The URL can be used to link to this page

Home My WebLink About4.1b Beige Book - July 13, 2022I-1 Federal Reserve Bank of Minneapolis Summary of Economic Activity Economic activity in the Ninth District grew modestly since mid-May. Employment grew slightly, as labor demand ap- peared to weaken but remained at a high level. Wage and price pressures remained strong as employers worked to attract talent and continued to pass on increased input costs. Professional services, manufacturing, and energy activity increased since the last report. Consumer spending fell slightly as households adjusted their budgets in response to increased inflation and fuel costs. Commercial construction was flat and residential construction was mixed, while com- mercial and residential real estate activity decreased. Agricultural conditions remained strong. Reports from minority - and women-owned business enterprises were slightly positive. Labor Markets Employment grew slightly since the last report. Overall, firms added more workers, but some signs of weakness appeared. Job postings, for example, flattened or fell across District states in recent weeks, but remained at high levels. Anecdotal reports of layoffs rose, as did initial unemployment claims. An annual survey of professional services firms found that their employment levels have been flat, in part due to persistent difficulties attracting labor, a continued point of emphasis from numerous sources. Recent statewide data on workers ’ compensation policy renewals suggested that Minnesota firms were slightly pessimistic about future staffing levels. A monthly pulse survey of District employers also found modestly softer hiring expectations in the coming month compared with the previous month. Wage pressures remained strong. Among professional services firms, 36 percent said wages grew by 6 percent or more over the last 12 months; however, respondents expected more moderate growth on balance over the coming year. A Minnesota financial services firm recently gave employees $5,000 “inflation bonuses” to help offset rising consumer prices. A staffing contact noted that average wages for administrative staff have risen by 20 percent, year-over-year; wages for unskilled manufacturing and other industrial work “are getting much closer to skilled [wages].” A North Dakota contact said firms were doing more with fewer workers, and able to absorb larger-than-average raises as a result. Prices Price pressures remained strong since the previous report. Three-quarters of respondents to a monthly District business survey reported that their non-labor input prices increased in May from a month earlier. More than half said they increased their selling prices over the previous month; 51 percent expected to increase prices in June. Manufacturing contacts reported significant ongoing wholesale price pressures. Retail fuel prices in District states increased briskly since the last report. Prices received by farmers increased in May from a year earlier for corn, soybeans, wheat, canola, dry beans, potatoes, hay, cattle, turkeys, eggs, and milk, while prices for hogs decreased. By contrast, prices for certain types of lumber fell in May from the previous month. Worker Experience Job seekers were mainly looking for full-time employment, upward mobility, and better pay, according to South Dakota respondents to a recent worker experience survey. Childcare costs and availability and the need for more skills or credentials topped the list of barriers job seekers faced in pursuing their goals. Rising fuel, energy, and grocery prices continued to put downward pressure on workers’ budgets. More than 70 percent of survey respondents reported having reduced their consumption of groceries, and 40 percent said they The Beige Book ■ July 2022 I-2 Federal Reserve Bank of Minneapolis were cutting back on their fuel consumption. A moderate -income social service professional shared that she was making more “lower-end meals,” limiting entertainment and social activities, purchasing more secondhand items, and forgoing house repairs to adjust her budget. Many others noted similar adjustments. Consumer Spending Consumer spending fell slightly since the last report, with sources noting several shifts. Contacts at two regional malls noted slower foot traffic in June, which they attributed to the effects of high gas prices and overall inflation. Multiple contacts reported that consumer demand was increasing for services while ebbing for durable goods. Spending was reportedly still healthy among higher-income households, while lower-income households faced choosing among competing needs. A grocer noted increased purchases of cheaper foodstuffs to offset higher costs overall. Tourism contacts reported strong activity overall in the District. However, a flood in the Yellowstone region of southern Montana was expected to have a major, negative impact on the region for the remainder of the summer season. Professional Services Professional services sector activity increased moderately. Respondents to the annual services survey reported increased revenues over the previous year, while profits, productivity, and employment were steady. Firms’ expectations were mildly positive for the coming 12 months. A media company executive noted he had to increase prices in response to higher input costs but expected conditions to stay “steadily well.” Construction and Real Estate Commercial construction was flat since the last report. Contacts said overall demand was still healthy, but persistently high material costs, supply chain difficulties, and rising borrowing costs were having an increasingly negative impact. New projects and total active projects over the most recent six-week period (ending mid-June) were lower, year-over-year. Some regions have seen strong activity, including Billings, Mont., and Mankato, Minn.; Sioux Falls, S.D., has seen record -breaking activity. A contact there said that “interest rate hikes have not seemed to dampen anyone’s urge to build yet.” Residential construction was mixed; single-family permitting was flat or lower in much of the District while multifamily permitting remained solid across the District, and particularly in Minneapolis-St. Paul. Commercial real estate was modestly lower since the last report. Real estate contacts reported slower deal activity, except for industrial real estate, which remained strong. To compensate for higher financing costs, leveraged buyers were pulling back from deals or reducing offers. Office occupancy remained weak as return-to-office momentum has faltered due to hybrid work schedules and continued COVID-19 infections. Retail occupancy rates have increased in some markets, thanks in part to comparatively low levels of new construction. Residential real estate activity was moderately lower. New listings in June flattened and pending sales fell, largely attributed to higher mortgage rates. Price discounts were reportedly rising but have not yet impacted median prices meaningfully. Manufacturing Manufacturing activity increased moderately since the last report. A regional manufacturing index indicated increased activity in Minnesota and South Dakota in June relative to the previous month, while activity in North Dakota decreased. Most manufacturing contacts reported recent orders were increased or unchanged since the last reporting period; however, a growing number reported slowing sales or were expecting a slowdown in orders in the coming month. Agriculture, Energy, and Natural Resources District agricultural conditions remained strong since the previous report. Most of the region’s corn and soybean crops were rated in good or excellent condition and progressing on schedule. However, nearly half of the Montana winter wheat crop was in poor or very poor condition, as drought conditions persisted in the Golden Triangle region. District oil and gas drilling activity increased slightly since the last report. Minority- and Women-Owned Business Enterprises Reports from minority- and women-owned business enterprises (MWBEs) in the District were slightly positive. The majority of MWBE respondents to a survey said their sales and profits remained steady or grew in May compared to the previous month. Forty percent of respondents said their ability to hire had improved but challenges remained for many. To attract and retain workers, most reported having increased wages and provided more flexible schedules and working conditions. Most MWBE respondents expected sales to remain flat or improve in the next month but lowered their profit expectations. ■ For more information about District economic conditions visit: minneapolisfed.org/region-and-community