Federal Reserve Bank of Minneapolis
Summary of Economic Activity
Economic activity in the Ninth District increased slightly since the previous report. Employment grew slightly and labor demand remained positive. Price pressures rose moderately, and wage growth was modest. Consumer spending was down slightly. Construction improved modestly, while commercial real estate remained flat. Manufacturing activity increased moderately, and agricultural conditions were unchanged. Activity among minority- and women-owned business enterprises softened.
Labor Markets
Employment rose slightly since the last report. Surveys showed hiring demand remained positive, but many were simply addressing turnover, particularly in hospitality. Job openings edged lower but remained healthy. IT staffing contacts reported that artificial intelligence was not causing layoffs but was dampening the creation of new jobs. However, Minnesota firms continued to report that paid-leave legislation required more hiring to accommodate a rise in workers that were out of the office. A staffing firm with multiple offices across the District saw strong job orders, and many contacts reported relative success in finding labor. Tourism businesses in northern Wisconsin reported that, for the first time in years, they were fully staffed. Some agricultural and hospitality businesses reported declining availability of foreign-born workers, which was making staffing more difficult. A Wisconsin workforce contact noted, "Hiring has slowed compared with what we were seeing before, but there are still plenty of opportunities out there."
Wage growth was modest. Surveys continued to show signs of positive but slowing wage growth. Hospitality and construction respondents reported weaker year-over-year wage growth. The Wisconsin workforce contact noted that wages "seem to have settled down.... There will be exceptions, but I'm not hearing much about employers broadly pushing wages higher." A Minnesota workforce contact agreed: "I don't hear as much from employers about their struggles to pay competitive wages."
Prices
Prices increased moderately overall, though input price pressures intensified. In a monthly survey, more than one-third of firms reported that they increased prices to customers in September from the month earlier, about the same share as in the previous report. More than half of respondents reported increases in their nonlabor input prices for the month. Expectations for October were similar for input and final prices. Manufacturing contacts reported strong pricing pressures, particularly for raw materials and transportation. An equipment producer commented, "We had tried absorbing steel price increases for a few months hoping they would go down or at least stabilize. They continued to increase so we finally did implement a price increase." Retail fuel prices increased notably since the last report. Prices received by farmers increased in August from a year earlier for corn, soybeans, wheat, canola, potatoes, hay, and turkeys; prices decreased from a year earlier for pulse crops, cattle, hogs, chicken, eggs, and milk.
Worker Experience
Surveys of workers showed that a significant number remained confident in their job security, and some cited a worker shortage in their area. The need for drivers with commercial licenses also remained high, with supply shrinking due to tougher federal regulations related to immigration. Workers in some sectors were notably less secure, including janitors affected by stubbornly high office vacancy and cleaning robots. Grocery store workers were facing reduced hours as stores saw tighter profit margins from higher wholesale costs. Underemployed workers needed second or third jobs to make ends meet.
Consumer Spending
Consumer spending was down slightly since the last report. In multiple surveys, retail and hospitality firms more often reported revenue declines than increases compared with last year. Some cited restrained budgets. A Minneapolis caterer said that the number of events had been stable, but "we are noticing lower budgets overall for our clients." A ranch and home supply retailer in Montana said that the average number of basket items has been flat or gone down while average basket costs have gone up. Store sales in South Dakota were a mixed bag, according to a source there: "No one is reporting a banner year, but no one seems to be down a lot either." A vehicle repair shop contact said that customers were picking which problems to fix, rather than all of them, noting that "money is tight and people are being more conservative." Visitors to District national parks were mixed in August, as was hotel occupancy. Vehicle sales in August rose in Minnesota but declined at a dealer in the western portion of the District. August airline travel was down overall.
Services
Activity in the services sector decreased modestly over the most recent period. Contacts reported decreased orders on balance in September from a month earlier; the outlook for sales in the month ahead was net positive. In contrast, several contacts in financial services reported increased recent activity. Contacts reported that higher input costs were compressing profit margins. A funeral home operator commented, "Health and general insurance costs are killing small businesses."
Construction and Real Estate
Construction rose modestly since the last report. Among several dozen firms, more reported recent revenue increases than decreases. But there was widespread concern over high and rising costs. A Wisconsin architecture firm said it had several clients "that cannot move ahead" due to "uncertainty and increased costs caused by tariffs and inflation." Overall, firms expected revenue to increase modestly in the coming month. But recent hiring and head counts fell and were expected to decline further in the coming month; while some of this decline was likely due to normal seasonal fluctuations, it was more pronounced than last year.
Commercial real estate was flat overall. Office vacancy rates increased, but office tenants were reportedly signing longer lease terms and looking for allowances for space improvements. Retail vacancies were low in suburban markets, but much higher in urban markets. Although construction starts in office and retail remained flat, speculative industrial starts continued in Minneapolis–St. Paul. Residential real estate declined; home sales in August were down in most major District markets compared with a year ago.
Manufacturing
Manufacturing activity increased moderately since the last report. Industry contacts reported an increase in orders on balance in September 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 September from the previous month. In contrast, manufacturing contacts generally reported negative impacts from recent trade conflicts with Canada.
Agriculture Energy and Natural Resources
District agricultural conditions were unchanged since the previous report. Early indications pointed to a significant decrease in corn production and quality in some areas compared with last year, due to impacts of summer heat and drought. Soybean and wheat production was also expected to decrease. However, a recent rally in crop prices was welcome news to farmers. Contacts were unsure what the net effect of higher prices and lower production would mean for incomes. Oil and gas exploration activity increased modestly since the previous report.
Minority- and Women-Owned Business Enterprises
Activity among minority- and women-owned business enterprises was down somewhat since the last report. More firms reported revenue decreases than increases in September, though results were slightly improved from the previous month. Input prices rose for more than half of firms. A Montana timber firm said fuel costs were a big expense and had "more than doubled" on a project contract signed several months ago. A bakery in Michigan's Upper Peninsula noted that, based on credit card sales, it was seeing fewer Canadian tourists.
For more information about District economic conditions visit: https://www.minneapolisfed.org/region-and-community.