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Home My WebLink About4.1d BeigeBookFederal Reserve Bank of M inneapo is The Beige Bool< ■January aoa? Summary of Economic Activity The Ninth District economy grew slightly overall since the previous report. Employment grew modestly and the labor market remained healthy, although there were some signs that labor demand was softening. Wage pressures remained high but also appeared to lessen slightly. Prices increased modestly overall, and high food prices were negatively affect- ing low -wage workers. Activity increased in consumer spending, manufacturing, and energy. District agricultural condk tions remained strong. Commercial and residential construction and real estate sectors were either flat or declined. Activity among minority- and women -owned businesses slowed slightly. Labor Markets Employment grew modestly since the last report, with most District states seeing increasing payrolls. A December survey found that 44 percent of hospitality and tourism firms in Minnesota reported that they were hiring in some capacity, with more than half looking to increase year-round head count; 14 percent cut seasonal staff, but almost no one cut year-round staff. However, other smaller surveys of businesses across the District showed softer hiring sentiment in both November and December, and future hiring expectations were similarly flat. Job postings and other signs of hiring demand also continued to soften somewhat but remained healthy overall. Contacts reported small improvements in labor availability, but continued difficulty in hiring. Many businesses continued to adapt as a result. Said one contact, "Retail and manufacturing are getting good at operating with less than a full crew." Wage pressures fell slightly but remained at high levels. Firms reported minor softening in the pace of wage growth, more so for salaried than hourly workers. But overall pressure was still well above average. Nearly half of hospitality and tourism firms reported wage increases of 5 percent or more, but future wage expectations were notably lower. A Minnesota contact said that more employers were offering sign-up or retention bonuses rather than higher wages. Prices Prices increased modestly overall since the previous repOR, Two-thirds of respondents to a District business conditions poll reported no change to the prices they charged for their products and services in December from a month earlier; about half of firms said their nonlabor input prices were unchanged. The wholesale prices component of a regional manufacturing index decreased to a level just above neutral in December, its lowest reading since the early months of the pandemic. A producer of home furnishing products noted that raw materials prices have come down less than 10 percent, but "we have had to reduce pricing by around 20 percent to get additional business." Despite reductions in many construction materials costs, a road construction contractor expected a 13 percent increase in concrete prices in 2023. Retail fuel prices in District states declined rapidly since the last report. Prices received by farmers in November increased from a year earlier for corn, wheat, soybeans, sugar beets, potatoes, hay, hogs, cattle, turkeys, chickens, and eggs; prices for chickpeas and canola decreased from a year ago. Worker Experience Low -wage workers in the Minneapolis —St. Paul area reported continued pressures from higher food prices. Some said they found it increasingly difficult to pay their bills and were therefore accumulating credit card debt. A Minnesota labor contact said that the number of traveling I-1 nurses had declined but remained high. Many nursing program graduates were reportedly rethinking their choice to pursue a career in health care, as shortages have resulted in higher stress for existing workers. A workforce development contact reported that some former housekeepers had decided to start their own businesses rather than getting paid $5 per cleaned room by a hotel chain. Other workers were said to have left theirjobs to start businesses in food, landscaping, and snow removal, Consumer Spending Consumer spending grew modestly since the last report, remaining at high levels. Retailers overall reported a decent holiday shopping season, with good initial traffic interrupted by severe winter weather. A South Dakota contact said that the shopping season started strong but ended "somewhat weaker than many businesses anticipated" because of poor weather that impacted not only customer traffic but also product inventories. A Minnesota mall reported December foot traffic was up over last year despite weather events, and anecdotal evidence indicated that shoppers spent more. Another mall contact reported that sales were up 8 percent over last year and that new leasing activity was encouraging. A suburban Minnesota mall estimated that sales rose by 5 to 10 percent, with high traffic volumes even during the week. "Restaurants continue to knock it out of the park, with waiting periods from the time they open." A vehicle dealership with multiple locations saw sales of both new and used vehicles rise in December, year over year. Construction and Real Estate Commercial construction fell slightly since the last report. Industry data suggested that revenue levels across the sector have not declined significantly. But firms reported slowing activity and that high project costs were propping up revenues. A contact in southeast Minnesota said that companies and their clients were "choosing between delaying projects at normal prices or getting done on time at inflated prices." Sources also suggested that the pipeline of new projects out for bid was shrinking, though industrial and multifamily construction was still healthy. Single-family residential construction continued to decline. December permitting activity was much lower than a year ago in most of the District's larger markets. For example, single-family permits in the Minneapolis — St. Paul region in December were less than half their levels from a year earlier. Commercial real estate was flat since the last report. Vacancy rates remained favorable in multifamily and industrial sectors even with new construction, JUL Federal Reserve Bank of Minneapolis unfavorable in office space despite little new construction. Property sales were subdued due to higher interest rates and economic uncertainty. Residential real estate continued to decline for similar reasons. Closed sales in November and December were widely lower compared with last year. In Sioux Falls, South Dakota, December sales dropped by 48 percent year over year. In some markets, new listings declined as sellers waited for better market conditions, yet inventories of homes for sale increased with the large drop in sales. Manufacturing District manufacturing activity decreased slightly since the last report. Results from the Minneapolis Fed's annual survey of manufacturers indicated that firms overall saw increased orders, production, capital expenditures, and employment in 2022, with stable expectations for their firms in the year ahead. However, a regional index of manufacturing conditions indicated a mild contraction in activity in Minnesota and North Dakota in December from a month earlier, while activity expanded in South Dakota. Manufacturing contacts generally reported no change or a slight decrease in new orders. However, a producer of homebuilding inputs reported a drastic decline in new orders, and a custom manufacturer in Minnesota reported they have canceled all capital expenditures for the first quarter of 2023. Agriculture, Energy, and Natural Resources District agricultural conditions were stable at high levels. Sector contacts reported that farm incomes and working capital remained strong heading into 2023. District oil and gas exploration activity increased slightly since the last report. Minority- and Women -Owned Business Enterprises Activity among minority- and women -owned businesses slowed slightly in recent weeks according to reports from contacts. Input and labor costs were reportedly diminishing profits for many. A small steel manufacturer reported success in doubling their workforce after offering health insurance for the first time, a move they made at the expense of profitability. Contractors reported that uncertainty due to ongoing material shortages and price increases was making it difficult to meet existing S. "We never know what we'll end up paying for materials," shared a Minnesota contact. "Bids do not move with those changes and we cannot walk away" Food service businesses were said to be losing the ng race to restaurant chains and other more established businesses. For more information about District economic conditions visit: minneapolisfed.org/region-and-community I-2