Beige Book Report: Minneapolis
October 18, 2023
Summary of Economic Activity
Ninth District economic activity increased slightly since late August. Employment grew modestly and wage pressures were stable. Inflationary pressures eased modestly. Growth was noted in consumer spending and tourism, and agricultural conditions strengthened, while energy and commercial construction and real estate were flat. Manufacturing as well as residential real estate activity decreased. Minority- and women-owned businesses reported modestly lower activity. Most business contacts reported that recent increases in long-term interest rates had diminished expectations for their businesses in the coming year.
Labor Markets
Employment grew modestly since the last report. Contacts overall reported somewhat slower labor demand and fewer job openings, with the exception of health care, which continued to exhibit strong labor demand. Recent surveys showed hiring sentiment was modestly contractionary in Minnesota and South Dakota, but positive in North Dakota. Staffing firms reported lower job orders in September compared with earlier in the year and one year ago. But they also noted that filling positions was easier. A Montana staffing contact said that "things have improved but are still difficult" regarding labor availability. A northern Minnesota workforce contact noted that there were "still plenty of available jobs, but employers were not as desperate as before." Candidate quality improved for some contacts. Turnover was lower or unchanged for most contacts.
Wage pressures were stable since the last report, but ongoing wage growth remained above average. Staffing contacts noted flattening wage pressure for industrial and professional positions. A South Dakota retail contact said that wage pressure had stabilized from higher levels earlier in the year "though virtually all businesses would say they are too high." Some contacts noted a reduction in sign-on bonuses and other wage enhancements. Wage pressures remained elevated in health care. A skilled nursing facility in Minnesota said it was looking to increase wages for the third time in a year "just to keep up with competition from other health providers."
Prices
Inflationary pressures eased modestly since the previous report. Most firms responding to a monthly business conditions survey reported no changes in prices charged to customers in September from a month earlier, but a larger share indicated that they decreased their prices than said that they increased them. Input prices continued to increase on balance from the previous month, but were also unchanged for most respondents. The wholesale prices component of a regional manufacturing index indicated rising input prices in September from a month earlier. Following a sharp spike in early September, retail fuel prices in District states subsided to a level slightly higher than the previous report. Prices received by farmers increased in August from a year earlier for barley, lentils, chickpeas, and cattle; prices decreased from a year earlier for corn, wheat, soybeans, hay, potatoes, dry edible beans, canola, milk, hogs, turkeys, chickens, and eggs.
Worker Experience
Job seekers who responded to a survey of workers in Montana were mainly looking for the opportunity to raise their income. Most had just begun searching for better opportunities but faced a variety of challenges reaching their objectives. Low pay offered by prospective employers made it unattractive for most to make a switch. While inflation has softened, most respondents perceived prices being higher over the last four-week period, particularly for groceries and fuel. In a different survey, North Dakota job fair attendees said the most important aspects of a job were good pay, fulfilling and engaging work, having a good boss, and offering a good schedule. Employers not offering enough pay was also a barrier to applying for jobs among this group.
Consumer Spending
Consumer spending was modestly higher overall since the last report. Hospitality and tourism firms across Minnesota reported revenue increases overall, but foot traffic was flat; expectations for the coming months mirrored the recent summer season. Tourism spending in northern Wisconsin was reportedly "very healthy" at restaurants, bars, and golf courses. A source in Michigan's Upper Peninsula also reported strong tourism crowds, high hotel occupancy, and busy restaurants. However, retail contacts in Minnesota and South Dakota reported that revenues were only slightly higher in September. Airline traffic has been healthy across the District. Lodging and accommodation tax collections in Montana remained at strong levels through September. Gaming handle in South Dakota was up only slightly over last year. New vehicle sales remained healthy thanks to higher vehicle inventories; one dealer with multiple locations saw sales increase by 30 percent in August and September, year over year. However, there were concerns over the impact of the autoworkers strike on future vehicle deliveries. Recreational vehicle sales remained lower, but marine and powersport vehicle sales were on par with last year.
Construction and Real Estate
Construction was flat overall since the last report, with mixed activity among subsectors and across regional markets. Industry data and contacts suggested that commercial and residential activity remained slower, while industrial and infrastructure sectors saw healthy activity. Recent commercial permitting was lower year over year in Billings, Mont., and Minneapolis; unchanged at healthy levels in Fargo, N.D., and Eau Claire, Wis.; and higher in Rapid City, S.D., and Rochester, Minn. Single-family residential construction was lower overall, but a few markets saw increased activity. Multifamily permitting also saw a small increase across the District.
Commercial real estate was flat overall. Office vacancy rates remained high in Minneapolis-St. Paul but have leveled off. Retail has seen comparatively little new development, but consumer demand has helped keep vacancy rates relatively stable. Multifamily vacancy rates have been rising modestly. Industrial space, in contrast, has seen strong leasing and new construction activity in Minneapolis-St. Paul, including a considerable amount of speculative development. Residential real estate remained soft. Inventories of homes for sale remained exceptionally low. Contacts reported that many potential sellers remained on the sidelines due to higher financing costs compared with their existing mortgage.
Manufacturing
Manufacturing activity in the District fell slightly since the previous report. Manufacturing respondents to a September business conditions survey reported decreased orders on balance relative to a month earlier, with expectations for a further decrease in the month ahead. A regional manufacturing index indicated nearly flat activity in Minnesota and South Dakota in September from a month earlier, while activity increased in North Dakota. Several producers of inputs for heavy and commercial construction reported that demand weakened further recently. A diversified producer of industrial inputs noted that regional manufacturers "seem to be slowing their consumption of contracted manufacturing sub-components."
Agriculture, Energy, and Natural Resources
District agricultural conditions strengthened slightly since the previous report. Drought conditions moderated in parts of the District but persisted in the eastern and northern regions. Industry contacts reported that early indications of crop production were better than expected, given weather conditions. However, farm incomes decreased from a year earlier in the third quarter, according to preliminary results of the Minneapolis Fed's survey of agricultural credit conditions. District oil and gas drilling activity was unchanged since the previous report.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises was modestly lower over the reporting period. Half of contacts reported lower sales, compared with 20 percent who saw higher sales. Capital expenditures were mostly unchanged and plans to invest in the near future edged slightly lower on balance. Higher labor and nonlabor input prices were taking a toll on profitability; more than half of contacts reported lower margins and expected that to continue into the fall. Labor demand was slightly higher on balance, and payroll was mostly unchanged. Some contacts expected their need for additional workers to soften somewhat in the following weeks.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community