Beige Book Report: Minneapolis
April 19, 2023
Summary of Economic Activity
The Ninth District economy grew slightly since the previous report. Employment gains were modest; labor demand remained high, but signs of softness also appeared. Wage pressures rose slightly and remained at high levels. Price pressures were steady at high levels. Consumer spending was flat, though activity varied in different segments. Commercial construction rose slightly, but residential construction continued to be slow. Commercial real estate was flat, and residential real estate remained very slow. Manufacturing activity contracted slightly, and agricultural conditions remained strong. Activity among minority- and women-owned businesses was steady. A substantial majority of contacts reported no effect on their organization from recent banking turmoil.
Labor Markets
Employment grew modestly since the last report. Contacts reported a slight drop in job openings, but overall demand for labor remained healthy. A monthly business conditions survey showed that overall hiring sentiment remained positive; staffing contacts also noted increases in job orders with the coming of spring. Layoffs appeared to increase, but mass layoff events were still low. A Minnesota staffing firm said that businesses were "exfoliating the workers they don't need." A Wisconsin workforce contact said that hiring had softened; there was not widespread downsizing, but more the "abandonment" of recruiting for unfilled positions. Several sources noted that turnover also appeared to be ebbing and could be a factor in lower job postings. Numerous contacts said labor availability improved slightly. A Wisconsin staffing contact said the number of job applicants rose "but the quality is not strong." Still, job placements were growing because clients "are becoming more open to more-questionable candidates."
Wage pressures remained high but there were small signs of easing. Most contacts reported that they still needed to offer higher wages than previously to fill open positions. A staffing firm reported that wages for industrial positions had risen more than 10 percent over the past year, and additional increases were expected. But multiple contacts said there was less need for off-cycle pay increases, and raises were returning to an annual frequency.
Prices
Price pressures were steady since the last report, though levels remained elevated. Price pressures for inputs were greater on balance than for final goods, according to contacts. About half of respondents to a District business conditions poll reported no change to the prices they charged for their products and services in March from a month earlier, compared with a third reporting increases. Nearly two-thirds of hospitality and tourism contacts reported that inflationary pressures had gotten somewhat or much worse over the past three months. Several manufacturing contacts reported more resistance from customers to price hikes. Construction contacts reported that although prices of lumber and certain materials have retreated from highs, prices of other inputs, such as furnishings, remained elevated. Retail fuel prices in District states increased moderately overall since the previous report. Prices received by farmers in February increased from a year earlier for corn, soybeans, potatoes, hay, cattle, turkeys, and eggs; prices decreased from a year earlier for wheat, milk, hogs, chickens, sugar beets, dry edible beans, lentils, and canola.
Worker Experience
Job seekers continued to prioritize higher pay and greater flexibility as they looked for jobs and remained positive overall about their prospects. Many showed a strong willingness to learn new skills and consider a different line of work to advance their goals. Minnesota and South Dakota immigrant workers employed in agriculture, food processing, and manufacturing reported stable employment conditions. Some wished to find employment outside their current industry but were limited by language barriers and job proximity. A food processing worker in her sixties said she reduced her working hours because driving in the winter was difficult, but she did not plan on retiring soon. "We came here to work, retirement is not for us," she added. Others shared similar sentiments.
Consumer Spending
Consumer spending rose slightly since the last report, with varied activity among different segments. Minnesota retail contacts reported modest sales growth in recent weeks. However, foot traffic at some South Dakota retailers has reportedly slowed compared with last year, said a contact there. The lodging industry in Minnesota and Montana continued to see healthy demand in March. However, industry contacts in both states noted some signs of softening demand. Vehicle sales in Minnesota and Wisconsin in March were lower compared with last year; in the western part of the District, sales at a dealership with multiple locations were slightly higher for new vehicles, despite inventory shortages, but 12 percent lower for used vehicles. Recreational, powersport, and marine vehicle sales remained subdued, with the RV industry "bloated with inventory," according to a contact, and higher interest rates dampening demand. Spring break airline traffic has been brisk, with monthly passenger levels at some District airports seeing double-digit growth over last year.
Construction and Real Estate
Commercial construction rose slightly since the last report. While new office projects remain slow, other sectors remained active, especially with the coming of spring. Industry data showed that recent nonresidential activity has been on par with last year. Contacts also reported that multifamily construction has remained healthy. A small sample of construction contacts reported that March sales were higher, on average, than a month earlier, and they had similar expectations for the coming month. Residential construction, on the other hand, was still in the doldrums. The number of single-family units permitted in March was down more than 40 percent, year-over-year, in the Minneapolis-St. Paul region; even larger declines were seen in Rochester, Minn., Bismarck and Fargo, N.D., and Sioux Falls, S.D.
Commercial real estate was flat since the last report. In the Minneapolis-St. Paul region, leasing activity for industrial property remained strong, and vacancy rates fell slightly in the first quarter, despite a considerable amount of new supply coming online. Office space saw the opposite trend, with vacancies rising despite no new supply. Residential real estate remained slow, with higher mortgage rates heavily impacting sales. Available data on closed and pending home sales in March showed moderate-to-large declines across the District. A lack of inventory kept home prices elevated.
Manufacturing
Manufacturing activity decreased slightly since the last report. A regional index of manufacturing conditions indicated contraction in activity in March from a month earlier in Minnesota, North Dakota, and South Dakota. Manufacturing respondents to a District business conditions survey reported overall unchanged sales in March from a month earlier, though expectations for April were higher and many contacts noted strong backlogs. Inventories increased slightly, according to contacts, and several noted that supply chain pressures had eased. A producer of inputs for large engines and industrial equipment reported that it was expecting a dramatic reduction in sales and was planning to reduce staff by 20 percent in response. A producer of food and beverage equipment noted that "customers are hesitant to invest in costly equipment when interest rates are so high."
Agriculture, Energy, and Natural Resources
District agricultural conditions were stable at strong levels entering the planting season. Most contacts reported that farm incomes continued to increase from a year earlier, while capital spending was steady. However, persistent wintry weather, including a severe snowstorm, delayed preparation for spring planting in many areas. District oil and gas exploration activity was unchanged since the previous report.
Minority- and Women-Owned Business Enterprises
Minority- and women-owned businesses reported little change in activity compared to last period. A few were concerned that their inability to pass on increased input and labor costs through final prices was beginning to threaten their existence. A number of contacts were still unsuccessfully looking for workers; they quoted wage competition and mismatched skills as the main reasons. Sentiments around recent banking events were mixed. While some expected their access to credit to further narrow, others expected little or no impact. A contact working with startups expected area entrepreneurs in the tech sector to be affected but was unsure as to what extent.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community