Ninth District businesses continue to grapple with high costs

In northwest Minnesota, the owner of a small restaurant faced challenges operating in a high-cost environment. “We have more expenses as everything is higher priced now and we have less customers,” the owner wrote. “We are stuck with less profit and higher cost of goods just to keep the customers we currently have.”

This business owner was not alone. Over half of Ninth District respondents reported lower profits since last year in the July General Business Survey from the Federal Reserve Bank of Minneapolis.

The survey, which received 905 responses from business owners across the region, indicated that many were still feeling the pressure from rising costs and uncertainty in the economy.

Roughly 45 percent of respondents were currently hiring workers, and many were looking to replace turnover. While some reported improvements with their ability to find and hire workers, others reported that hiring was still difficult, especially for more experienced roles.

Business owners were mostly mixed on their outlook for the near future. A slightly higher share was pessimistic about the next six months than optimistic.

Costs heat up this summer

Just over 40 percent of respondents experienced declines in their revenue since last year. Declines in profits were more widespread, with over half of business owners indicating that they took a hit (see Figure 1).

Expectations for the next three months were slightly more positive, but not by much; about 44 percent expected their near-term profits to be lower than last year.

Respondents pointed to a variety of factors impacting their business, including specific challenges this summer due to wildfires, smoke, and declines in Canadian customers since last year.

The owner of a natural resource business in northeast Minnesota explained that “Canadians coming down to shop is a huge financial driver. Their business has decreased, and the wildfires and smoke has kept metro tourists away.”

But the bigger, more widespread challenge was rising costs. Over 70 percent of survey takers reported that their wholesale prices increased by more than 5 percent over the year (see Figure 2). “Fuel and materials have increased dramatically since we bid jobs, so the profits are much lower,” wrote the owner of a Twin Cities construction firm.

Some business owners in the survey pointed to tariffs as a reason for their price increases; roughly half of respondents said that their business was negatively affected in some way over the last six months.

“Tariffs on steel and aluminum are allowing domestic suppliers to raise prices far beyond the increase in their input costs,” wrote a manufacturer in northwestern Wisconsin. “We compete globally and it makes our products too expensive for end customers. They will buy elsewhere.”

As input costs continued to rise, a small but growing share of businesses were passing these costs on to customers. Roughly 43 percent of respondents increased their retail prices by 5 percent or more over the year, up from 39 percent last July. Many indicated they were reluctant to do so.

“The costs of services, repairs, insurance, and [costs of goods sold] are all spiking at a time when it’s tough to raise prices,” explained the owner of a South Dakota arts and entertainment company. “The squeeze is adding a lot of stress and screwing with the focus of what we do.”

Tepid hiring and cooler wages

Fifty-six percent of respondents were not actively hiring workers at the time of the survey, and most expected that their head count would remain flat in the next six months (see Figure 3). On the upside, more businesses expected increases in their staff than those that expected decreases in the near future, and only about 4 percent of respondents reported they were planning layoffs.

Employers that were hiring reported sustained frustration with trying to hire workers with the right skills and experience. While the availability of applicants had improved for some businesses, the quality had not.

“The pool of talented labor is shallow and there is a lot of competition to hire anyone who stands out as capable,” wrote the owners of a professional services firm in Wisconsin.

In Minnesota, business contacts frequently mentioned that a state paid leave policy that went into effect this year was also creating some challenges with their staffing needs and adding additional costs. “We can find temporary replacements, but that is not fast or easy,” commented a retailer near St. Cloud, Minnesota.

As costs increased, wage increases continued to cool. About 36 percent of respondents hadn’t increased their wages in the last year, up from 27 percent in July 2024.

Some contacts mentioned that the inability to find labor was affecting sales, which was affecting wages. “We are having trouble affording a living [wage] to our staff because we are short staffed in our services, which is where our revenue is created,” wrote the owner of a wellness clinic in northern Minnesota. “If sales do not increase, wages cannot increase,” added a retailer in the Upper Peninsula.

Muddled expectations for remainder of the year

Outlook for the next six months was mostly mixed; about 34 percent of respondents were optimistic while 36 percent were pessimistic. The remainder of businesses were neutral.

Some business owners were more positive about their current situation than others. “It’s been better this past year than the rest but still a lot of room for improvement,” wrote the owner of a gift shop in northern Minnesota.

Others felt that they could not accurately predict the next six months. “Uncertainty is the overarching issue,” wrote the owner of an accommodation business in Montana. “I have no idea if next season will be better.”

The General Business Survey was conducted from July 13 to July 31, 2026. The survey received 905 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 60 percent of responses came from businesses in Minnesota, 15 percent from Wisconsin, 7 percent from the Upper Peninsula, 7 percent from North Dakota, 6 percent from Montana, and 5 percent from South Dakota. Survey results were obtained using a convenience sample of businesses contacted by local partners. Because of these factors, readers should exercise appropriate caution when interpreting results.