Businesses show signs of pullback and caution in most recent Minneapolis Fed survey

Businesses in Minnesota and in neighboring states showed new signs of caution this fall, interrupting the recovery from the pandemic, a survey by the Federal Reserve Bank of Minneapolis found.

Most of the pullback is due to "challenge fatigue," said Ron Wirtz, regional outreach director for the Minneapolis Fed, as businesses cope with inflation, supply chain disruptions and difficulty finding workers, which has led to rising wages.

"We're seeing prices hold on a little bit longer, we're seeing supply chains not repair as quickly as we had hoped," Wirtz said. "I think that's where maybe there's a little less optimism as there was before."

He added that the continuing pandemic amid the Delta variant undergirds a lot of these challenges. "It's a little pullback from July," he said. "But there's still net positivity among the firms that we surveyed."

The quarterly general business conditions survey by the Minneapolis Fed is one of the largest regular surveys in the Federal Reserve system.

This particular survey was taken during the third week of October, with 431 responses from business in Minnesota, Wisconsin, North Dakota, South Dakota, Montana and Michigan.

Firms still reported year-over-year revenue growth in the October survey and had an overall positive forecast, but there was an uptick in those expecting to see a decline in the next quarter.

Another recent change in this survey was that firms reported that their staffing levels had contracted in the last three months, with large firms being the most likely to have seen staff reductions.

"I think it has something probably to do with the federal vaccine mandate," Wirtz said, adding later that other factors such as retirements and an increase in the people voluntarily quitting their jobs could also be playing a role.

But when it came to future staffing levels, firms were overall more upbeat, saying they expected to see employment grow in the next six months.

Businesses reported that wages also continue to rise, mostly strongly among larger firms.

Labor availability, supply chain disruptions, and price increases were the top three challenges businesses listed, with the first two seeing notable increases from July to October.

In particular, there was a jump in those who said it's "extremely difficult" to find workers.

"There's a clear shift that things are getting tighter," Wirtz said.

The Minneapolis Fed also asked businesses if they've seen any noticeable changes to the labor situation since the expiration of enhanced unemployment insurance benefits, which happened around Labor Day in Minnesota and Wisconsin and in June in some of the other states. But businesses said that there's been little effect on either the number or quality of job applicants.

As for rising prices, about 70% of firms said their input prices had risen by more than 5%. Those increases are increasingly flowing through to customers, with 61% of firms saying that final prices had also risen by more than 5%.

"We're not seeing it get significantly worse," Wirtz said of the higher prices. "But I think we have to acknowledge that it's high right now."