The URL can be used to link to this page

Home My WebLink About4.1 Beige Book - May 31, 2023I-1 Federal Reserve Bank of Minneapolis Summary of Economic Activity Economic activity in the Ninth District increased slightly since the previous report. Employment grew modestly with some volatility; labor demand remained healthy, but some firms reported significant layoffs. Wage pressures remained high, while price pressures were stable. Growth was noted in consumer spending and manufacturing, and agricultural conditions were solid. Commercial construction was flat and commercial real estate activity fell, while residential con- struction and real estate remained subdued. Minority- and women-owned business contacts reported a slight decrease in activity. Labor Markets Employment grew modestly in the District since the last report, but with some volatility. Overall labor demand remained healthy. Several recent surveys of various sectors and geographies all found strong recent demand for labor. Businesses expected growing demand heading into the summer season but continued to report difficulty with turnover and finding labor. However, there were also some signs of softening labor demand. In April alone, Minnesota saw almost as many mass layoff events as in all of 2022, affecting more than 2,600 workers in total, a greater number than last year. Wage pressures remained high. A survey of construction firms found that about 35 percent reported wage increases of 5 percent (annually), and a similar share increased wages by 3 to 5 percent. A survey of hospitality and tourism firms found that more than 40 percent gave annual wage increases of 5 percent or more. Firms in both surveys expected some easing in future wage pressures, even though they also reported strong labor demands and a lack of worker availability. Prices Since the last report, additional price pressures were minimal. Just over half of respondents to a Ninth District business conditions survey reported an increase in input prices in April relative to a month earlier, while a smaller share reported increases in final prices for products or goods sold. Most manufacturing contacts reported no change in recent nonlabor input prices, and about a quarter reported a slight decrease. Construction survey respondents indicated a mixed picture for materials costs, with an overall flattening in the pace of increases over the past three months. Lumber and certain steel prices decreased. Contacts in construction and agriculture reported that heavy equipment prices remained elevated despite some reduction in demand. Retail gasoline prices increased slightly since the last report, while diesel prices declined. Prices received by farmers increased from a year earlier for corn, potatoes, hay, cattle, turkeys, and eggs; prices decreased from a year earlier for soybeans, wheat, milk, hogs, chickens, sugar beets, dry edible beans, lentils, and canola. Worker Experience Workers and job seekers in low- and middle-income households prioritized better pay and benefits as they looked for work, according to a recent survey. Food, gasoline, and household energy costs continued to tighten people’s budgets. “Gas is rising to a point where I cannot afford it,” shared a South Dakota agricultural worker. A preschool teacher reported that his paycheck was barely sufficient to pay for necessities. He and others in similar situations were looking for second jobs to supplement their incomes. Young migrant workers at a Minnesota milk factory reported working 12 hours a day and having one day off every two weeks. Their hourly wages ranged from $10 to $13 for “hard work that others don’t want to do.” They shared feeling as if they had no freedom because they spent most of their time working and resting for the next day. Consumer Spending Consumer spending rose modestly since the last report. Gross sales in April were flat in South Dakota year over The Beige Book ■ May 2023 I-2 Federal Reserve Bank of Minneapolis year, and the Montana accommodation and lodging sector remained strong this spring. Air travel continued to grow at District airports, with several seeing double- digit passenger growth in April compared with last year. An airport contact said that leisure travel “remains very strong,” adding that business travel has continued to recover. A May survey found that Minnesota restaurants continued to see strong patronage, while hotels and entertainment venues reported mostly flat revenues compared with the same period last year. Businesses were optimistic regarding the summer season, particularly among restaurants and entertainment venues. A dealership with multiple locations in the western part of the District reported that new car sales in April were 23 percent higher year over year, thanks mostly to “getting some vehicles out of railyards,” but there remained significant pent-up demand. Construction and Real Estate Nonresidential construction activity was flat overall since the last report, with subsectors experiencing some variability. Firms in infrastructure and other heavy construction reported generally stronger activity, in part from federal infrastructure initiatives. Firms in industrial and commercial construction reported some softening. However, increases in project cancellations were seen across the industry, the result of high input prices, higher financing costs, and general uncertainty about the economy. New projects out for bid, as well as project backlogs, were also reported to be lower than this time last year. Smaller firms reported some unwillingness to commit to longer-term projects, or doing so only with elevated work bids, due to the volatility of material costs. On the positive side, supply chains reportedly improved overall, though they have not yet had a material effect on project completion times, in part because of labor shortages. Residential construction remained subdued. Single-family permitting in April was more than 40 percent lower year over year in the Minneapolis-St. Paul region; most other large markets in the District saw even bigger declines. Discounts have started to appear for some speculative developments. A Wisconsin homebuilder said the “majority of the work comes from people who have cash and not from people taking out loans.” Commercial real estate fell since the last report. Industrial and multifamily markets remained strong, and new construction has slowed recently in both sectors, helping keep vacancy rates low and rents healthy. Office real estate was seeing real strain from continued low levels of worker occupancy. Incentives to retain tenants were common because many were looking to downsize their office footprint. Those purchasing buildings with debt faced a tightening market for refinancing. Residential real estate remained subdued. Closed sales in April fell notably year over year across the District, with many larger markets seeing declines of 30 to 50 percent. Median sale prices declined in western and central Montana and were flat in several other markets. Manufacturing Manufacturing activity increased modestly since the previous report. A regional index of manufacturing conditions indicated that activity expanded in April from a month earlier in Minnesota, North Dakota, and South Dakota. Contacts in agricultural equipment and processing mostly reported growth in recent activity. Other manufacturers gave mixed reports on recent demand, with roughly similar numbers reporting increased or decreased sales. Agriculture, Energy, and Natural Resources District agricultural conditions were solid heading into planting season. About half of respondents to a survey of agricultural credit conditions reported that farm incomes increased in the first quarter from a year earlier. Lenders noted improvements in liquidity and in the financial condition of producers, but they were concerned about commodity price volatility and rising interest rates. Heavy snow over the winter and persistent cold weather will significantly delay spring planting in some areas, contacts reported. District oil and gas exploration activity decreased slightly since the previous report. Minority- and Women-Owned Business Enterprises Minority- and women-owned business contacts reported a slight decrease in activity over the last month. Higher nonlabor input costs were narrowing profit margins for some entrepreneurs, who said that they were hitting a limit in their ability to increase final prices. Compensation was mostly unchanged and finding applicants remained a challenge for those hiring. Entrepreneurs expected to see some improvement in sales but remained wary in their profit forecasts. A contact who provides technical assistance to women entrepreneurs said she has seen an increase in demand for services, including among working mothers. She warned that higher interest rates “scare new entrepreneurs” and presented additional challenges to some who already struggled with financial literacy and access to capital. ■ For more information about District economic conditions visit: minneapolisfed.org/region-and-community