Federal Reserve Bank of Minneapolis
Summary of Economic Activity
Ninth District economic activity was flat since the previous report. Employment decreased slightly, and recent labor demand was weak. Prices increased slightly, and wage growth was modest to moderate. Consumer spending increased, while commercial construction, commercial real estate, and energy activity were flat. Residential real estate, residential construction, and manufacturing activity decreased. Agricultural conditions remained weak. Activity among minority- and women-owned business enterprises was moderately lower.
Labor Markets
Employment was down slightly since the last report. Surveys found that recent hiring demand remained weak and more firms were seeing head counts decline rather than grow, particularly for larger firms. Two hiring indexes also showed subdued hiring sentiment. Contacts reported that new hiring was often for replacements rather than new positions. Demand for temporary labor was reportedly rising. Staffing contacts said that recent demand was stronger compared with the same period last year. A Minnesota contact noted that more businesses were using temporary or contract workers "to stay flexible in uncertain times," especially in manufacturing, warehousing, and administrative positions. Several contacts reported slow demand for some white-collar positions; a human resources consultant noted a "precipitous drop" in executive search assignments. Numerous Minnesota firms lamented new paid-leave state legislation going into effect in January, noting that it would likely dampen their demand for workers. However, new unemployment insurance claims fell modestly compared with the same period last year, and continuing claims also edged lower.
Wage growth was modest to moderate. Surveys continued to detect wage pressure, but it has become more predictable and less volatile. One contact reported that "wage growth is slowing a bit as demand for workers eases." Another noted that clients still struggled to find necessary talent "but were less willing" to chase qualified candidates with strong pay packages.
Prices
Prices increased slightly, which was a reduction in the pace of growth since the previous report, though input price pressures remained elevated. In a monthly survey, about a third of firms reported that their nonlabor input prices increased in December from a month earlier. Meanwhile, 20 percent of firms increased prices charged to customers, compared with 16 percent that decreased their prices. More than a third of firms anticipated increasing their prices charged to customers in January. Contacts continued to report steep increases in health-care and insurance costs. A furniture retailer reported that "vendors who absorbed tariff costs are now raising prices." A metals fabricator noted that steel and aluminum prices had resumed their upward trajectory, "increasing almost weekly again." In contrast, retail fuel prices in District states strongly decreased since the previous report.
Worker Experience
Workers in the region faced higher competition for jobs as openings declined and job fairs had increased traffic. State data on job postings in Minnesota showed a decline of 18 percent over the year ending in December. Several hiring events reported job-seeker attendance was dramatically up compared with last year's events. Contacts observed that immigrant workers in rural areas were switching jobs at higher rates due to increased immigration enforcement.
Consumer Spending
Consumer spending rose modestly since the last report. Retailers reported healthy holiday shopping, with some hiccups. Minnesota stores reported good foot traffic; actual sales were not quite as strong but still met or slightly exceeded modest expectations. A mall contact reported that Black Friday set foot traffic and sales records for some tenants, but December activity slowed somewhat compared with last year. Spotty sales during the holiday season were typically attributed to poor weather, with much of the District seeing snowier conditions than normal. However, snow and colder temperatures also translated to a solid start for winter tourism activities in some regions. A car dealership with multiple locations saw December sales increase for both new and used vehicles. Retail segments catering to higher-end consumers reported increased sales. But furniture and other retailers catering to middle- and lower-income consumers "were getting pretty beat up," and hopeful to simply match last year's activity, said one contact. A Montana restaurant owner said that wealthier customers "seem to still be spending and eating out frequently," while lower-income consumers "definitely seem to be pulling back, eating out less, or are more price sensitive."
Construction and Real Estate
Construction activity in the District declined compared with the same period in 2024, according to a recent sector survey. Residential construction saw the largest decline, while industrial projects performed better. In a few cases, industrial construction was being supported by data center projects, but contacts noted little work elsewhere. Most firms were concerned with thinning project pipelines which they expected to continue into 2026. Tariffs kept pressure on margins as the need to remain competitive kept many firms from passing on additional costs.
Commercial real estate was flat overall. Demand for retail space remained positive across the District, but showed some signs of softening. The industrial segment was healthy, particularly in Minnesota, and office markets continued to struggle. Multifamily was mostly flat. A small Minnesota commercial real estate firm reported that vacancies were higher and "we may lower rents to attract new tenants." Residential real estate fell. A slightly larger share of markets saw November sales fall compared with a year earlier, and those declines tended to be a bit steeper than the gains seen in growing markets.
Manufacturing
Manufacturing activity in the District decreased moderately on balance since the previous report. More than half of industry contacts reported that orders decreased in December from the month prior, while a third saw increased orders. An index of regional manufacturing conditions indicated that activity decreased in Minnesota, North Dakota, and South Dakota in December from the previous month. On balance, industry contacts were neutral in their expectations for 2026, with roughly equal shares reporting optimistic and pessimistic outlooks. A diversified manufacturer reported that demand had slowed since October, "and we see no change in this for the next 2 or 3 months."
Agriculture, Energy, and Natural Resources
Agricultural conditions remained weak since the last report. The overall level of prices for most crops remained low, despite some recent improvement for certain crops (such as soybeans). Contacts reported that strong cattle prices benefited District ranchers more than slaughter plant operators. District oil and gas exploration activity was unchanged since the last report.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises (MWBE) was moderately lower over the reporting period. While the declines were seasonal for some contacts, several noted unusually lower sales. A Minnesota retailer said that lower consumer confidence was impacting their furniture sales. Immigrant-owned businesses, especially those in food service, were experiencing considerably lower sales as foot traffic declined for fear of immigration enforcement. Nearly one in five contacts reported lower head counts. A manufacturer said some employees quit after a co-worker was deported.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community.