St. Cloud Area Quarterly Business Report, Vol. 24, No. 1

As the pandemic subsides, the new year has ushered in a long awaited broad-based area economic expansion. Virtually all sectors of the area economy experienced employment growth as the area added more than 3,600 jobs over the year ending January 2022. Firms’ future outlook remains very strong, but is clouded by accelerating inflation (and accompanying wage pressures) and persistent labor shortages. Data released by the Minnesota Department of Employment and Economic Development (DEED) indicate St. Cloud area employment increased 3.6% over the twelve months ending January 2022 (but is still 3,144 below its pre-pandemic level two years ago). Local job growth occurred in virtually all sectors, with leisure/hospitality leading the way with a 22.3% employment increase over the past year. Employment in the mining/logging/construction industry also rose 13.8% over the same period. The St. Cloud Index of Leading Economic Indicators rose 1.7% from three months ago and is 0.8% from its recent high 2 quarters ago. 5 of 6 indicators rose in the last quarter. Business activity at surveyed firms was solid over the past quarter. 46% of surveyed firms report an increase in business activity over the past three months and only 13% of firms experienced a decrease in activity. The future outlook of surveyed firms is very strong as 72% of survey respondents expect improved business conditions over the next six months and only 3% of firms anticipate decreased activity. In our first special question, most firms indicate hiring practices have been unchanged over the past 12 months (although 28% of firms note that they are utilizing less stringent previous experience requirements than one year ago). In a second special question, 54% of surveyed firms report they plan to undertake capital spending in 2022 in order to keep up with technology. Another 46% of firms indicate capital purchases are used to produce output more efficiently, while 39% are simply replacing worn-out capital. 25% of firms plan to purchase capital in order to contain labor costs. In this quarter’s final special question, firms report on the ways in which inflation is affecting their firm. Several firms indicate significant materials cost increases, accelerating wages, and declining profit margins