What Has Surprised You about the Market This Year?

I’m reflecting on a conversation I recently had with a civic leader who was asking about current economic conditions. The question posed to me was about which industry sectors or market segments are showing surprising strength or weakness, relative to expectations earlier in the year. Share your feedback about current economic conditions and help the Minneapolis Fed understand the impact that the economy is having on your business and take this 7-minute survey.
 
This is a great question, and I sought responses from several leaders of organizations, large and small, across a wide swathe of sectors. I thought you’d like to know what I learned and how I responded.  

• Overall sense of the economy: across all points of discussion, input is mixed. There is an overarching sense of uncertainty due to inflation and higher interest rates, as well as shocks like Europe, Russia/Ukraine, and the China/US situation. This is making employers cautious. Some, out of an “abundance of caution,” made early adjustments in revenue expectations, spending, hiring, community engagement. Even within the same market segment, some companies are having a really strong year while others are struggling. If anything, the US economy is holding better than expected.  In terms of the labor market, this continues to be employers’ #1 challenge. and this one is no surprise. Nationally the persistently tight labor market makes it difficult for the Federal Reserve to bring down nominal wage growth in order to cool inflation. The Fed has signaled two more rate hikes this year, working to get inflation back on a path towards the 2% target.
• MN legislative outcomes: this year’s legislative session has the employer community, large and small, on its heels. Reeling, actually. New capital investments, where possible, are being made outside the state of Minnesota. I really don’t think legislators believe this…
• Retail: at the consumer level, engagement and demand are really strong. Summer has been very good for this sector, with strong waves of traffic. There is a sense that people truly are looking to get back to normal. On the grocery side, however, food inflation is passed on to the consumer and volume purchasing is down. This one people feel in the family pocketbooks. What I find especially interesting is the growth of “re-commerce”… people are getting very creative in shopping for a “deal.” Many of us are members of Facebook or online auction groups that are very active bartering, exchanging, selling, or donating items with one another. The US Chamber of Commerce wrote about this just last week, that the resale market is expected to grow “16 times faster than non-resale over the next four years.”  
• Commercial real estate: also mixed. Demand is strong for office/warehouse space, to serve the logistics and distribution sectors which continue to be very strong. Office space, as we all know, is still iffy as employers work to find this “new normal” in terms of office use/capacity.
• Housing development: this one is driven by policy moves. Strong legislative funding for nonprofit housing developers is expected to drive much-needed affordable housing development. In the private sector, investments largely depend on the sub-market: where rent control is present, private housing development is not. Developers familiar with Minnesota are finding fertile ground in the first ring suburbs; national developers are simply avoiding Minnesota altogether.
• Residential real estate: This one also depends on the sub-market. Residential real estate agents have been surprised how some homes still move fast while others in a different sub-market can sit on the MLS for 6+ weeks. Overall activity slowed dramatically in June, but expectations are that it will pick up again towards Fall as people adjust to a higher interest rate environment that won’t be getting better anytime soon.
• Security market: in the consumer space, manufacturers are seeing demand weakness and consumers pulling back spending on discretionary items despite the uptick in concern over safety. In the commercial security space, however, demand is strong as businesses (mainly retail and warehousing, not so much large commercial) become increasingly more concerned about safety and security.

See you in the trenches,

B