Federal Reserve Bank of Minneapolis
Summary of Economic Activity
Economic activity increased slightly in the Ninth District since the previous report. Employment grew moderately, while wage growth was modest to moderate. Prices increased moderately, and input price pressures remained elevated. Growth was noted in services, construction, commercial real estate, and manufacturing. Consumer spending, residential real estate, and energy activity were flat. Agricultural conditions worsened slightly.
Labor Markets
Employment rose moderately since the last report, with Minnesota and Wisconsin employers reporting stronger labor demand than western District states. Surveys showed that hiring demand remained positive and employers were also reporting improved labor availability. A staffing company with offices in multiple District states reported that job orders remained healthy, and fill rates have been creeping steadily higher. A Wisconsin contact reported that Main Street retailers were "in the best staffing shape they have seen in years." Among manufacturers, "business activity isn't uniformly booming... but the widespread [labor] desperation that characterized previous summers has largely dissipated." However, employers still noted shortages of skilled workers and those interested in weekend and night shifts. Multiple sources reported growing presence of artificial intelligence in the hiring process. As one source put it, "AI is actively reshaping the hiring landscape rather than causing mass displacement."
Wage growth was modest to moderate, with continued signs of softening. Surveys found that wage pressure remained steady and relatively moderate. But numerous sources noted easing wage pressure. "Widespread upward wage pressure and runaway starting incentives have largely flattened," said one contact, and employers were using the opportunity to "reset expectations." A mall contact reported that wage growth was flattening for tenants. "We find ourselves no longer in a bidding war for talent."
Prices
Prices increased moderately, a reduction in the pace of increase since the previous report, but input price pressures remained elevated. In a monthly survey, only about a quarter of firms reported increased prices to customers in June from the month earlier, but nearly half reported increases in their nonlabor input prices for the month. Expectations for July were higher for prices charged, but more moderate for input prices. Manufacturing contacts continued to report elevated raw materials prices, especially for metals and polymers, but increases appeared to have slowed in recent weeks and contacts were having an easier time passing them on to customers. Wholesale price pressures remained very strong in June, according to a regional manufacturing index. Construction contacts reported input prices increased notably over the last few weeks; they expected further increases in the upcoming weeks, particularly for steel, copper, and plastic inputs. Retail fuel prices in District states decreased since the last report, returning to mid-April levels. Prices received by farmers increased in May from a year earlier for soybeans, wheat, sugar beets, canola, hay, cattle, hogs, and turkeys; prices decreased from a year earlier for corn, barley, pulse crops, potatoes, chicken, eggs, and milk.
Worker Experience
Job seekers faced a shrinking number of open positions across a wide range of occupations. Those looking for employment as stockers, nursing assistants, heavy machinery operators, or customer service representatives had relatively better odds of finding a job. Many workers, particularly those with lower incomes, were actively job hunting to improve their financial situation. Elevated gasoline prices were hurting many workers' budgets. "It is more expensive to get to and from work," shared a northeast Minnesota contact, adding that commuting distances are particularly long in rural areas.
Consumer Spending
Consumer spending was flat since the last report. Retail survey respondents reported soft sales of late. "We continue to see hints of more spending discretion" among shoppers, said a mall contact. A South Dakota retail contact reported that tourism-based activity was "not amazing, but better than many expected," adding that wealthy individuals continued to spend while middle- and lower-income shoppers "are watching their spending." Sales of big-ticket items were mixed. Two vehicle dealerships saw improved recent sales and were optimistic about summer sales. However, sales of home furniture and related goods were reportedly down. Several sources cited the negative impact of higher gas prices on overall spending; they also noted a transactional shift from cash and debit to credit, where credit card fees cut further into profitability, especially for small firms. A convenience store chain reported that basket size remained steady, year over year, but average costs were almost 4 percent higher. Hotel vacancy rates were mixed but flat overall across District states. Airline passenger traffic was also flat, but Montana airports saw rising travel.
Services
Activity among services firms edged up slightly over the most recent period. Firms in finance, insurance, and real estate reported better conditions than those in other service areas. Labor demand rose across most subsectors except for information technology. Several contacts commented on the struggle to find qualified workers. Nonlabor input costs increased considerably for many firms. The owner of an auto repair shop said that "oil and lube prices have increased twice in the last month," prompting them to raise their own prices. They expected the summer travel season to increase their sales, but acknowledged that "with gas prices still high, our customers may not travel."
Construction and Real Estate
Activity among construction firms increased modestly on balance. Head counts and labor demand were higher, mostly due to seasonality. The president of a Minnesota firm said that while the summer was busy, they were still looking for projects for later in the year. Another contact commented on the anemic bid environment, expecting a substantial slowdown. "If you are not directly involved in data center work, the broader construction market feels relatively weak," shared an electrical contractor in North Dakota.
Commercial real estate rose slightly since the last report. A lack of new construction in many segments has helped existing landlords with vacancy rates and leasing activity. The industrial sector was an exception, where new development has pushed vacancy rates higher. Retail leasing and occupancy have been healthy, with rising activity in suburban and exurban communities. Residential real estate was mixed; home sales in May rose modestly across Minnesota, but they were flat in Minneapolis-St. Paul and fell in most large markets in other District states.
Manufacturing
District manufacturing activity increased modestly since the last report. Manufacturing survey respondents reported an increase in orders on balance in June compared with the prior month, and month-ahead expectations were positive. An index of regional manufacturing conditions indicated that activity increased in Minnesota, North Dakota, and South Dakota in June from the previous month. However, contacts continued to report substantial volatility. An equipment producer said recent sales were "erratic" and added, "there is a sense that overall demand is softening."
Agriculture, Energy, and Natural Resources
Though crop progress and conditions were generally good, District agricultural conditions worsened slightly since the last report. Corn and soybean progress was on par with their averages in District states, and most crops were in good or excellent condition, but wheat in Montana and South Dakota was mostly in fair or worse condition. Contacts reported that a recent sell-off in commodities was having a depressing effect on already-low crop prices; "Farmers [are] selling out due to poor markets and [inability] to get operating loans," commented a Minnesota farm operator. Oil and gas exploration activity in the District was unchanged since the previous report. Output at District iron ore mines was steady.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community.