Beige Book Report: Minneapolis
March 5, 2025
Summary of Economic Activity
Economic activity in the Ninth District was steady since the previous report. Employment grew slightly, but hiring and labor demand softened. Price increases and wage growth were moderate. Consumer spending was flat with slight improvements in travel and tourism. Residential construction grew modestly, and nonresidential construction slowed. Commercial real estate was mostly flat, but sales of residential units grew moderately. Manufacturing experienced modest improvements and agricultural conditions were unchanged.
Labor Markets
Employment grew slightly since the last report. Labor demand was positive, but the rate of growth continued to decline somewhat. Surveys showed more employers were not hiring; those looking for workers were most often hiring to fill recent turnover. However, only a very small fraction of firms were cutting workers. Some employers were also cutting total staff hours in the face of slower business, rather than eliminating positions. For those hiring, labor availability continued to improve. A North Dakota manufacturing provider said it was seeing "a marked increase in qualified applicants for our open positions." But a number of contacts complained of skill gaps. A Minneapolis construction firm reported that it "can get unskilled labor with relative ease, but they are unreliable. . . . Skilled labor is hard to find and keep."
Wage growth was moderate overall but continued to soften somewhat. A number of contacts reported that wage increases were being held back by other cost increases. After a big wage increase last year, a Wisconsin transportation firm said it "will have to keep the status quo for now" due to cost increases elsewhere. A Minnesota construction firm said the costs for steel and insurance were keeping a lid on wage increases. "Employees expect better pay. I'm not saying they don't deserve it. Just that we can't afford [it]."
Prices
Prices increased moderately, which was a faster pace of growth than the previous report. In a January survey of District firms, 30 percent said they increased prices charged to customers from a month earlier, compared with 60 percent who reported no change. A larger share reported increases in input prices. Businesses continued to report significant pressures in insurance costs. Several food production and food service contacts reported passing on increased ingredient costs to customers. The wholesale prices component of a regional manufacturing index increased in January to its highest level in more than 18 months. Retail fuel prices increased modestly since the last report in most of the District except for Montana, where they increased faster.
Worker Experience
Workforce development professionals in Minnesota reported that it was taking longer for job seekers to find a job compared with a year ago. Information technology specialists and workers with administrative backgrounds were waiting an average of three months to get hired, while certified nursing assistants and other health care support workers waited less than a month. A health care contact said that there were "roughly the same number of openings and amount of churn in the market" than in recent years. Searches for nonprofit C-suite positions that used to get around thirty applications "recently ballooned into the hundreds," according to a District recruiter. "Most are extremely qualified with decades of experience in government or non-profit."
Consumer Spending
Consumer spending fell modestly. A majority of survey respondents in accommodation, food services, recreation, and retail reported that recent revenue declined early in the year compared with last year. They also did not expect improvements in the near future. However, the winter tourism sector recovered somewhat from last year's warmer-weather debacle. Some areas saw improved snowfall, and persistently cold weather allowed ski resorts to manufacture necessary snow. A motel owner in Michigan's Upper Peninsula noted that better snow levels this year "made for a significant increase in business." January hotel occupancy rates declined slightly; however, revenue per average room was modestly higher. Vehicle sales were flat overall at one large dealer in the western portion of the District, with new-vehicle sales falling slightly for the first time since September.
Construction and Real Estate
Construction fell modestly since the last report. A larger share of survey respondents reported slower activity year over year than those who reported an increase. Industry data also suggested that construction starts in early 2025 were slower than last year. A Minnesota glass manufacturer reported that construction activity and related orders had been soft, resulting in some layoffs until an expected increase in spring work. A Minneapolis–St. Paul construction firm said it was "not seeing bid invites at the rate I have seen in previous years." The head of a trade group in the District said, "We're seeing a nervousness around tariffs and [its] impact on the industry." There were some positive indicators; data center development remained active and residential permitting in larger markets was moderately stronger than last year.
Commercial real estate was flat overall. Office vacancy rates remained very high in the central business districts of Minneapolis and St. Paul. Industrial vacancy rates have ticked slightly higher but remained comparatively healthy. Retail vacancy stayed tight amid a dearth of new construction. Residential real estate was higher; January home sales rose in two-thirds of regional markets year over year.
Manufacturing
Manufacturing activity in the District increased modestly since the previous report. Nearly half of manufacturers responding to a monthly business conditions survey reported an increase in orders in January from a month earlier. An index of regional manufacturing conditions found activity increased in Minnesota and North Dakota in January relative to the previous month, while activity in South Dakota was roughly unchanged. However, metal fabrication contacts reported continued below-average demand and difficulty with metals prices. Some contacts expressed concern about the potential effects of new tariffs.
Agriculture Energy and Natural Resources
District agricultural conditions were steady at weak levels. Some contacts expressed concern about the possibility of widespread drought conditions persisting into the growing season. A contact reported that turkey producers in the region were "in a good place" with respect to the impact of H5N1 avian influenza due to investments in bio security. District oil and gas exploration activity was roughly steady since the previous report. Preliminary estimates suggested that production at District iron ore mines declined slightly.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises (MWBE) improved but remained lower on balance, with more contacts reporting lower sales compared with those reporting higher sales. More than half of contacts said they had made capital expenditures. Profits margins contracted for the majority of businesses. Job openings trended downward from low levels among this subset of businesses, but headcount remained steady. Prices for nonlabor inputs were lower on balance, while changes in average compensation were higher for the majority.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community.