Federal Reserve Bank of Minneapolis
Summary of Economic Activity
Ninth District economic activity increased slightly since the previous report. Employment grew slightly and wage growth was moderate, while labor demand was positive but slowing. Overall prices increased slightly. Growth was noted in consumer spending, construction, and residential real estate. Energy activity was flat, while manufacturing decreased. Agricultural conditions remained weak. Activity among minority- and women-owned business enterprises was lower on balance.
Labor Markets
Employment grew slightly since the last report. Surveys and individual contacts suggested that labor demand remained positive but also continued to slow, especially for certain sectors. Hiring in health care, construction, and finance remained healthy. However, staffing contacts mostly reported that clients were not hiring, particularly in manufacturing. "Orders are down, there's no way to sugarcoat it," said a contact in Michigan's Upper Peninsula (U.P.). Employers widely reported that labor availability continued to improve and felt "more normal," according to one source. Some staffing contacts reported that there were more candidates than jobs, a flip-flop of earlier labor conditions. Others noted improvements in job candidates' reliability. A Minnesota mall contact reported that holiday labor needs "seem to be less of a challenge this year than the past few years. I can't think of one retail tenant that is or was concerned with staffing."
Wage growth was moderate. Monthly survey respondents reported wage growth roughly on par with recent months, but slightly lower than the first half of the year. Wage growth was stronger among construction and finance contacts, but lower for job orders at staffing firms due to sagging demand. A South Dakota retail contact reported that the rate of wage increase "has slowed and has been relatively flat for several months now," but it was still comparatively high and cutting into profitability.
Prices
Overall prices increased slightly since the previous report. Preliminary results from a District business conditions survey indicated a modest uptick on balance in prices charged to customers in December from the month prior, though two-thirds of firms reported no change. In contrast, about 40 percent of firms reported an increase in nonlabor input prices for the month. The wholesale prices component of a regional manufacturing index ticked up slightly in December to a moderate overall level. Respondents to a construction survey continued to report that inflation was a problem, but they also indicated that prices were nonetheless moderating at the wholesale and retail level compared with last year. An alcoholic beverage retailer said that suppliers were clearing inventories by offering deep end-of-year discounts, which they passed along to customers. Retail fuel prices were roughly flat since the last report in most of the District except for Montana, where they fell moderately. Prices received by farmers increased in November from a year earlier for sugar beets, chickens, eggs, milk, hogs, and cattle; prices decreased from a year earlier for corn, soybeans, wheat, barley, potatoes, canola, lentils, hay, and turkeys.
Worker Experience
Workforce development contacts across the District reported a slight softening in job openings but noted that demand remained robust for some health care and construction jobs. Contacts highlighted ongoing challenges matching available talent to those high-demand occupations. Midcareer job seekers looking for management opportunities struggled, because those jobs were scarce. A union contact said that hiring commercial drivers, mechanics, and law enforcement professionals in some areas of the U.P. was a "perpetual struggle." They added that public employees kept "moving backwards," facing stagnant wages and a higher cost of living.
Consumer Spending
Consumer spending grew modestly. Retail contacts were generally upbeat about holiday sales. Stores reported strong crowds, with some seeing sales surpass pre-pandemic levels for the first time. One Minnesota mall contact expected sales increases from three percent to five percent over last year. Another Minnesota contact said that "traffic is up and a lot of people [are] carrying bags." Some restaurants in Minneapolis-St. Paul reported slow holiday event bookings and lower overall sales. Sentiment among retailers in South Dakota was also somewhat softer, and a source there noted a spate of recent restaurant and brewery closings. Some contacts noted healthy consumer spending, but also expressed caution regarding rising consumer debt, particularly among middle- and low-income households. Hotel occupancy softened across the District, though Wisconsin operators saw decent gains. Vehicle sales were flat overall, with higher sales of new vehicles but lower sales among used vehicles.
Construction and Real Estate
Construction grew slightly overall since the last report. Industry data suggested that project activity increased somewhat, and contacts overall reported slightly higher activity in December compared with a month earlier. Recent permitting activity in the District's larger markets was mostly lower for commercial projects, and flat-but-mixed overall for single- and multifamily activity. Recent surveys showed a notable uptick in the sector's near-term outlook, but some contacts noted that optimism has not yet translated to increased activity. A Wisconsin architecture and design firm contact said that "there is so much uncertainty...that I have heard would-be developers say they will have to wait before moving forward."
Commercial real estate fell slightly. Office space was still widely lower across most District markets. Industrial space continued to soften somewhat, with increased subleasing in some markets, but conditions were still considered healthy. Multifamily vacancy rates ticked higher. Retail continued to perform well in many markets, buoyed by strong holiday foot traffic and tight vacancy rates. Residential real estate was widely higher. A large majority of markets saw growth in recent home sales year over year, including strong, double-digit increases in Montana markets.
Manufacturing
Activity in manufacturing decreased moderately in the District since the previous report. Preliminary results from an annual survey of manufacturers indicated a contraction in 2024 from the previous year. Manufacturers responding to a monthly business survey reported orders decreased in December from the previous month, and more than 20 percent reported large reductions. A metal fabricator reported that incoming order volumes were "falling dramatically compared to the past six months, which were themselves down significantly from last year." In contrast, another index of regional manufacturing conditions found activity increased in Minnesota and North Dakota in December relative to the previous month, while activity in South Dakota decreased.
Agriculture Energy and Natural Resources
District agricultural conditions remained weak. An overwhelming majority of contacts reported that farm incomes fell in the fourth quarter from a year earlier due to low crop prices. Livestock producers continued to outperform crop producers. District oil and gas exploration activity was steady since the previous report.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises was lower on balance over the month. Some categorized the slowdown as "normal seasonal changes." About one in five contacts experienced slightly higher labor costs, while one in three paid more for other inputs in the last four weeks. Staffing levels were slightly lower on balance, and labor demand was mostly unchanged.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community.