Beige Book Report: Minneapolis
October 19, 2022
Summary of Economic Activity
Ninth District economic activity increased slightly over the reporting period. Employment grew slightly, though the volume of job openings moderated. Wage pressures remained high. Price pressures eased slightly but remained elevated. Activity increased in consumer spending, tourism commercial construction and real estate, and manufacturing. Residential construction and real estate activity lagged further behind year-ago levels. Agricultural conditions generally remained strong heading into the harvest season. Minority- and women-owned business enterprises reported mixed conditions.
Labor Markets
Employment grew slightly since the last report. Total job openings have moderated; firms have reportedly reconsidered some job openings due to recession concerns or extreme difficulties in filling them. But recent surveys continued to find healthy overall demand; recruiting and staffing contacts concurred. Labor supply remained tight, however. Asked about operating challenges, a Minnesota manufacturer commented, "If I could check the labor availability box twice, I would." Turnover was also problematic, often for nonwage reasons, such as schedule flexibility, said a staffing contact. "Many are losing more out the back door than they can bring in." Sources suggested that applicant volume had improved slightly, but candidate quality did not. One contact noted that a recent applicant had held seven food or retail jobs in the past 10 months, yet had been promoted to supervisor in the previous two jobs. "It shows how desperate some employers are getting."
Wage pressures remained high. A large share of employers reported that compensation costs increased compared with the previous month, and that trend was expected to continue. A North Dakota contact said workers considering switching jobs for higher pay often saw higher counteroffers from existing employers. A Wisconsin firm said wage pressure was growing again with the start of holiday hiring. A retailer reported strong acceleration in entry level pay, but stopped offering sign-on and retention bonuses due to ineffectiveness.
Prices
Price pressures eased slightly since the last report, but remained elevated. Two-thirds of respondents to a September survey of District firms reported that their nonlabor input prices increased from a month earlier. About 40 percent had slightly increased their prices charged to customers, a decreasing share from recent months, while about 10 percent of firms said their selling prices went down. Firms' outlooks for prices over the coming month moderated slightly. The wholesale price component of a regional manufacturing conditions index slowed in September to a level that, while still inflationary, was at its lowest since August 2020. Contacts reported that paper prices levelled off recently and lumber prices fell briskly. Retail fuel prices in District states rebounded slightly in recent weeks to levels similar to the previous report. Prices received by farmers increased in August from a year earlier for all major Ninth District crops and animal products.
Worker Experience
Higher prices continued to put pressure on many low-and mid-income workers, according to several contacts. A labor contact in the hospitality sector said that a less cash-dependent, post-COVID economy was affecting tipped workers negatively and pushing them away from the industry. In Minnesota, a labor contact said that major hospitals were offering high salaries and attractive incentives to recruit new staff but were not making the same investments to retain existing staff. The number of travel nurses also remained high, but it was beginning to decrease, raising hopes that some may return to full-time employment. A public sector labor representative reported that several employers were holding back hiring "until there was a major need for it," while some others were merging departments to leverage existing staff.
Consumer Spending
Consumer spending grew slightly since the last report. Tourism contacts reported decent overall activity, particularly for accommodation businesses, with occupancy surpassing pre-pandemic levels in some places. A resort owner in northern Minnesota said, "It's been so busy I'm looking forward to resting" during the fall shoulder season. Recent airline travel grew modestly in much of the District year over year, with the exception of Montana, where the continued closure of Yellowstone entrances has reduced the number out-of-state travelers. Visits to national parks elsewhere in the District were also down. However, end-of-summer fairs and festivals reported strong attendance and spending. Retail contacts reported softer revenues during the last month, but were optimistic about future sales. A Montana vehicle dealership with multiple offices said truck and car sales were flat in August and September and slow overall, as the industry has completed a calendar-lap of slower sales stemming from inventory shortages. Sales of recreational and marine vehicles have also slowed due to economic concerns and higher financing costs.
Construction and Real Estate
Commercial construction rose slightly since the last report. Industry data indicated that both new and active projects were higher over the most recent four-week period (ending mid-September) compared with a year earlier, after having declined for much of the summer. Industrial and multifamily segments continued to drive overall activity. Anecdotal reports were more pessimistic, but large firms generally were performing much better than small ones. One firm said it was not seeing activity decline but was getting more calls from subcontractors looking for work. Residential housing remained subdued, with single-family permitting below year-ago levels in most parts of the District.
Commercial real estate grew slightly. Multifamily and industrial sectors continued to see healthy demand, and retail vacancy rates improved thanks to sustained consumer demand and low levels of new construction. Office vacancy rates remained high. The share of in-office workforce continued to rise slowly, and leasing interest has reportedly seen small improvements, though concessions remained high to attract new lessees. Residential real estate continued to lag due to higher mortgage rates. Increases in median sales value have also begun to moderate.
Manufacturing
Manufacturing activity increased modestly overall since the previous report. A regional index of manufacturing conditions indicated increased activity in Minnesota, North Dakota, and South Dakota in September from a month earlier. About half of manufacturing respondents to a September survey of District firms reported that orders decreased from the previous month, but the outlook for October orders was positive. Some manufacturing contacts noted that supply chain pressures had eased recently (for example, shipping containers were more widely available), though they remained a challenge. An electronics producer said their backlog of orders was large enough to last through 2023 even if new business slowed significantly. A printing firm reported new orders dipped slightly after a few very strong months. However, a packaging producer said new orders were "very soft" and a metal products producer noted substantially lower quoting activity for early 2023, which halted all their capital investment plans.
Agriculture, Energy, and Natural Resources
District agricultural conditions improved modestly and remained strong overall heading into harvest season, even as elevated input costs bit into producer margins. Early indications pointed to solid harvests and good crop conditions throughout most of the District, with the exception of portions of Montana heavily affected by drought. District oil and gas exploration activity was unchanged since the last report but well above levels from a year ago.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises (MWBEs) in the District was mixed. An almost equal number of firms reported higher sales and profits as those who did not in the latest monthly business survey. Demand for workers remained elevated and hiring challenges persisted. An entrepreneur in the construction industry expressed concern that more skilled workers were being "absorbed" by larger employers and leaving smaller firms scrambling for talent. A Minnesota contact reported productivity had declined because many new hires were "just getting the work done and not going above and beyond."
For more information about District economic conditions visit: minneapolisfed.org/region-and-community