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Minneapolis: April 2021

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Beige Book Report: Minneapolis

April 14, 2021

Summary of Economic Activity
Economic activity in the Ninth District increased moderately since mid-February, with signs of accelerating growth. Employment saw notable gains, with rising labor demand but continued gaps in job matching. Wage pressures were modest but appeared to be rising, and price pressures were moderate. Sources reported growth in consumer spending, commercial and residential construction and real estate, manufacturing, energy, and agriculture. Conditions for minority-owned businesses trailed those of similar firms.

Employment and Wages
Employment saw strong growth since the last report but remained below pre-pandemic levels. Job postings increased steadily across the District through mid-March. Staffing firms reported higher job orders in recent weeks and expected that trend to continue. These firms also reported modestly rising unfilled job orders and were themselves hiring more recruiters. Construction, health care, and manufacturing firms reported moderate to strong labor demand, and hospitality and tourism firms also reported hiring despite recent difficulties in those sectors. Staffing expectations for the coming months were widely higher in most sectors, though labor availability was a widespread concern. Numerous contacts reported concern over the potential labor-dampening effects of renewed enhanced unemployment insurance benefits. A Wisconsin staffing firm reported many job applicants but few taking the next step to interviews. Initial unemployment claims in March continued a downward trend but were still more than twice the level of similar, pre-pandemic periods.

Wage pressures were modest overall but rising. For most firms, wages have been rising by less than 3 percent annually. Greater pressure was reported by manufacturing and construction firms. Multiple contacts mentioned growing prevalence of sign-on bonuses, which helped attract candidates without raising long-term salary commitments. Several workforce contacts suggested that employers might be delaying wage hikes in hopes of a surge of newly vaccinated job seekers. "Why start raising wages when a lot of labor might be coming back?"

Worker Experience
Contacts reported a continued disconnect between job opportunities and labor supply and a contrast between rural and urban labor markets. Job training professionals, particularly in Minneapolis-St. Paul, expressed their need to know more about the skill sets employers are seeking. Other contacts indicated that training programs and other services don't always meet the needs of low-earning workers, particularly for those with limited English and computer skills. Hospitality and janitorial workers reported that transportation, schedule changes, online learning, relocation, and COVID-19 exposure continued to hamper employment. Several contacts noted that a great number of frontline workers affected by this dynamic were people of color, some of whom don't qualify for public benefits because of their immigration status. A labor contact suggested that some of the automation undertaken during the pandemic was likely to be permanent and emphasized the need for efficient paths to train workers for manufacturing jobs.

Price pressures remained moderate since the previous report. Preliminary responses to a survey of District businesses indicated a substantial increase in nonlabor input costs in the first quarter of 2021 from a year earlier. However, most of those firms reported only slight increases in prices charged to customers; expectations for prices over the second quarter were similar. Retail fuel prices in District states continued to increase briskly over the reporting period. Prices received by farmers increased in February from a year earlier for corn, soybeans, wheat, hay, hogs, turkeys, chickens, and eggs, while prices for potatoes, dry beans, milk, and cattle decreased.

Consumer Spending
Consumer spending rose moderately, with signs of growing confidence, likely helped by recent federal stimulus. Hospitality firms reported difficult conditions across the District through February. However, many were seeing improved sales in recent weeks as weather improved and traffic increased among vaccinated customers. The lifting of operating restrictions in Minnesota also helped boost foot traffic there, though sentiment was more cautious in Minneapolis-St. Paul. A regional shopping center said that activity was still well below pre-pandemic levels but saw steady increases in traffic and spending in March. Ski resorts reported strong activity, and vehicle dealers reported healthy demand, with sales limited in some cases by low inventory. Airport passenger levels in mid-March were roughly 50 percent higher than early February levels, and regional airports reported that new flights were being added.

Construction and Real Estate
Commercial construction activity grew modestly overall, with signs of increased optimism. Total active major construction projects as of mid-March remained below year-ago levels. Contacts in the Dakotas and Montana reported stronger activity than those in Minnesota. However, firms across the District noted a moderate upturn in projects out for bid, particularly in Minneapolis-St. Paul. Project cancellations and delays also improved. Residential construction continued to grow moderately, with permit increases in most of the District's larger markets compared with last year. Supply chains and rising input costs were major concerns for the entire sector, and material delivery lead times were rising.

Commercial real estate improved slightly as some firms looked to move workers back to the office and consumer foot traffic also rose. But virtually all categories faced occupancy challenges, save for industrial space, which has experienced growth and relative stability. Residential real estate continued to see strong home sales across the District despite very low inventories.

District manufacturing activity increased moderately since the previous report. A March index of regional manufacturing conditions indicated expansion in activity in Minnesota, North Dakota, and South Dakota from a month earlier. Heavy equipment producers reported strong demand and long delivery lead times due to ongoing strength in construction and improvement in agriculture. Producers of construction materials continued to report strong demand, especially from residential building; a maker of ready-mix concrete said that recent sales were up 40 percent from a year ago.

Agriculture, Energy, and Natural Resources
Agricultural conditions improved briskly heading into spring planting, as prices for many commodities continued to increase well above their recent levels. Despite some recovery in crude oil prices, drilling activity in the Bakken area increased only slightly compared with the previous report. Industry contacts said that maintenance and service activity on wells had increased, but oilfield employment was still down dramatically from its pre-pandemic level. Iron ore mines continued to operate at capacity since the previous report, while contacts in nonferrous mining reported steady to slightly increased demand.

Minority- and Women-Owned Business Enterprises
Minority- and women-owned business enterprises (MWBEs) continued to report more widespread decreases in revenue than other businesses in comparable industries. However, an economic development contact reported greater success accessing more recent rounds of federal pandemic relief aid among these firms due to longer application deadlines and more clarity about the programs. Minority-owned firms in the hospitality and tourism industry have been more negatively impacted than other firms in these sectors, according to a March survey. Revenue losses have been greater on average, and there was more financial instability among these firms compared with firms overall. In contrast, women-owned firms in these sectors reported slightly better overall revenue trends, financial stability, and outlook than non-MWBE firms. A community-based organization that works with minority-owned businesses indicated that a large number of their clients have seen net losses of up to 60 percent since the beginning of the pandemic.