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Minneapolis: October 2021

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Beige Book Report: Minneapolis

October 20, 2021

Summary of Economic Activity
The Ninth District economy grew moderately since late August. Employment saw moderate growth, with hiring demand continuing to outpace labor availability. Wage pressures were strong, while price pressures increased slightly from an already elevated level. Growth was noted in commercial construction and manufacturing, while consumer spending, commercial real estate, and energy activity were stable. Residential construction and real estate activity decreased, while agricultural conditions deteriorated. Business activity reports were mixed among minority- and women-owned businesses.

Employment and Wages
Employment saw moderate growth since the last report, with hiring demand continuing to outpace labor availability. Job postings rose further in September in District states, and recent surveys and sector contacts report strong hiring demand. At a September business conference in west-central Minnesota, "every person … raised their hand saying that they are currently trying to hire people," according to a workforce contact. Minnesota staffing firms reported that both total clients and job orders were up; placements were also higher, but unfilled job orders were rising even faster. Firms continued to struggle finding labor. Overall, Minnesota staffing firms reported a modest increase in labor availability after pandemic-era unemployment benefits stopped. However, other business workforce contacts reported little increase in labor supply. Federal vaccine mandates were expected to exacerbate labor problems, though in most cases the number of quits induced by the mandate has been smaller than anticipated.

Wage pressures were strong. A majority of firms across several surveys reported wage increases of 3 percent or more. Wage increases were strongest in retail, hospitality, health care, and construction. A North Dakota retail contact noted that recent wage growth was strong and that "the highest increase was at the lowest-paying jobs." However, contacts also noted that higher wages were not always attracting more applicants.

Worker Experience
Labor supply remained tight across the District. Initial unemployment claims in District states in September were flat overall compared with August; however, recent levels were still 70 percent higher than similar pre-pandemic levels. Continuing claims fell about 20 percent over this same period in the District, but remained elevated, particularly in Minnesota and Wisconsin. Labor contacts in the construction trades reported strong enrollment in apprenticeships for workers to be trained as drywall installers, electricians, and iron workers. According to a labor contact, employment of sheet metal workers was "pretty much normal for this time of year." A workforce development contact said some companies have adopted more flexible and tolerant practices to retain existing employees; for example, one company has provided means for workers to observe their religious practices. The absence of large conferences and meetings continued to affect hospitality workers. Lack of child care or reliable transportation, fears over COVID exposure, and uncertainty with school schedules continued to influence people's employment decisions.

Price pressures increased slightly from an already elevated level since the previous report, while prices for certain inputs eased. Surveys and comments from contacts indicated that firms were passing more of their input costs through to final prices. Half of respondents to a survey of Ninth District firms characterized their nonlabor input costs as up significantly in the third quarter, while about a fifth said they had increased their output prices significantly. Contacts in manufacturing continued to report significant price increases for metals, electronic components, and shipping, while other contacts reported that the pace of increase had slowed recently, though prices remained much higher than a year ago. Retail fuel prices increased slightly in most District states since the previous report.

Consumer Spending
Consumer spending was flat overall since the last report, sustaining a high overall level, but held back by low product inventories and some evidence that the delta variant was negatively influencing some consumer behavior. Hospitality and tourism firms reported strong activity through the end of summer, but many were more cautious regarding their fall outlook. Convention and other large-group activities have reportedly softened just as the sector was seeing some growth. A large Minnesota resort said it was seeing more inquiries on large group events "until delta hit, and then I think it shook people's confidence again." Labor difficulties, supply chain problems and higher input prices were also forcing many restaurants and other retailers to pull back on hours and even days of operation. Retail contacts reported solid demand but also delays in product delivery and sometimes receiving less than ordered.

Construction and Real Estate
Commercial construction grew moderately since the last report, despite continued challenges. Industry data showed that new project starts grew across District states toward the end of summer. Available permit data also showed growth in August and September compared with last year in many of the District's larger cities. Sector contacts, however, continued to note concern over higher input prices, supply chain disruptions, and labor constraints which, in turn, have increased project delays and negatively affected demand. Residential construction fell slightly, with single-family permits falling in September compared with last year in many markets. Contacts said rising input prices were beginning to have material effects on project timelines, cancellations, and new demand, and the sector in general was slowing from very strong levels earlier in the year.

Commercial real estate was flat overall. Office subleasing and vacancy rates increased in many markets as larger firms continued to reconsider their space needs. However, multifamily markets were healthy, with vacancy rates holding or declining in many markets while rents saw solid increases despite strong activity in new multifamily construction. Retail contacts reported improved conditions; a mall contact noted an increase in store openings and overall leasing, though rent levels and lease terms "continue to be a challenge." Residential real estate conditions softened slightly. Closed sales in August and September were lower in many locations compared with last year due to tight inventory and rapidly rising prices.

District manufacturing activity increased moderately since the previous report. A regional manufacturing index indicated increased activity in Minnesota, North Dakota, and South Dakota in September relative to the previous month. Several contacts reported record performance in the third quarter, even though supply chain problems were constraining their ability to meet demand. Regarding input cost pressures, one respondent commented, "Passing along rising prices does not seem to be denting demand."

Agriculture, Energy, and Natural Resources
District agricultural conditions deteriorated somewhat since the previous report. While producers continued to benefit from solid commodity prices, most of the District remained in severe or worse drought condition. Yields and production of wheat and other small grain crops in District states for 2021 will be sharply lower than the previous year. Most of the District's corn and soybean crops were rated in fair or poor condition. District oil and gas exploration activity was unchanged since the previous report. District iron ore mines continued to operate at full capacity.

Minority- and Women-Owned Business Enterprises
Business activity reports were mixed among minority- and women-owned business enterprises (MWBEs) in the region. Tight labor markets continued to put pressure on MWBEs, and some found it difficult to compete with the higher wages offered by larger businesses. "We cannot find enough workers, and short staffing is impacting our productivity," said an entrepreneur. Three-quarters of respondents to a recent survey targeting MWBEs said that their input costs were higher, and almost half reported having increased prices for their final products or services. Entrepreneurs expressed caution as the delta variant has disrupted momentum in the recovery and uncertainty as the immediate future has become harder to predict, but they also raised their need and willingness to innovate and adapt. Some expected an increase in capital expenditures in the next quarter.

For more information on the Ninth District economy, visit: