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Minneapolis: July 2021

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Beige Book Report: Minneapolis

July 14, 2021

Summary of Economic Activity
Ninth District economic activity grew at a strong pace since mid-May. Employment saw solid growth, with strong hiring demand outpacing improved labor availability. Wage pressures were strong, with wholesale price pressures remaining higher than those for consumer prices. Growth was noted in consumer spending, construction, real estate, manufacturing, agriculture, and energy. Minority- and women-owned businesses in the region reported moderate improvements in business activity.

Employment and Wages
Employment saw moderate-to-strong growth overall since the last report. Two separate employer surveys showed labor demand continuing to increase in recent weeks. Staffing firms across the District reported strong job orders. Hiring demand was healthy across all sectors, but noted especially in retail, hospitality, manufacturing, construction, transportation, and health care. Despite growth, further gains were constrained by labor availability. A North Dakota staffing firm reported that it typically had 300 job openings daily but was "filling only a small percent." A Minnesota contact said virtual job fairs were seeing more employers than job seekers, and another said many businesses "would eagerly expand if they could find workers." A Montana staffing contact said employers often bemoaned the fact that there was "so much [hiring] demand and no applicants."

Wage pressures were strong. Recent surveys showed a growing share of employers raising wages by 3 percent or more. Numerous contacts also reported additional incentives, including hiring and retention bonuses and tuition reimbursement. A company in central Minnesota reported offering on-the-spot cash for job applicants simply showing up for job interviews. A Montana staffing contact said that most employers were "willing to pay what is needed to gain the people they need."

Worker Experience
Labor supply increased since the last report. Unemployment insurance claims continued to decline across all District states. Staffing and workforce contacts in states that have ended pandemic-era unemployment programs reported that the number of job seekers in the labor market increased, but not as much as expected. A recent survey showed that low pay at available jobs and concerns over COVID-19 exposure were the top challenges keeping some job seekers from accepting employment. Transportation and the need for more training or education were quoted as being moderate or significant challenges. While government benefits may be keeping some job seekers on the sidelines, many expressed that they would rather work in their preferred fields if given the opportunity. Nonprofit professionals working with diverse youth shared that the lack of paid internships and the narrow range of workforce development options were major challenges for their clients. Furthermore, some are struggling to find first-time job opportunities because automation is increasingly reducing the number of entry-level positions.

Prices
Price pressures remained elevated since the previous report. An overwhelming majority of respondents to a survey of District professional services firms noted increased nonlabor input costs over the past year, though a much smaller proportion reported having raised selling prices; the outlook for both over the coming year was elevated. A separate survey of general District businesses revealed similar pricing experience. Manufacturing contacts noted continued steep input cost pressure across the board for raw materials and transportation, with one contact describing metals markets as "out of control." Retail fuel prices in District states increased moderately since the previous report. Prices received by farmers in May increased from a year earlier for most important District commodities but decreased for lentils and chickpeas.

Consumer Spending
Consumer spending was moderately higher since the last report and remained high overall. A Minnesota shopping mall contact reported that more stores were opening, and customer traffic and spending were improving. Hospitality and tourism firms reported improving activity in recent weeks; a central Minnesota contact said there was "pent-up demand for any entertainment." But many operations remained constrained by lack of workers and low inventories of vehicles, recreational equipment, and other products. Airline travel increased significantly in June compared with a month earlier, most of it coming from higher leisure travel. A Montana contact reported that rental car and lodging shortages were hampering otherwise-strong tourism activity there. Tourism traffic also improved in Michigan's Upper Peninsula in May and June.

Services
Activity in the services sector increased moderately. Preliminary results from an annual survey of professional services firms indicated that sales, profits, and productivity had all increased, and expectations called for continued growth over the coming year. Several providers of broadband and network management services noted that demand remained brisk. Accounting contacts reported that they remained busy due to supporting pandemic aid documentation requirements.

Construction and Real Estate
Commercial construction grew slightly since the last report, with some variation among contacts. There was widespread concern over cost increases, but materials supply contacts said demand has remained healthy in most market segments. An industry tracker showed that total active projects in May and June remained slightly below last year, but the gap has been shrinking. An asphalt contact said that work has been "a little low" in Minnesota and the Dakotas, especially for public projects. Residential construction saw modest growth and remained at healthy levels. But contacts said some buyers were backing away from projects due to higher costs, and contractors were also less willing to start speculative building projects, fearful of taking losses.

Commercial real estate improved modestly. Office and retail markets continued to improve, though return-to-office occupancy in some core markets like downtown Minneapolis remained sluggish. Residential real estate improved slightly; demand remained strong, according to contacts, but very low inventories of homes for sale has dampened total sales in many markets.

Manufacturing
District manufacturing activity remained strong since the previous report, despite continued challenges with input costs and availability. A regional manufacturing index indicated broadly increased activity in Minnesota, North Dakota, and South Dakota in May relative to the previous month. District manufacturing contacts generally reported solid new orders. However, a few contacts reported that raising final prices due to constraints on raw material and input availability was hampering demand. Due to substantial backlogs in maritime shipping, noted one contact, "anything made overseas takes longer and is more expensive."

Agriculture, Energy, and Natural Resources
District agricultural conditions continued to benefit from strong commodity prices. However, severe drought conditions across most of the District had many crop producers concerned about yields, as most corn, soybean, and wheat acres in the District were rated in fair or poor condition. Oil and gas exploration activity increased slightly since the previous report.

Minority- and Women-Owned Business Enterprises
Minority- and women-owned business enterprises (MWBEs) in the region continued to report moderate improvements in business activity and had an overall optimistic outlook on the economy. Personnel recruitment remained a challenge, but some were seeing more applicants for available jobs compared with previous months. MWBEs across several industries expected wage and input cost increases to continue putting pressure on their operations, and some planned to increase prices for their products within the next quarter. A nonprofit financial contact said that the pandemic hit many MWBEs earlier and harder than businesses overall and, given limited support infrastructure and access to credit, their recovery will also take longer.

For more information about District economic conditions visit: www.minneapolisfed.org/region-and-community