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Home My WebLink About4.1c March 2023 BeigeBookI-1 Federal Reserve Bank of Minneapolis Summary of Economic Activity The Ninth District economy grew modestly since the previous report. Employment gains were moderate, and large firms were having more recruiting success. Wages were unchanged overall but remained at high levels. Price increases were modest overall, with input prices expected to increase in coming months. Consumer spending as well as commercial and residential construction fell. Residential real estate decreased significantly. Manufacturing activity increased modestly, and agricultural conditions remained strong. Activity among minority- and women- owned businesses was steady. Labor Markets Employment grew moderately since the last report. A survey of District firms in early February found a large majority hiring in some capacity. Less than 30 percent of employers said they were not hiring, and only 5 percent reported cutting workers. Other contacts also noted that firms were overhiring to ensure operational coverage or to create more attractive schedules that avoid overtime. Survey respondents from large firms reported notably better success at adding workers. Some contacts said that labor availability improved slightly, but overall it remained problematic. A recent Minneapolis-area job fair with more than 20 employers and hundreds of job openings attracted only 20 people. A Montana construction firm has found it economical to rent a jet to fly workers in to one of its plants to fill operational needs. Hiring local employees “would be our first choice, but we had to adjust when we could not staff that way.” Wage pressures were flat but remained high. A Montana contact said hospitality and recreation employers “are paying stupid amounts of money for entry-level employees just to get them for short seasons.” Thirty percent of surveyed District firms reported annual wage increases of more than 5 percent, roughly in line with earlier surveys. A Minnesota contact reported that he was seeing “restaurants and hotels balk at moving any higher with wages. They feel they just can’t adjust their prices any higher." Prices Price increases were modest overall since the last report amid some signs of easing inflationary pressures. Half of respondents to a monthly District business conditions poll reported no change to the prices they charged for their products and services in January from a month earlier, but a slight majority said their nonlabor input prices increased. Two-thirds of respondents either expected not to change their selling prices or to decrease them slightly in the coming month, though the outlook for input price increases remained elevated. According to a semiannual survey of businesses, about 2 in 5 firms reported “little or no change” in prices charged to customers over the past month. About half said wholesale prices from suppliers were modestly higher. Retail fuel prices in District states increased moderately since the last report. Worker Experience Some workers formerly in food and hospitality said they quit their jobs in recent months to start their own businesses and have more control over their lives. “At the beginning, I was afraid to leave a job I had done for 15 years,” shared a former cook. “I have been cleaning houses for a few months now, and I am much happier.” More electrical engineering graduates from a District college were reportedly applying for jobs in smaller companies with competitive wages, a move they had snubbed in the past, according to a contact. In Minnesota, workforce development contacts said more The Beige Book ■ February 2023 I-2 Federal Reserve Bank of Minneapolis people were applying for jobs but “ghosting" prospective employers. A labor contact in Minnesota said that the narrow workplace flexibility in education was pushing people out of the profession and into other fields. Many were leaving within the first five years, and fewer were entering preparation programs in the field. Consumer Spending Consumer spending fell slightly overall since the last report. More than 100 firms in retail, hospitality, and entertainment reported that recent revenues and profits were lower overall compared with the previous quarter and year over year. A western Wisconsin restaurant owner noted that “costs are much higher while guests are tightening their purse strings and not as willing to accept price increases.” January gross sales in South Dakota grew compared with last year, but at the lowest monthly rate in over two years. A dealership with multiple locations reported that January vehicle sales rose 2 percent year over year, but new-vehicle sales dropped by 15 percent. Car and truck sales were also lower in Wisconsin, and sales of powersport and recreational vehicles remained lower across the District. Airline travel through District airports in January was higher year over year, with most seeing double-digit increases; Minneapolis-St. Paul International traffic rose 6 percent. Construction and Real Estate Commercial construction fell slightly since the last report. Some of that slowdown was seasonal. A manufacturer of building products said that “November through January are our weakest months. But the trend is down.” A Montana architecture firm said that large corporate clients have delayed project starts. Other contacts reported a smaller pipeline of future projects. A contractor in Minneapolis-St. Paul said, “Interest rate hikes have put a considerable damper on new construction projects.…Projects aren’t penciling out.” Residential construction was lower. Single-family units permitted in December and January fell by half compared with a year earlier in Minneapolis-St. Paul. Billings, Montana, and Sioux Falls, South Dakota saw larger declines. Most other major markets were flat. Commercial real estate was flat since the last report. Office space continued to struggle overall despite a slow but ongoing return of workers to downtown offices. But overall vacancy rates grew as some large tenants downsized and space available for sublease increased. Industrial property remained strong, though higher financing costs reportedly had some developers reevaluating speculative projects. Residential real estate continued to crater. Most large markets in the District saw closed sales fall between 25 and 50 percent in December and January year over year. Manufacturing District manufacturing activity increased modestly since the previous report. Manufacturing respondents to surveys generally reported increased or steady orders and revenues, and positive near-term outlooks. However, about a quarter of firms said recent sales had declined. A regional index of manufacturing conditions indicated an expansion in activity in Minnesota and South Dakota in January from a month earlier, while activity contracted in North Dakota. A firm that supplies fabricated metal inputs to industrial customers noted strong demand for robotics and automation. Agriculture, Energy, and Natural Resources District agricultural conditions remained strong heading into the end of winter. According to the Minneapolis Fed’s fourth quarter (January) agricultural credit conditions survey, nearly three-quarters of lenders reported farm incomes increased from October through December compared with the same period a year earlier. Farm household spending, capital spending, and loan repayment rates also increased on balance, while demand for loans fell. A forestry contact noted that prices that sawmills were paying for logs had increased recently, leading to operating losses and production cuts at mills. Production at District iron ore mines was expected to increase slightly in 2023; one facility was making a large investment into producing a higher grade of ore. District oil and gas exploration activity was unchanged since the previous report. Minority- and Women-Owned Business Enterprises Minority- and women-owned businesses reported steady activity in recent weeks. Labor market tightness continued to put uneven pressure on minority and women entrepreneurs. A childcare provider said that despite higher demand for services, they cannot find qualified staff to maximize their licensed capacity: “Parents want their children to learn Spanish, they look for that added value in our services, but finding staff is a big challenge.” Electricians, plumbers, framers, cosmetologists, and other workers requiring certifications were also said to be in short supply. Contacts highlighted that while more people were looking at entrepreneurship as an alternative to employment, many faced challenges like access to capital, lack of credit history, lack of understanding of business processes, and lack of management and marketing skill. ■ For more information about District economic conditions visit: minneapolisfed.org/region-and-community