Federal Reserve Bank of Minneapolis
Summary of Economic Activity
The Ninth District economy saw slight growth since the previous report. Employment increased slightly but was mixed across the region, and labor demand softened. Prices increased slightly and wage growth was moderate. Growth was noted in energy, residential real estate, commercial construction, and tourism. Consumer spending and commercial real estate activity were flat, while manufacturing and residential construction decreased. Agricultural conditions remained weak. Activity among minority- and women-owned business enterprises decreased.
Labor Markets
Employment grew slightly since the last report but was mixed among District states. Surveys confirmed that labor demand was positive but softened overall. Labor demand was poor among manufacturers but remained healthy in financial services and health care. Some contacts reported that staffing levels were falling due to attrition which, in some cases, substituted for layoffs. Some contacts also reported a decrease in turnover and improved labor availability, particularly in larger markets, making it easier to find and hire qualified applicants. But many rural businesses struggled for labor. The owner of a Montana grocery store reported traveling out of state to hire immigrant workers with the promise of providing housing. Surveys indicated that future labor demand was expected to increase. A Minnesota construction employer said they were "expecting quite a bit of work moving forward and are concerned about getting enough skilled labor."
Wage growth was moderate. Surveys found wage increases across the District and among different sectors. Manufacturing contacts reported continued wage increases despite comparatively soft conditions. A contact from a suburban Minnesota bakery said, "Employees want higher wages or will quit." A Montana services firm contact said that "the labor force seems to be constantly looking for the next job at higher pay." However, sources also noted that hiring bonuses and other incentive compensation have become less common.
Prices
Prices increased slightly overall, and the rate of growth remained steady since the last report. More than two-thirds of businesses responding to a monthly survey reported no change in the prices charged to customers in October compared with the previous month. Input price pressures increased somewhat, as 45 percent of firms said they were up during the same period. Results from a construction industry survey indicated a slowing rate of increase in both prices charged to customers and wholesale prices from vendors over the past three months; several contacts noted reductions in steel product prices. Contacts in multiple industries noted substantial increases to health, liability, and property insurance costs. A manufacturing contact reported a surprising increase in freight prices. Retail fuel prices in District states decreased moderately since the previous report. Prices received by farmers increased in September from a year earlier for sugar beets, chickens, eggs, milk, and cattle; prices decreased from a year earlier for corn, soybeans, wheat, barley, dry edible beans, hogs, and turkeys.
Worker Experience
Most employed individuals who responded to a recent District survey were satisfied with the flexibility and work-life balance offered by their employers. On the flipside, few were satisfied with the available opportunities for career advancement and upward mobility. A number of workers expressed that their wages were insufficient to meet their needs. A Montana services worker said they like their job but the pay was not aligned with their cost of living. Workers who were looking for other opportunities would be mostly deterred from pursuing them if pay or flexibility did not meet their needs. More than half of these workers said that having access to affordable housing and the ability to pursue more training or education would help them reach their career goals.
Consumer Spending
Consumer spending was flat overall since the last report. Retail contacts said that recent foot traffic and related spending had been slower. After strong sales in October, vehicle sales in November were "tracking a little lighter" at one dealership with multiple locations. Sales of recreational and powersport vehicles remained lower year over year, and bankers noted that related lending was soft. However, hotel occupancy was higher across much of the District, particularly in Montana, South Dakota, and Wisconsin. Airline passenger activity also rose, including by double digits in a few markets. Several bankers reported that recent interest rate cuts have started to positively influence consumer lending. Nearly 1 in 5 residential construction contacts noted at least a small increase in activity since rates were reduced.
Construction and Real Estate
Construction grew slightly overall, though activity varied across subsectors. Firms in industrial and infrastructure reported stronger activity compared with those in commercial and residential markets. A Minnesota mechanical contractor noted that very large projects skewed how busy the sector was overall. "You are in good shape if you have those projects. Companies that don't … are struggling." Numerous firms reported that new projects out for bid, particularly private market projects, were softer for this time of year. As a result, companies were reaching into new areas for work and increasing overall competition for new projects. A South Dakota developer said the company's project backlog "has dropped off and competition is just as hungry as we are."
Commercial real estate was flat overall. New construction has been slower across most segments, which has helped non-owner-occupied landlords. Leasing rates were said to be healthy, especially for higher-quality property, but contacts said large firms continued to reduce their space needs. Smaller businesses were maintaining space and boosting lease activity, "but this has little effect when big companies give back hundreds of thousands of square feet." Residential real estate was widely higher. Closed sales in October saw single-digit increases year over year in most markets.
Manufacturing
District manufacturing activity decreased moderately on balance since the last report. More than half of manufacturing respondents to a monthly survey reported that orders decreased in October from the month prior. By contrast, a regional manufacturing index indicated increased activity in Minnesota, North Dakota, and South Dakota in October from a month earlier. Producers of agricultural equipment and its components noted a sharp decline in demand this year; demand for construction and other heavy equipment was greater but insufficient to make up for the weakness in farm equipment.
Agriculture, Energy, and Natural Resources
District agricultural conditions remained weak. In the most recent survey of agricultural credit conditions, 85 percent of respondents reported that farm incomes decreased in the third quarter from a year earlier, as productive harvests were not sufficient to offset low commodity prices and elevated operating costs. District oil and gas exploration activity increased modestly since the previous report.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises was lower on balance compared with the last report. As some contacts experienced a seasonal slowdown, others were hoping for a busy winter. A Minnesota manufacturer and retailer of chocolate products was looking forward to the Christmas shopping season, and businesses that provide snow-related services were hoping for one covered in white. Staffing remained largely unchanged, but among those who experienced changes, more contacts reported lower headcounts compared with those who reported higher. Profits continued to face downward pressure. Nearly half of contacts noted increases in their nonlabor input prices. A food producer said they had reached a "breaking point" as their ability to pass on price increases to consumers had slowed.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community.