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Home My WebLink About4.1a Beige Book -- January 12, 2021I-1 Federal Reserve Bank of Minneapolis Summary of Economic Activity The Ninth District economy grew moderately since mid-November, though a surge in COVID cases due to the Omicron variant was delaying return-to-work plans and dampening outlooks in some sectors toward the end of the reporting period. Employment saw moderate growth, though strong labor demand continued to outstrip supply. Wage pressures were strong, while price pressures increased moderately from elevated levels. Growth was noted in commercial and residential construction, commercial real estate, consumer spending, and manufacturing, while residential real estate activity fell. Agricultural conditions were steady, as higher prices and strong harvests in some crops offset the negative impacts of drought. Minority- and women-owned businesses saw improvements but noted price and supply chain chal- lenges. Employment and Wages Employment grew moderately since the last report, as tighter labor supply forestalled much stronger growth. Job postings continued to rise from very high levels across the District. In Michigan’s Peninsula, current job openings were almost double those from a year earlier. Three surveys among construction, hospitality-tourism and manufacturing firms found high demand for labor; many firms were hiring to replace persistent turnover, but an even larger percentage were looking to add to their total headcount. Actual hiring was nonetheless more challenging, with the large majority of respondents in all three sectors reporting moderate to significant difficulty in finding available workers. Wage pressures remained strong. Surveys since the last report found strong wage growth in construction, manufacturing, and hospitality-tourism; more firms increased wages, and by larger amounts. More than 40 percent of hospitality and tourism firms reported wage increases of 5 percent or more over the last year. A South Dakota state budget proposal included a 6 percent raise for state workers, including teachers and corrections employees. Nonprofits were reportedly dealing with growing turnover as workers left for higher compensation offers in the private sector. Among firms, said one contact, “The wage-increase conversation is just as hot as the difficulty-hiring topic.” Worker Experience Labor supply was tight across the District and quit rates continued to trend up. A labor contact said that more hospitality workers at a Minnesota airport have left their positions, citing “hassles” such as the time spent going through security. The presence of the Omicron variant and subsequent cancellation of in-person conferences and events brought more uncertainty for some hospitality workers. A nonprofit contact said that many low-wage workers who held two or more jobs before the pandemic have decided to work less to meet childcare and other needs. A healthcare labor contact said that nurse retirements continued to put downward pressure on a depleted workforce, and the availability of traveling nurses has thinned. A South Dakota contact said that workers in the energy sector expressed concerns over vaccine mandates. Prices Price pressures remained elevated. More than three- quarters of preliminary respondents to the manufacturing survey reported that they had increased prices charged for their products in the previous year, while 70 percent expected to increase their prices further in 2022. Contacts in construction reported that materials costs remained elevated across the board, but that plastic pipe and plumbing fixtures in particular had spiked recently. Responses to a hospitality and tourism survey indicated greater recent pressure on input prices than final prices; The Beige Book ■ January 2022 I-2 Federal Reserve Bank of Minneapolis nearly 45 percent of hospitality firms said wholesale prices had increased by more than 5 percent over the previous 12 months, while about a quarter reported that prices charged to customers had increased by that magnitude. Retail fuel prices in District states as of late December decreased modestly relative to a month earlier. Prices received by farmers in November increased from a year earlier for corn, soybeans, wheat, canola, dry beans, potatoes, hay, hogs, cattle, turkeys, chickens, and eggs, while milk prices decreased. Consumer Spending Consumer spending grew moderately since the last report. An industry contact said that retailers reported better than expected holiday sales and in-store traffic, while online shopping was also very active. A regional mall contact noted similarly strong sales, particularly for those with healthy staffing levels. Hospitality and tourism firms widely reported improved revenues, but future sentiment was mixed due to concerns over the Omicron variant, particularly among firms catering to large events. One Minnesota hotel said banquet and catering revenues “are expected to be lower for some time.” New- vehicle sales—cars, trucks, marine, recreational, and powersport—remained slow compared with a year ago, due mostly to lack of inventory; used-vehicle sales remained healthy as “some consumers are settling for a used vehicle rather than waiting for a new vehicle,” according to one dealer. Construction and Real Estate Commercial and residential construction grew moderately since the last report. Recent industry data showed that the value of construction starts in District states continued to trend higher, though some revenue increases were attributed to inflated input costs. New projects out for bid were higher in District states compared with the same period last year. Supply chain problems and higher input costs were dampening future demand, according to a variety of sources. Commercial real estate grew modestly overall. Retail was buoyed by stronger-than-expected holiday traffic. A regional mall contact noted that recent and expected future leasing efforts were “quite strong.” But retail vacancy rates continued to inch higher in some markets, and another virus surge would dampen recent momentum. Office vacancy rates remained high, as the Omicron threat postponed return-to-office plans. Multi- family vacancy rates remained low in many markets and recent investor sales suggested a strong market. Slower residential real estate sales persisted in most markets across the District, largely due to exceptionally low inventory of homes for sale. Manufacturing District manufacturing activity increased briskly. A manufacturing survey indicated growth in orders, production, and capital spending through 2021 compared with the previous year for most firms. Profits and productivity were flat, and employment fell slightly, largely due to challenges in hiring. Firms’ expectations for 2022 pointed to similar growth, with a positive outlook for employment. A regional manufacturing index indicated increased activity in Minnesota, North Dakota, and South Dakota, relative to the previous month. A third of supply managers surveyed expected supply chain issues to get worse over the first six months of 2022. Agriculture, Energy, and Natural Resources District agricultural conditions were steady since the last report. Crop production in Ninth District states exceeded earlier, drought-related predictions; however, production of some commodities (dry beans, for example) was much lower than 2020 levels. Most contacts expected higher commodity prices to offset lower production and increased input costs, except in the hardest-hit areas. District oil and gas exploration activity increased modestly since the previous report. District iron ore mines were operating at capacity, with 2021 production expected to pass pre-pandemic levels. Minority- and Women-Owned Business Enterprises Reports from minority-and-women-owned business enterprises (MWBEs) in the District were generally optimistic, but concerns lingered regarding labor shortages, supply chain issues, and COVID. Almost three quarters of respondents in a recent survey said that they experienced price increases of more than 3 percent for nonlabor inputs. Businesses in the hospitality and tourism industry reported improved business activity but faced challenges finding workers. Supply chain challenges were singled out by a restaurant owner as their greatest challenge, adding that food cost fluctuations were passed on to customers. The CEO of a collaborative working space said that many are entering entrepreneurship to diversify income streams after experiencing employment instability during the pandemic; she added that more women have chosen to leave their jobs to launch a business. ■ For more information about District economic conditions visit: minneapolisfed.org/region‐and‐community