Beige Book Report: Minneapolis
December 1, 2021
Summary of Economic Activity
The Ninth District economy grew moderately since early October. Employment saw moderate growth, with labor availability holding back robust hiring demand. Wage pressures were strong, while price pressures increased moderately from elevated levels. Growth was noted in commercial and residential construction, commercial real estate, consumer spending, professional services, and manufacturing, while residential real estate fell. Ag conditions improved overall, though drought has negatively impacted certain areas and commodities. Business activity reports were mixed among minority- and women-owned businesses.
Employment and Wages
Employment grew moderately since the last report, with tight labor constraints impeding what would otherwise be a robust employment market. Job postings remained at exceptionally high levels across the District. Surveys showed that a large share of firms expected to increase future employment, with only a very small share expecting workforce cuts; many firms cited overworked staff as a motivating reason to hire more employees. However, surveys also showed that firms were having increased difficulty filling open positions, particularly for lower-skill jobs. Some large firms reported a decline in staff over the past three months, possibly tied to the federal vaccine mandate. Firms also reported very little net increase in job applications since the ending of pandemic-era unemployment programs.
Wage pressures remained strong. The frequency and size of wage increases have steadily increased. A survey of District firms showed that nearly one-quarter of firms raised wages by 5 percent or more over the past year, a notable increase from the previous quarter. A large majority of firms also said they were increasing wages for most positions and were increasing wages more than usual. A tourism firm in Michigan's Upper Peninsula reported raising wages more than 5 percent, noting that it was "not possible to hire or retain employees at previous wages."
Worker Experience
Labor supply remained tight across the District. A workforce development professional working mainly with immigrant populations shared that workers in customer-facing jobs were "no longer willing to deal with rude customers and difficult schedules" and were leaving for better-paying jobs. Reportedly, some took jobs as warehouse workers, but others invested in microbusinesses such as food trucks and cleaning services. "The pandemic has made people more comfortable with failure, workers want to feel productive, and they are taking risks," said another workforce contact. A nonprofit contact reported that immigrants in professional occupations have faced challenges remaining in a job, more so than getting hired, partly because of insufficient onboarding and difficulties penetrating the culture in a remote environment. Enrollment in nursing programs continued to drop, according to a health care professional in Minnesota, putting further pressure on supply of entry-level workers.
Prices
Price pressures increased moderately from an elevated level since the previous report, as firms continued to pass on input cost increases to customers. More than a third of respondents to a survey of District businesses reported that nonlabor input costs were 10 percent higher than pre-pandemic levels; slightly fewer reported final prices increasing by more than 10 percent. Contacts reported steep, ongoing increases in freight and transportation costs, particularly for imported goods. Manufacturers reported increases for inputs, but particularly for electronic components and raw materials such as plastic resin. Home heating costs were forecasted to increase sharply this winter, as natural gas prices were expected to rise by more in the region than the national average.
Consumer Spending
Consumer spending grew modestly since the last report. Firms in accommodation and entertainment reported growth overall, but acknowledged that the Delta variant was negatively affecting sales. However, demand remains robust in some areas. Restaurants have reported robust sales for take-out and delivery meals. Same-store sales at a regional convenience chain have been higher and were expected to continue. Retailers reported missed sales due to supply chain problems and related inventory shortages. Vehicle sales dropped in October compared with a year earlier, thanks mostly to low inventory of new trucks and cars, which has also been a drag on trade-ins that drive used-car sales.
Professional Services
Professional services activity across the District grew moderately. Respondents to a recent business conditions survey expressed difficulties hiring, and the majority reported having increased salaries to attract talent. Businesses reported challenges hiring experienced communications, IT, and medical professionals. "Staff is exhausted, patients are frustrated, and we're unable to attract doctors to the area," said a health care professional. Job openings in that sector have skyrocketed with vacancies across occupations.
Construction and Real Estate
Commercial and residential construction grew moderately since the last report. Industry data showed that the value of construction starts this fall continued to trend higher. Firms reported good to very good project activity overall; some attributed lower activity to normal seasonal slowing. Contacts continued to report substantial challenges related to labor constraints, high materials prices, and supply chain disruptions. Firms also reported a slight increase in project cancellations compared with summer levels, and project delays continued to be a major problem.
Commercial real estate rose moderately overall. Office vacancy rates remained elevated, and the Delta variant has slowed leasing momentum. Industrial space remained strong, and low multifamily vacancy rates held across the District despite significant new construction. Residential real estate was lower. Closed sales in October were consistently down by double digits in markets across the District.
Manufacturing
District manufacturing activity increased briskly since the previous report, though contacts were concerned about the ongoing effects of supply chain disruptions. A regional manufacturing index indicated increased activity in Minnesota, North Dakota, and South Dakota in October relative to the previous month. Participants at recent meetings with manufacturers generally reported strong recent revenue and new order trends, with several noting that their firms were having record years even amid input cost and availability challenges. An electrical equipment producer reported that it was planning significant capital investments in capacity to meet demand, which it reported was up by 30 percent over last year.
Agriculture, Energy, and Natural Resources
District agricultural conditions improved overall, though drought took a heavy toll on certain areas and commodities. Responses to a survey of agricultural lenders indicated increased farm income, as producers continued to benefit from strong commodity prices and government payments. Drought damage was not as bad as expected in general, though ranchers saw heavy losses, and damage to crops was much more severe in the western Dakotas and Montana's wheat-producing region. In other areas, though crop yields will decrease, timely rains for many were helpful, and higher crop prices appear to have more than offset the financial loss. Oil and gas exploration activity in North Dakota and Montana was stable since the previous report.
Minority- and Women-Owned Business Enterprises
Business activity reports were mixed among minority-and women-owned business enterprises (MWBEs) in the region, but there was a general sense of optimism. A nonprofit that serves minority and women entrepreneurs reported that 95 percent of microloan recipients survived the pandemic and remained in business. Forty percent of MWBE entrepreneurs who responded to a recent survey reported an increase in sales and revenue in the past three months; an equal share reported a decrease. Slightly more than half of respondents said they raised wages to attract workers. One reported raising wages to "match rising prices at the pump and rent."
For more information on the Ninth District economy, visit: minneapolisfed.org/region-and-community