Beige Book Report: Minneapolis
November 29, 2023
Summary of Economic Activity
Economic activity in the Ninth District was flat to down slightly since the previous report. Employment grew modestly, but job openings declined. Wage pressures were unchanged but ongoing wage growth remained above average, while price pressures were modest. Growth was noted in some areas of construction, but residential construction was slow, and manufacturing also fell slightly. Consumer spending was flat. Agriculture weakened as farm incomes softened, and energy exploration was unchanged. Minority- and women-owned businesses reported steady activity.
Labor Markets
Employment grew modestly since the last report. But there was variation among sectors, some of which had increased layoffs. Labor demand was positive overall but somewhat lower than earlier in the year. Some contacts reported that they were not replacing workers who had left, or were eliminating open positions. Strong labor demand was reported by health care and finance firms, while hiring sentiment was softer in other sectors, including manufacturing. More than half of construction contacts were hiring, though many were attempting to fill turnover; the share that was not hiring grew, and one in seven was cutting workers. Expected labor demand for the coming months was moderately positive overall. Among those planning to hire, a notable share cited overworked staff as an important factor for doing so.
Wage pressures were unchanged since the last report, but ongoing wage growth remained above average. A general survey of District firms found that about 30 percent were raising wages by more than usual, while a similar share reported raising wages by less than usual or not at all. A survey of construction firms found that about 70 percent had increased wages by at least 3 percent over the last year despite some evidence of recent sectoral slowing. Expectations of future wage increases were similar to the sentiment six months ago.
Prices
Price pressures increased modestly since the last report. Slightly fewer than a quarter of firms responding to an October business conditions survey indicated that their prices charged to customers increased from the month prior, while 15 percent said they reduced their prices. A larger share reported that their nonlabor input prices increased. Administrative contacts reported an increase in the price of office supplies. A regional food producer said that milk and cheese prices declined recently. Retail fuel prices in District states decreased briskly since the previous report.
Worker Experience
In a recent survey, half of employed respondents expressed satisfaction with their current job, wages, and company culture. The other half of respondents were looking for new opportunities and hoping to increase their earnings, but they categorized potential opportunities as average at best. Job seeking respondents cited bad job options, lack of response from potential employers, and unreasonable skill or experience expectations as the top three factors preventing them from reaching their objectives. A worker highlighted that starting pay was "far too low" despite his experience in a variety of trades. Another worker expressed frustration with college education requirements, saying that "most companies are not willing to compensate for years of service without a degree."
Consumer Spending
Consumer spending was flat since the last report. Recent sales tax receipts in Minnesota were flat month over month and year over year. Contacts reported that consumers have become more price sensitive for everyday goods, with growing purchases at low-cost retailers compared with premium ones. At the same time, sales of some big-ticket items remained healthy. A vehicle dealer with locations in multiple District states saw October sales rise by 10 percent over last year. A northern Wisconsin banker noted the disparate tendencies. "People are mad about eggs costing more, but they'll still buy a car." Other banking contacts noted increased use of credit card and home equity lines of credit to maintain spending levels. Tourism traffic in Michigan's Upper Peninsula remained robust this fall. Hotel occupancy rates in Minnesota were notably higher than a year ago, and lodging and accommodation fees in Montana remained on par with last year's record pace.
Construction and Real Estate
Construction activity was flat overall since the last report, with considerable variation among subsectors and some concern for near-term activity. Firms involved with larger industrial and infrastructure projects reported moderately increased activity compared with last year, while firms in the commercial and especially residential sectors saw lower revenues over the same period. Contacts across the sector noted that project backlogs had shrunk, particularly for residential and commercial projects; new projects out for bid had also fallen. As a result, activity across the sector was expected to be lower over the coming months compared with last year. However, public sector projects remained healthy, and single-family permitting also increased in recent months in some markets. In Minneapolis-St. Paul, October permitted units doubled over the last year.
Commercial real estate fell modestly. Office space remained challenging, with high vacancy rates because large tenants continued to seek smaller footprints. Multifamily vacancy rates have risen in many regions as new units come to market; however, new developments in this sector have slowed. Speculative development has also slowed for industrial space as vacancy rates ticked slightly higher, but from low levels. Residential real estate remained subdued, with year-over-year sales continuing to decline.
Manufacturing
District manufacturing activity decreased slightly since the previous report. Manufacturing respondents to an October 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 increased activity in North Dakota and South Dakota in October from a month earlier, while activity decreased slightly in Minnesota. A custom manufacturer said recent sales "dropped like a rock." One contact reported that because of the undersupply of workers to the sector, "thousands of unfilled jobs would need to be eliminated before anyone gets to layoffs."
Agriculture Energy and Natural Resources
District agricultural conditions deteriorated slightly since the last report. Despite better-than-expected crop production, lenders responding to the Minneapolis Fed's third-quarter survey of agricultural credit conditions, conducted in October, reported lower farm incomes and capital spending over the period relative to a year earlier. Contacts expressed concern over the impact of rising interest costs as borrowing increases. 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 (MWBE) was balanced overall, according to respondents to a monthly survey. Roughly even shares of respondents reported higher, unchanged, or lower sales in recent weeks. Profit margins were lower for more than half of respondents while capital expenditures edged higher on balance. Hiring demand and staffing levels were largely flat. Only a quarter of respondents reported having increased their final selling prices, but 35 percent expected to increase them within the next month. A Minnesota contact expected MWBE construction companies to be disproportionately affected as federal funding and high interest rates shift activity from multifamily housing developments to infrastructure projects. "The capital required for infrastructure projects is greater than for vertical building. Lack of access to banking capital continues to leave MWBE companies at a disadvantage," they highlighted.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community