Federal Reserve Bank of Minneapolis
Summary of Economic Activity
The Ninth District economy contracted slightly since the previous report. Employment was flat and hiring activity softened. Prices increased slightly overall, and wage growth was moderate. Activity decreased in consumer spending, manufacturing, commercial construction, and commercial real estate. Activity among minority- and women-owned business enterprises was lower on balance. Residential construction was flat, while growth was noted in auto and residential real estate sales, and in energy. Agricultural conditions remained weak on balance.
Labor Markets
Employment was flat since the last report. Employers again reported fewer job openings. A small majority of firms reported that they were hiring, but many were replacing turnover, and a smaller share were adding full-time staff compared with earlier in the year. The share of firms cutting workers also grew but remained in the single digits. Overall, firms do not expect staffing levels to grow much over the next six months. A Minnesota staffing contact reported that job orders were down, "and a lot of businesses are getting a lot more picky" about who they hire. Labor availability continued to improve, though labor quality remained an issue. A South Dakota manufacturer said that labor "has undergone shrink-flation. [We're] paying more for lower quality."
Wage growth was moderate. Survey respondents reported wage increases consistent with levels seen earlier in the year. Employers noted that union workers often negotiated raises of three to five percent, depending on the sector; however, wages for nonunion employers were rising more slowly. A medium-sized retailer in North Dakota said, "If you are not offering a higher-than-inflation raise, you will potentially lose employees."
Prices
Prices increased slightly overall, but the pace of growth eased further since the previous report. Nearly two-thirds of firms responding to a monthly survey reported no change to their sales prices in July compared with the previous month, while one in five increased their prices. Input prices continued to see more pressure than output prices, but contacts' expectations for upcoming price increases were subdued. Contacts continued to report burdensome health care and other insurance costs. Manufacturing and other contacts reported recent increases in freight costs. Retail fuel prices in District states decreased slightly since the last report.
Worker Experience
Workers and job seekers across the District continued to prioritize flexibility in the workplace, according to various contacts. A labor contact in the Upper Peninsula of Michigan shared that while there were fewer job opportunities compared with previous months, the labor market remained strong in some areas. "Anyone with a commercial driver's license or mechanic license is still largely in demand," they said, adding that younger workers in the area were prioritizing personal life over work and quitting at higher rates. "If they get hired somewhere and they don't like it, they aren't afraid to leave." Some public sector workers reportedly changed jobs after their employers transitioned from defined benefit pensions to 401(k)s. A workforce development contact in South Dakota pointed out that insufficient affordable child care in the area was the main reason workers were demanding flexibility or disengaging from the labor force.
Consumer Spending
Consumer spending was slightly lower overall since the last report. Recent sales in retail, food service, and entertainment were unchanged overall from the previous quarter but lagged last year's sales. A contact in home goods reported that summer demand had dropped because "the lower-end customer was really challenged." A northern Wisconsin retailer said that tourist numbers seemed strong, "but they are spending money on ‘need' items, not ‘want' items." A Minnesota retailer reported that "foot traffic is down and lots more lookers than buyers." Three of the five District states saw summer hotel occupancy rise, while two states declined modestly; however, each state saw an increase in average revenue per room. Regional airports have seen strong traffic compared with last summer. Auto sales in the western part of the District were also up modestly from July through mid-August compared with last year. However, District sales of recreation and powersport vehicles have been sluggish.
Construction and Real Estate
Construction activity declined slightly since the last report. Industry data showed that new construction starts in July were mostly flat compared with the previous year. But contacts reported that there were fewer projects out for bid and more competitors. A Minnesota landscape company said it was converting a lower share of estimates into business. "Clients are feeling the economic pinch, and declining to move forward." A Montana architecture and design firm noted that "lots of projects have been dormant due to interest rates and the resulting lack of capital." Single-family residential permitting in July grew year over year in most of the District's larger markets, but multifamily permitting fell.
Commercial real estate remained soft. Office vacancy rates ticked slightly higher after some improvement earlier in the year; subleasing also increased. Several major office buildings in the Minneapolis-St. Paul region reportedly went to auction. However, vacancy rates in retail and industrial remained low. Multifamily vacancy rates rose in some markets with large numbers of completions, but that's expected to plateau, given a decline in new development. Residential housing sales grew modestly overall in July compared with last year; however, there was considerable variability among District markets.
Manufacturing
Manufacturing activity contracted further since the previous report. A regional index of manufacturing conditions indicated decreased activity in July from the previous month in Minnesota, North Dakota, and South Dakota. Most sector contacts reported that orders were down in July from a month earlier. A producer of electrical inputs for equipment noted that their customers had excess inventories and weren't placing new orders. A custom manufacturer commented that the "ag and construction portion of our business is super slow."
Agriculture Energy and Natural Resources
District agricultural conditions remained weak on balance. Low prices for crops continued to weigh down incomes, while livestock and dairy producers were faring better. However, crops were mostly in good or excellent condition in most of the District, and soil moisture conditions improved in some areas that were experiencing flooding earlier in the summer. District oil and gas exploration activity increased slightly since the previous report.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises (MWBE) was lower on balance. A contact at a services firm in Minnesota that relies on discretionary income noticed a "continual downturn" in spending in recent weeks. Only a small share of contacts reported higher profits over the past month. A contact in South Dakota added that although profits were up, that "doesn't mean [they] are where they should be." Capital expenditures, staffing levels, and job openings were unchanged for most contacts. A Minnesota entrepreneur attributed higher costs to rising shipping fees. A South Dakota entrepreneur noted their firm's ability to pass on increased costs to consumers was greatly diminished.
For more information about District economic conditions, visit: https://www.minneapolisfed.org/region-and-community.