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HomeMy WebLinkAbout4.1b Beige Book--October 21, 2020Federal Reserve Bank of Minnea ol1S p The Beige Book ■ October 2020 Summary of Economic Activity The Ninth District economy grew slightly overall since the last report. Employment was mixed, with overall conditions remaining volatile. Wage pressures were modest, while price pressures were moderate. The District economy showed growth in manufacturing and residential construction and real estate. But consumer spending and tourism were flat overall, while activity slowed for professional services and commercial construction and real estate. Agricultural condi- tions improved thanks to a promising crop outlook, but remained weak overall, and energy was stable at low levels. Employment and Wages Employment was mixed since the last report, and overall conditions remained quite volatile. Contacts suggested that some firms were in a "hiring chill," with essential vacant jobs getting filled, but holding overall staffing levels in check. Initial unemployment claims over the most recent six-week period (through mid-September) fell significantly compared with the previous reporting period, but remained quite elevated compared with year- ago levels. Continuing claims also dropped steeply over this relatively short period compared with mid -summer levels. Staffing contacts in Montana and North Dakota said job orders have grown in recent weeks, and labor availability was tightening. However, a survey of hospitality firms in Minnesota showed more firms were downsizing workforces compared with those that were increasing head count. Preliminary results of a larger, Districtwide survey in October showed similar results, and that trend was also expected to carry into the coming months. A Wisconsin contact said recruitment has become harder given pandemic constraints, and there's "no doubt that automation has accelerated. Some lower -paying jobs probably won't be coming back." Job postings improved slightly in recent weeks across most District states, though South Dakota saw a modest decline, and the overall growth trend has slowed notably from the pace seen in June and early July. 1-1 Wage pressures rose modestly. A Districtwide survey in early October showed that a slightly higher share of firms have increased wages, and a lower share have decreased wages, compared with a similar July survey. Other, smaller ad hoc surveys in Minnesota, Wisconsin, and South Dakota showed generally similar results. Wage growth was slightly stronger among Minnesota hospitality firms, particularly in tourism regions seeing healthy labor demand. Firms across these various surveys also expected somewhat stronger wage growth in the future. Prices Price pressures were moderate since the previous report, though input price pressures appeared greater than final prices. According to preliminary results of a survey of District businesses, half of respondents reported that input prices were unchanged compared with pre -pandemic levels, though nearly one-third said input prices were up by 5 percent or more. Prices for final goods or services increased at a smaller share of firms. Prices for construction materials continued to increase rapidly. A panel of manufacturers reported that input prices had been rising faster than usual in August and September. Retail fuel prices in District states decreased slightly since the previous reporting period. Prices received by farmers in August increased from a year earlier for soybeans, wheat, potatoes, dry beans, and turkeys, while prices for corn, hay, cattle, hogs, chickens, eggs, and milk decreased. Consumer Spending Consumer spending was flat since the last report. Surveys of retail and accommodation firms showed that while many were operating below pre -pandemic capacity, customer demand was still not outstripping available sales or service capacity. Growth in vehicle sales paused after a strong uptick earlier in the summer. A dealership with multiple locations in western District states saw sales decline significantly in August compared with a year earlier, and September sales were flat. Motor vehicle sales in Minnesota and Wisconsin were also lower, according to available data. Tourism experienced healthy late -summer activity in rural, high -amenity regions, but many firms in these areas worried about off-season business. Conversely, many larger cities continued to see low hotel occupancy rates and overall tourism activity. Air traffic was flat overall. After a modest late -summer increase in screened passengers at the eight largest District airports, activity fell slightly over September and was less than 40 percent of 2019 levels. Services Activity in the professional services sector decreased slightly since the last report. Firms providing services to clients in oil and gas and air transportation reported severe contraction in demand. Trucking contacts said that demand for freight transportation decreased recently. Providers of information technology services and consulting said business was steady, while broadband providers reported that demand was up significantly. Construction and Real Estate Commercial construction was moderately lower since the last report. In an October sample of several dozen construction firms, one-third saw a decrease in activity compared with earlier in the pandemic, and that share was expected to increase in the coming quarter. Many contractors were also experiencing project delays, particularly related to supply chain disruptions; a Montana contact said product delivery times were double or triple their normal length. Many firms continued to stay busy thanks to project backlogs built up prior to the pandemic. But firms across the District expressed concern about a shrinking pipeline of future work out for bid. Some locations appeared to be bucking the overall trend, including Fargo, N.D., and Rapid City, S.D., where August and September permitting activity was very 1-2 Federal Reserve Bank of Minneapolis healthy. Residential construction rose modestly. After a slow August, single-family permits rose sharply in September in Minneapolis -St. Paul. Permit activity over this period also rose in Bismarck, N.D., Rochester, Minn., and Sioux Falls, S.D. Commercial real estate continued to decline modestly since the last report. With many workers continuing to work from home, office space in downtown Minneapolis and St. Paul was seeing increased lease concessions, according to contacts. Lower foot traffic at office buildings also continued to put pressure on retail and other ancillary businesses, with significant closures of restaurant and other retail outlets. Multifamily vacancy rates were reportedly rising in some cities. Residential real estate continued to grow moderately overall. Closed home sales in August were widely higher, except in Minnesota, where sales were flat. Limited data for September home sales suggested continued growth, with Sioux Falls sales rising by 25 percent over last year, and Missoula, Mont., by 12 percent. Manufacturing District manufacturing activity increased moderately since the last report. An index of manufacturing activity indicated expansion in Minnesota and the Dakotas in September compared with a month earlier. About half of participants on a panel of South Dakota manufacturers reported that new orders had increased in August and September compared with the previous two months. A metal fabricator reported that recent demand from automation and packaging had increased, while demand from heavy construction and from oil and gas exploration was down. Manufacturing contacts continued to report pandemic -related bottlenecks in supply chains. Agriculture, Energy, and Natural Resources District agricultural conditions improved going into the harvest season, however low prices depressed the outlook for farm incomes. Harvests were generally proceeding ahead of schedule in most areas of the District, and the majority of crop acres as of early - October were in good or excellent condition. Despite recent drought conditions in some parts of the District, early estimates called for strong yields of corn and soybeans and record production in some states. District oil and gas exploration held steady at low levels. The number of drilling rigs in the District as of early October was unchanged from a month earlier, though recent oil production increased slightly. All but one District iron ore mine that shut down earlier in the year has reopened.