Beige Book Report: Minneapolis
September 8, 2021
Summary of Economic Activity
Ninth District economic activity grew at a moderate pace since mid-July. Employment saw strong growth, though hiring demand continued to outpace labor's response. Wage and price pressures were strong, with wholesale price pressures remaining higher than those for consumer prices. Growth was noted in consumer spending, construction, manufacturing, agriculture, and energy. Real estate activity slowed slightly. Minority- and women-owned businesses in the District reported moderate improvements in business activity.
Employment and Wages
Employment saw strong growth since the last report. Large firms reported strong net staffing growth, while growth at smaller firms was softer overall. Larger firms also reported comparatively higher wage increases, which was likely helping their recruitment. Firms of all sizes were upbeat regarding future hiring. A mid-August survey of construction firms across the District found that 70 percent have been hiring in some capacity of late. One Minneapolis-St. Paul firm said it needed workers "now, and a year from now, and two years from now based on what we have lined up." Another survey found that three-quarters of hospitality and tourism firms in Minnesota were hiring to either expand staffing or replace turnover. Firms in every sector reported continued difficulty attracting labor.
Wage pressures were strong. District-wide, about one-third of all firms, and almost half of large firms, said wages had risen by 3 percent or more over the last year. Surveys of construction and hospitality firms also showed strong wage growth. A Minnesota hotelier said housekeeping wages were increased from $13 to $15 an hour. "It didn't attract labor, but it made our current [staff] very happy and felt great to be able to afford this increase." Two of Minnesota's largest public employee unions settled new contracts with 2.5 percent wage increases.
Worker Experience
Labor supply remained tight across the District. Initial unemployment claims continued to decline through mid-August and claims in traditional unemployment insurance programs fell as of early August relative to earlier in the summer, particularly in the Dakotas and Montana. Claims in pandemic-era unemployment programs in Minnesota and Wisconsin only were modestly lower at the end of July compared with earlier in the summer. A workforce development contact in northern Minnesota pointed out that labor scarcity was causing some currently employed workers to be overworked and tired. Two recent surveys revealed that people want higher wages, flexibility, and better benefits in current or future positions as they continued to confront other life challenges. Low-wage workers in Minneapolis-St. Paul expressed concerns with being able to pay for housing, utilities, and food. Workforce development professionals in Montana also highlighted housing and childcare affordability as major challenges faced by job seekers. COVID-19 exposure remained a big concern among workers and job seekers.
Prices
Price pressures remained elevated since the previous report. One-third of respondents to a general business survey reported that non-labor input costs were up by more than 10 percent relative to pre-pandemic levels; one-quarter said that they had increased prices charged to customers for their products or services by more than 10 percent over the same period. Hospitality firms reported steep input price pressures, but flat final prices on balance. While some lumber and wood prices retreated from recent highs, a construction survey found steep increases for most building materials. Retail fuel prices were little changed in most District states except Montana, where they rose moderately.
Consumer Spending
Consumer spending was moderately higher since the last report, sustaining a high overall level. Summer tourism has been strong, with contacts reporting record activity in western District states. Hospitality and tourism firms in northern and central Minnesota reported strong overall activity, with many exceeding 2019 levels; those in Minneapolis-St. Paul saw recent gains but remained far below normal seasonal levels. Passenger traffic at District airports continued to improve, reaching 80 percent of normal seasonal levels in August. In Minnesota, vehicle sales in July and August were mostly flat. A Montana vehicle dealer said August sales were slower due to very low inventory, and reduced trade-in volume also negatively affected used-car sales. "We can't build up any ground stock, but demand is solid."
Services
Activity in the services sector increased moderately since the previous report. Contacts in accounting remained busy. A majority of professional services respondents to a recent survey reported steady to increased revenues in the most recent quarter. Conditions were more mixed among transportation and warehousing firms, as they continued to deal with supply-chain disruptions.
Construction and Real Estate
Commercial construction grew moderately since the last report. Firms across the District reported that recent activity and sales were higher both year-over-year and quarter-over-quarter. However, firms doing infrastructure work reported slower activity. There were fewer reports of project cancellations, but project delays increased. Firms also reported a slowing of new projects out for bid, particularly for public projects. Labor availability, supply chain constraints, and high costs for materials were widely cited for project delays, the slowing of new projects out for bid, and lower firm profits. Residential construction grew moderately overall, but firms also reported more cancellations due to rising costs, as well as significant increases in project delays. However, the outlook for future projects remained positive.
Commercial real estate was flat overall. Industrial property continued to be strong. Retail and office sectors were poised to improve before the recent increase in Delta variant infections, which has affected return-to-office plans for many downtown employers and was likely to influence future leasing and new-construction demand. Residential real estate slowed. Closed sales in July were lower in many larger District markets compared with a year earlier, thanks to very low inventories of homes for sale and steeply rising prices.
Manufacturing
District manufacturing activity increased moderately since the previous report. A regional manufacturing index indicated increased activity in Minnesota, North Dakota, and South Dakota in July relative to the previous month. Manufacturing respondents to recent surveys reported solidly increased revenues over the previous three months and a positive outlook for the coming quarter. Industry contacts described continued strong demand, with most concerns related to input costs, supply-chain disruptions, and difficulty finding workers.
Agriculture, Energy, and Natural Resources
While extreme drought conditions were taking a toll in many areas, District agricultural producers continued to benefit from strong commodity prices. Agricultural bankers indicated broadly increased farm income and spending in the second quarter, with a positive but more moderate outlook for the third quarter. However, livestock and dairy producers were suffering from the drought's impact on hay availability and pasture conditions, while corn and soybean crop conditions were deteriorating. District oil and gas exploration activity increased modestly since the previous report.
Minority- and Women-Owned Business Enterprises
Minority and women-owned business enterprises (MWBEs) in the region reported moderate growth in business activity. Labor supply continued to challenge businesses' ability to sustain operations, and many continued to report having raised wages to retain workers and/or attract applicants. Entrepreneurs also reported that increased nonlabor input prices and supply chain disruptions were major challenges for their business. A considerable number of MWBE survey respondents reported having passed on increased costs to customers by raising their own prices. A non-profit contact in Minnesota reported an increase in the number of aspiring entrepreneurs. Access to funding and information remained a challenge for some startups.
For more information on the Ninth District economy, visit: minneapolisfed.org/region-and-community