Beige Book Report: Minneapolis
September 6, 2023
Summary of Economic Activity
The Ninth District economy grew slightly since early July. Employment increased slightly and wage pressures were unchanged. Prices increased moderately overall. Growth was noted in consumer spending, tourism, and residential construction, while commercial construction was flat. Manufacturing as well as residential and commercial real estate activity decreased, and agriculture weakened. Oil and gas drilling also fell slightly. Minority- and women-owned businesses reported mixed activity.
Labor Markets
Employment grew slightly since the last report. Hiring demand fell but remained at healthy levels. Most employers, even small ones, were hiring in some capacity. But the share of employers looking to add full-time workers dropped, and total job openings were moderately lower; very few firms reported that they were cutting workers. A South Dakota utilities company noted that it "was hiring positions deemed critical to day-to-day business operations. All other discretionary positions are on hold." Labor supply was improving, but applicant quality was still poor, with some exceptions in higher-skill areas. A Montana staffing contact noted that clients were asking for fewer workers, in part because "they know we don't have 10 [good] candidates. They are doing more with less labor, and forgoing growth." Larger employers reported having more success in adding workers, likely because they also reported stronger increases in compensation.
Wage pressures were flat but ongoing wage growth remained above average. A recent survey found that 60 percent of employers raised wages by 3 percent or more over the last 12 months, roughly in line with wage increases reported in January. However, respondents expected future wage growth to fall moderately. A northern Minnesota workforce contact said, "Wage offers have stabilized in the last three to six months. Many have stopped additional wage increases as it does not seem to be effective in getting and retaining employees."
Prices
Prices increased moderately overall since the previous report. A third of firms responding to a monthly business survey reported that the prices they charged to customers increased in July from a month earlier, while 40 percent reported that their input prices increased. More than two-thirds of respondents to a recent survey said that it had gotten harder to pass their increased input costs on to customers since the beginning of the year. A regional manufacturing survey indicated nearly flat wholesale prices in July from a month earlier. A third of hospitality survey respondents reported that their prices charged to customers increased by 5 percent or more over the past year; contacts in the industry reported significant continued pressure on food prices. Retail fuel prices in District states increased briskly since the last report. Prices received by farmers increased in June from a year earlier for barley, chickpeas, potatoes, hay, and cattle; prices decreased from a year earlier for corn, wheat, soybeans, milk, hogs, turkeys, chickens, eggs, dry edible beans, lentils, and canola.
Worker Experience
Workers and job seekers continued to prioritize flexibility and work-life balance, according to several contacts. A labor contact in the Upper Peninsula of Michigan shared that many police officers and nurses were choosing predictable schedules over the highest wages available when changing jobs. "They prefer balance and flexibility in their lives," the contact said. According to a Minnesota contact, nearly half of clients at a coworking space chose to work there rather than at the company office or at home "because they prefer the flexibility and autonomy." According to a Minnesota labor contact, financial incentives offered by employers were having diminishing effects as they tried to attract new workers.
Consumer Spending
Consumer spending was slightly higher overall since the last report, with some variability. Retail contacts across the District reported that recent sales were a bit slower overall compared with the same period last year, and they expected the trend to continue over the coming quarter. Hotel bookings in Montana in July were higher than a year ago, but some tourism contacts there suggested that the pandemic boom in outdoor tourism was slowing. Minnesota hospitality and tourism contacts reported that recent sales were up slightly overall, and tourism traffic in Michigan's Upper Peninsula has also been strong compared with last summer. Passenger traffic at regional airports saw continued growth. New-vehicle sales have risen thanks to increased vehicle inventory. A dealership with multiple locations saw new-vehicle sales in July rise by almost half compared with last year; used-vehicle sales have slowed somewhat as a result. Recent recreational vehicle sales remained slower across the District compared with last year, but sales of powersport vehicles have rebounded.
Construction and Real Estate
Construction activity was flat since the last report. Construction contacts across the District reported mixed sales activity, with notable shares seeing either increases or decreases compared with last summer. In some cases, decreases stemmed from lack of labor. Industry data showed that the value of construction starts in the District in July was similar to the previous two years, without factoring in inflation. Among sub-sectors, office construction remained moribund, and multifamily construction was also experiencing softer activity. Firms serving infrastructure markets reported stronger activity, likely due to increased federal spending. Single-family residential construction saw modest improvements in a few markets; Minneapolis-St. Paul saw a 10 percent increase in single-family permits in July year over year. Across the District, hiring remained robust, supply chains improved, and prices for materials were easing but still high.
Commercial real estate activity was lower. Multifamily vacancy rates increased modestly in some markets despite a slowdown in new construction. Office vacancy rates have stabilized somewhat, but at high levels; industrial vacancy ticked higher but remained at healthy levels. Residential real estate remained soft, with year-over-year July sales falling in most markets, often by double digits. Several contacts said demand was higher than indicated by sales and attributed much of the slowness to very low inventories of homes for sale.
Manufacturing
District manufacturing activity decreased modestly since the previous report. A regional manufacturing index indicated a contraction in activity in Minnesota, North Dakota, and South Dakota in July from a month earlier. Manufacturers that responded to the monthly business conditions survey indicated increased orders in July from the month prior and were expecting growing sales in the month ahead. An electrical equipment producer reported that new business slowed and it was uncertain about its outlook after working through existing backlogs, a sentiment reported by multiple other contacts.
Agriculture, Energy, and Natural Resources
District agricultural conditions weakened slightly. More than a third of respondents to a survey of agricultural credit conditions reported that farm incomes decreased in the second quarter from a year earlier. Several contacts noted that while commodity prices were still favorable, they were retreating to levels that could be below break-even for some producers given high input costs. Drought conditions improved recently but remained a concern, especially in eastern portions of the region. District oil and gas drilling activity decreased slightly since the previous report; however, contacts reported that oil production increased recently.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business contacts was mixed. Equal shares of respondents to a July survey of businesses reported that sales were higher, lower, or unchanged over the prior month. Capital expenditures were slightly higher on balance, and more often than not, respondents reported lower profits. More than a third of respondents shared that their demand for workers had increased but hiring roadblocks continued. Retail and wholesale prices were flat for three-quarters of firms and higher for the rest. A slightly higher share reported they raised wages. "[We] gave annual raises of 4.5 percent to stay competitive … up from our historic 3 percent," shared a contact with a freight railroad transportation company in Minnesota.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community