Federal Reserve Bank of Minneapolis
Summary of Economic Activity
The Ninth District economy expanded slightly since the previous report. Employment grew modestly, and labor demand continued to increase. Prices increased moderately, and wage growth was modest to moderate. Growth was noted in financial services, commercial construction, and manufacturing. Residential construction, energy, and agriculture were flat, while consumer spending decreased. Activity among minority- and women-owned business enterprises was down moderately.
Labor Markets
Employment rose modestly since the last report. Surveys showed job demand continued to rise monthly and year over year. Hiring was most often related to replacing turnover, but 40 percent of those hiring indicated they were adding new positions, and most often they were permanent, full-time jobs. Several contacts noted increased worker demand in construction and manufacturing related to data center development. Staffing firms reported continued strength in job orders, as well as relative success in finding available labor. A financial services contact said that they were seeing more—and more qualified—job applicants; roles that previously took six months to fill were attracting four or five strong candidates. Initial and continuing unemployment insurance claims over the most recent four-week period were both lower compared with last year.
Wage growth was modest to moderate. Surveys continued to show signs of positive but slower wage growth, while anecdotes suggested that workers in retail, child care, and the public sector were seeing slower wage growth than others. Other sources suggested that wages for salaried workers were growing more slowly than wages for hourly workers. Many contacts noted that elevated costs were creating difficult wage decisions. The owner of an energy installation company said, "It's hard, as an employer, to look at my employees and say, ‘I cannot pay you any more right now because my margin is very slim.'"
Prices
Prices increased moderately, the same pace of increase as the previous report. In a monthly survey, more than one-third of firms reported that they increased prices to customers in July from the month earlier, and more than half reported increases in their nonlabor input prices for the month, both slightly higher shares than the previous report. Expectations for August were more moderate for both prices charged and inputs. In a separate survey, a substantial majority of respondents reported that wholesale prices from vendors have increased by 5 percent or more from this time a year ago; nearly one-third indicating these prices were up more than 10 percent. Manufacturing contacts continued to report steel and aluminum prices at or near record highs. Retail fuel prices in District states increased notably since the last report, returning to levels from the beginning of the summer.
Worker Experience
Confidence in job security remained high among incumbent workers, a recent survey showed; most credited their employer's growing business and their area's economy. Job satisfaction fell, especially with compensation. More incumbent workers said they were looking for a new job or would soon do so, but the jobs have been harder to get. Another survey showed that recently hired workers applied for more jobs and attended more interviews than in the past. On balance, the cost of living has become less affordable for many workers, even higher-income workers. Lower-income workers said they struggled with everyday expenses while unexpected expenses, such as car repairs, were near catastrophes.
Consumer Spending
Consumer spending was down slightly since the last report. A larger share of retail, accommodation, and recreation firms reported a comparative decline in summer revenue than those reporting a revenue increase. Contacts said that extreme heat and wildfire smoke had a dampening effect on consumers. The owner of several restaurants in northern Minnesota said business was slower, noting that some could afford to go out and others could not. "We're dealing with uncertainty in many layers, and disposable income affects us directly." A large retailer reported that more purchases were shifting from cash and debit to credit. A wealth-management professional shared that spending among some lower-income individuals was being sustained by increased borrowing, including 401(k) loans. Vehicle sales were mixed among several dealers in the District. Sales grew in Minnesota, but declined in western District states. New-vehicle sales were slower compared with used-vehicle sales. "More people seem to be moving to used vehicles because of pricing pressure," said one dealer contact.
Financial Services
Overall, bankers reported slight growth in loan demand over the reporting period, with commercial real estate experiencing the strongest growth, while consumer and residential lending was soft. Bankers expected improved loan demand over the next 12 months, with growth in most segments, save consumer and residential sectors. Most bankers reported unchanged lending standards, but roughly one-fifth of contacts expected to moderately tighten standards for commercial and agricultural borrowers over the next year due to economic uncertainty and a worsening agriculture industry. Bankers also expected deteriorating loan quality for consumer loans due to recent weakness in automobile lending. Deposit levels grew moderately, driven by strong seasonal patterns, though some bankers noted competition for deposits was intense.
Construction
Construction activity in the District accelerated slightly in recent weeks. Residential construction remained steady while nonresidential activity remained highly concentrated in infrastructure and data center projects. More than half of contacts reported paying modestly higher prices for inputs with further price increases expected in the coming weeks. A builder working on multiple data center projects said that announced price increases for aluminum and steel ranged from 5 to 10 percent. Less than half of contacts reported increases in their own pricing. The real value of building permits issued increased across several municipalities. Notably, airport infrastructure projects and plans to build a premier retirement complex in Billings, Montana, pushed the value of permits there to the highest level in recent years.
Manufacturing
Manufacturing activity increased moderately since the last report. A majority of industry survey respondents reported an increase in orders on balance in July compared with the month prior, and month-ahead expectations were net positive. An index of regional manufacturing conditions indicated that activity increased in Minnesota, North Dakota, and South Dakota in July from the previous month. A diversified manufacturer in Minnesota said activity had been stable over the summer.
Agriculture Energy and Natural Resources
District agricultural conditions remained weak overall. Contacts expressed concern about the effects of drought on crop yields and quality in some parts of the District. Most of the corn and soybean crops in eastern parts of the District were in good or excellent condition. However, conditions were worse farther to the west in areas experiencing more dryness. According to the most recent Ag Credit Survey, a majority of respondents reported that farm incomes decreased in the second quarter from a year earlier. A Minnesota lender noted that sugar beet growers experienced very large losses. High cattle prices remained a source of strength in ranching areas. Oil and gas activity in the District changed little since the last report.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises (MWBE) edged moderately down since the last report. Several retail and hospitality contacts noted softer spending this summer compared with last. Regional flooding and wildfires in Minnesota reduced visitor traffic to popular summer destinations. Customers were reportedly more cautious with spending. A Minnesota event planner said that clients were moving forward with major events but were making decisions at the last minute and increasingly using credit. While contacts reported modestly increasing their prices, input costs rose much more sharply.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community.