July 12, 2023
Summary of Economic Activity
Economic activity in the Ninth District increased slightly since the previous report. Employment grew moderately, helped by summer demand. Wage pressures remained moderate, while price pressures were mild. Growth was noted in services, commercial construction, and manufacturing, while consumer spending was flat. Residential construction and real estate activity remained low, and agriculture weakened due to drought conditions. Energy exploration also fell slightly. Minority- and women-owned businesses reported steady activity and a positive outlook.
Labor Markets
Employment grew moderately since the last report. Labor demand remained high overall, in part because of normal seasonal increases, according to internal surveys and most contacts. Labor availability remained tight, but improved according to some contacts, which had upsides for both employers and workers. A Minneapolis workforce development contact noted an increase in layoffs, but so far they "haven't seen these layoffs turn into dislocated workers" because the workers "are doing OK finding new jobs on their own." Employers also continued adjusting their business and labor models. A restaurant in central Minnesota reported that it bought an apartment building to provide workers with nearby housing. A North Dakota staffing firm noted that demand for contingent work had fallen because "most clients just want full-time help," and available workers preferred full-time jobs to temporary work. Counter-intuitively, he said, "if the economy softens, we expect demand for temp staffing assignments to increase."
Wage pressures were moderate overall. A monthly survey of District firms showed persistent but moderate wage pressures. In Montana, temp jobs in office support and transportation have seen significant wage increases so far this year, while wages for construction and manufacturing temp jobs have been flat. A Minneapolis tech staffing firm reported that technical positions have "completely reversed" from a candidate market to a client market, with job seekers "jumping at the first offer."
Prices
Price pressures were mild overall since the previous report. Half of firms responding to the Minneapolis Fed's annual professional services survey reported that the prices they charged to customers had increased from a year ago, and nearly two-thirds said their nonlabor input costs increased. Manufacturing and other contacts reported that freight rates had declined substantially from a year ago. "It feels like our vendors are squeezing the last increases out of us," said a manufacturer. Retail fuel prices in District states were little changed since the previous report. Prices received by farmers increased in May from a year earlier for barley, chickpeas, potatoes, hay, cattle, and turkeys; prices decreased from a year earlier for corn, wheat, soybeans, milk, hogs, chickens, eggs, dry edible beans, lentils, and canola.
Worker Experience
Most workers who responded to a recent Minneapolis Fed survey reported job stability. About a fifth were looking for a different job in hopes of increased income but were facing difficulties in hearing back from employers or finding a job that paid enough. A few professional workers in the Minneapolis-St. Paul area said they were considering a temporary move out of state to work remotely while their company's work-from-home flexibility was still in place. According to a Minnesota union contact, recently certified nursing assistants were choosing to work in retail instead of health care, where wages were similar but stress was much higher. A significant number of nurses were reportedly pulling back from traveling jobs as federal funding abated, and some hospitals offered up to $15,000 after taxes for an 18-month commitment to permanent positions.
Consumer Spending
Consumer spending was flat overall since the last report. Gross sales in South Dakota and Wisconsin have softened for several consecutive months year over year, and retail contacts have also reported lower sales. Tourism contacts were generally upbeat about overall activity levels but noted some pullback in travelers' average spending. Accommodations and lodging tax collections in Montana remained strong, and lodging sources reported strong bookings for the summer. Airline travel has continued to grow, though monthly increases have moderated a bit at some airports after steady double-digit gains. Recent new-vehicle sales have increased notably at some dealerships, thanks to stronger inventory from vehicle makers. Used car sales, however, have fallen. Sales of recreational and powersport vehicles improved with warmer weather but remained soft year over year.
Services
Activity in the professional services sector increased modestly. Respondents to the annual services survey reported increased sales and productivity over last year, while profits declined slightly. Firms' expectations were mildly positive for the coming 12 months.
Construction and Real Estate
Construction activity was slightly higher since the last report. Construction firms overall reported growth in recent revenues, with expectations of further growth this summer. Industry data and contacts suggested that infrastructure and energy sectors were seeing stronger activity than other subsectors. But inflated material costs continue to be a drag. A pavement source in Minnesota noted that the sector was slower than expected; public funding for construction projects has been "eaten up by inflation." Reports of project cancellations also continued across different subsectors. A general contractor in northeastern Minnesota said, "We are busy but there appears to be less opportunities than usual for this time of year." Several contacts noted that subcontractors remained busy, but projects tended to be smaller jobs. Residential construction remained low but there were modest signs of improvement in single-family permitting in some markets.
Commercial real estate was down since the last report. Most subsectors showed little change. However, office property continued to struggle. Increased subleasing was compounding already-higher vacancy rates. Two Minneapolis office towers reportedly sold at steep discounts from their previous sale prices. Residential real estate sales remained stalled. A few regional markets showed modest improvement, but most continued to see much lower monthly sales compared with last year.
Manufacturing
District manufacturing activity increased slightly since the previous report. A regional manufacturing index indicated increased activity in Minnesota, North Dakota, and South Dakota in May from a month earlier. Sentiment among manufacturing contacts was more mixed. A metal fabricator reported that recent activity was strong and could be stronger if they could secure adequate workers. Reports from heavy equipment producers indicated orders had slowed significantly as more customers were choosing to repair rather than replace equipment due to higher financing costs.
Agriculture, Energy, and Natural Resources
District agricultural conditions weakened slightly since the last report. Most of the District's corn and soybean crop was reportedly in good or excellent condition; however, wheat crops were in worse shape as the harvest approached. Persistent drought conditions in the eastern portion of the District, particularly in South Dakota, improved slightly with recent precipitation. District oil and gas exploration activity decreased slightly since the previous report.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business contacts remained steady, and their outlook for the following months was positive overall. While contacts still perceived prices as being high, they expected prices would remain flat in the coming months. Hospitality and retail business owners were still able to pass higher costs down to consumers but were skeptical of their ability to continue doing so. Demand for workers was strong, and the ability to hire remained challenging. While some contacts were making downward revisions to their planned capital expenditures because of higher interest rates, many others were reportedly moving forward with investing. A supplier of restaurant equipment shared that demand was even higher this year among minority-owned restaurants because they tend to rely less on financing.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community