Minnesota businesses struggle to hire qualified workers, grapple with rising costs

Finding qualified workers remains a challenge for businesses in Minnesota and surrounding states despite a cooling labor market.

Professional and business services firms in the Federal Reserve’s ninth district reported a contraction in labor availability in the past year, according to survey results the Minneapolis Fed released Friday. At the same time, surveyed firms said employment and productivity held steady, and they expect growth in those areas in the coming year.

“We’re asking them not necessarily about their hiring intentions, but about whether or not they increased their workforce,” said Joe Mahon, the Minneapolis Fed’s regional outreach director, at a virtual news conference Friday. “It might be the case that a lot of these firms would like to hire more than they are.”

The ninth district includes Minnesota, Montana, North Dakota, South Dakota and parts of Wisconsin and Michigan. The annual survey, conducted in partnership with the Minnesota Department of Employment and Economic Development (DEED) between May and July, included 298 respondents that provide services such as marketing, accounting, legal, security and clerical work to other businesses.

In addition to hiring challenges, firms reported both their own costs and prices they charge clients were up in the past year, a trend they expect to continue. Most respondents said they anticipate inflation will stick, with 60% assuming higher internal costs and 62% predicting higher inflation in their states next year.

Minnesota businesses were a bit more optimistic, with 56% of respondents saying they expect inflation to rise in the next year, compared to 65% in last year’s survey. Local firms also said they foresee higher profits, productivity and job growth through the next 12 months.

“Our employers have added jobs eight of the last 12 months, and dozens of businesses have announced expansions in our state,” DEED Commissioner Matt Varilek said in a prepared statement. “We’re working hard to address businesses’ concerns about our economy, especially the labor shortage, as we aim to keep Minnesota among the top states for business.”

The wide-ranging professional and business services sector has experienced job losses nationally even as sectors such as health care and construction have posted continual gains in the post-pandemic period. In Minnesota, DEED reported last month professional and business services led a statewide decline in new jobs from May to June and lost more than 19,000 jobs year-over-year.

Though the labor market needs to soften for the Fed to reach its goal of keeping both inflation and unemployment low — the so-called “dual mandate” it has sought to achieve by raising interest rates to a 23-year high of 5.25% to 5.5% — a disappointing U.S. jobs report Friday stoked fears the central bank has kept rates too high for too long. Employers added 114,000 jobs in July, a far cry from the 175,000 jobs economists predicted, and unemployment rose to 4.3%.

“This report shows continued weakening in employment and the economy overall,” David Royal, chief financial and investment officer at Thrivent Financial, said in a prepared statement, noting the jobs numbers could push the Fed to cut rates as much as half a percent in September.

The Federal Open Market Committee (FOMC), which sets monetary policy, opted to leave rates unchanged at its meeting this week.

“We are maintaining our restrictive stance of monetary policy in order to keep demand in line with supply and reduce inflationary pressures,” Fed Chair Jerome Powell said. “We are attentive to risks on both sides of our dual mandate.”