Federal Reserve Bank of Minneapolis
Summary of Economic Activity
Ninth District economic activity increased modestly since the previous report. Employment grew slightly, and wage growth was modest to moderate. Prices increased sharply, particularly for inputs. Growth was noted in financial and nonfinancial services, construction, and manufacturing. Consumer spending, tourism, and energy were flat. Agricultural conditions remained weak. Activity among minority- and women-owned business enterprises was mixed.
Labor Markets
Employment rose slightly since the last report. Construction firms reported healthy hiring demand, and a majority were looking for year-round, full-time workers. A large staffing firm with multiple offices reported strong job orders and improved ability to fill positions. Hospitality firms were also hiring, but mainly for turnover and seasonal needs; few were hiring new full-time positions. Human resource contacts noted less availability of foreign-born workers, and some employers were having difficulty using work visa programs to meet labor needs. A contact with a southwest Minnesota manufacturer noted that they have seen fewer immigrants in the local labor force. As a result, they have hired more nonimmigrant workers; since doing so "our turnover has gone up over 10 percent," and total job applicants have fallen significantly.
Wage growth was modest to moderate, with some signs of softening. Two-thirds of hospitality and professional services firms reported annual wage increases of 3 percent or more. Half of construction firms said wages were increasing by 3 percent or more over the last year, and smaller wage increases were expected over the coming year; both results were softer than previous levels. A District staffing firm reported flat wage pressure for industrial workers despite strong demand.
Prices
Prices increased sharply since the previous report, especially for inputs. In a monthly survey, more than a third of firms increased prices to customers in April from the month earlier. A majority of firms reported that their average nonlabor input prices had increased by more than 2 percent in the previous two months, with a quarter reporting increases of more than 5 percent. Expectations for May were higher for pricing to customers but somewhat more moderate for input prices. Contacts continued to report substantial fuel surcharges for freight. Health care contacts noted that higher plastic prices were feeding into medical equipment costs. Manufacturing contacts reported sharply increased primary metals prices. The wholesale prices component of a regional manufacturing index increased sharply in April to its highest level in two years. Retail fuel prices in District states increased robustly since the last report.
Worker Experience
Overall, workers across the District faced a shrinking number of job postings. Individuals with skills in construction, manufacturing, or health care were more likely to be hired. A community college contact noted that older adults were "coming back to get a second credential to better compete for jobs." A contact in Minnesota said that workers faced limited ability to negotiate for higher pay and were mostly absorbing higher commuting costs. Several contacts noted that workers had an increasing fear of spending. Younger workers with families were reportedly swapping planned vacations for "staycations" in the face of higher fuel prices.
Consumer Spending
Consumer spending was flat since the last report. Retail contacts were evenly mixed, with similar shares reporting increased versus decreased sales compared with the previous month. Some firms seeing sales growth attributed it to normal seasonality. Hospitality and tourism firms have seen fairly slow activity of late and had modest expectations for the coming summer season. In Montana, a clothing manufacturer and retailer reported that the size of orders had fallen, and a convenience and service business said higher fuel prices were likely to cut into store sales and vehicle repair work. An accommodations business in northeast Minnesota said bookings had been slow, and given fuel prices "and the cold shoulder Canadians are giving us, I'm not very optimistic." A vehicle dealership with multiple District locations saw April sales decline for both new and used models. Hotel occupancy and room rates were mixed, with some District states improving in April, while others declined.
Services
Activity among services firms grew modestly, with financial firms reporting growth and nonfinancial firms seeing somewhat softer activity. A Minneapolis–St. Paul financial firm said loan demand was increasing and delinquency was low. "Business is exceeding our expectations through the first 4 months of the year." Professional services firms reported growth in a recent survey, but softer activity in a secondary survey. Respondents to both noted some concern over future consumer spending given rising cost-of-living pressures.
Construction
Construction activity in the District grew moderately since the last report, but contacts revealed some fragility beneath the surface. Cash flows were hurting due to many projects "stopping and starting" as clients became hesitant to proceed. A contact shared that "everything is high, and customers are taking care of today, but unsure about tomorrow." Firms and workers were shelling out more income to pay for rising fuel costs. Higher oil prices were also affecting the price of PVC and other materials. Data centers, energy projects, and infrastructure work remained relatively solid. Construction permits filed in April increased year over year across major markets in the District, notably in Minneapolis, Minnesota, and Rapid City, South Dakota.
Manufacturing
Manufacturing activity increased moderately since the last report. More than half of manufacturing survey respondents reported an increase in orders in April compared with a month earlier, while less than a quarter reported a decrease. An index of regional manufacturing conditions indicated that activity increased in Minnesota and North Dakota in April from the previous month, while activity was flat in South Dakota. A contact in the electronics sector reported a strong backlog of orders due to high demand from data center construction and the defense industry. In contrast, an equipment producer said there was "still far too much uncertainty to make major decisions right now."
Agriculture Energy and Natural Resources
District agricultural conditions remained weak overall, but planting was going well. According to the most recent Ag Credit Survey, 76 percent of respondents reported that farm incomes decreased in the first quarter from a year earlier, and respondents were concerned about the impact of surges in diesel and other input prices on margins. However, corn, soybean, and spring wheat planting progress in District states as of mid-May was well ahead of average, and high cattle prices remained a source of strength. Oil and gas activity in the District has been little affected by oil price shocks so far. Industry contacts noted firms were reluctant to change plans based on short-term price volatility. An iron mining contact said activity was stable.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises (MWBE) was mixed over the most recent period. In certain instances, upward shifts in activity were attributed to seasonality. A mechanic shared that customers were using their tax refunds for car repairs they had postponed. A large share of contacts reported higher nonlabor costs. Price increases were particularly notable in fuel and petroleum-based products.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community.