its lowest levels in two years (see Figure 3).

“We have no turnover; We are seeing a marked increase in qualified applicants for our open positions over one year ago,” observed a North Dakota manufacturing firm owner.

“It seems like we are retaining employees better,” the owner of a South Dakota janitorial firm wrote. “We have improved our training, but I sense there’s less jobs available right now.”

Businesses optimistic but see clouds on horizon

Despite mixed experiences for many business owners in the last few months, most still had an overall positive outlook; 50 percent were optimistic about business over the next six months while just 26 percent were pessimistic. The rest were neutral.

This optimism was often tempered by uncertainty of what the future might bring. “I very much worry about my pipeline — too many companies are unsure of the economic outlook,” wrote the owner of a Minnesota professional services firm.

However, others felt well positioned for the near future if demand holds strong. “We currently have everything we need for solid growth including staff, facilities, equipment, and drive,” wrote a construction firm owner in South Dakota. “As long as we fulfill our potential for additional work, we will prosper.”

The General Business Survey was conducted from January 13 through February 7, 2025. The survey received 568 responses from business owners and key financial decision makers of firms across the Federal Reserve’s Ninth District, which includes Minnesota, Montana, North Dakota, South Dakota, the Upper Peninsula of Michigan, and northwestern Wisconsin.

About 47 percent of responses came from Minnesota businesses, 14 percent from the Upper Peninsula of Michigan, 13 percent from South Dakota, 12 percent from North Dakota, 8 percent from northwestern Wisconsin, and 6 percent from Montana businesses. Survey results were obtained using a convenience sample of businesses. Because of these factors, readers should exercise appropriate caution interpreting results.