Contact: Rita Beatty 651-259-7534 rita.beatty@state.mn.us

Alyssa Augustine 612-204-5157 alyssa.agustine@mpls.frb.org

ST. PAUL – Minnesota business service firms expect mostly contracting conditions during the next four quarters due to the COVID-19 pandemic, with slightly more than half (52%) anticipating a decline in consumer spending and corporate profits, according to a joint survey released today by the Minnesota Department of Employment and Economic Development (DEED) and the Federal Reserve Bank of Minneapolis.

Business services firms – such as engineers, accountants and architects – have a mixed outlook on their own profit projections over the next four quarters, with 49% expecting to see a drop, 34% expecting no change, and 17% anticipating an increase in profits.

The results were based on 148 survey responses from a random sample of Minnesota business services firms in August and September. Surveying business services firms offers a compelling glimpse into economic conditions because these businesses provide their services to other businesses across the full range of industries in the economy.

New questions in this year's survey asked about the impact of COVID-19 on their business. More than half of respondents (57%) reported a decline in revenue and exactly half of respondents reported a drop in employee productivity due to the pandemic.

Nearly half of respondents (48%) said they expect to go back to normal operations in more than six months, while almost one-fifth (18%) said their business will not go back to normal.

"While Minnesota is showing promising signs of economic recovery, the pandemic continues to present unprecedented challenges for businesses," said DEED Commissioner Steve Grove. "We're continuing to work with Minnesota businesses as we take common-sense steps to slow the spread of COVID-19 while we navigate the coming months of recovery."

Other highlights from the study include the following:

• 52% expect a decline in corporate profits for Minnesota's economy, while 28% expect them to remain the same and 20% anticipate an increase
• 64% expect their own business productivity to either stay the same (48%) or increase (16%)
• 81% expect their labor availability to either stay the same (67%) or increase (14%)
• 75% anticipate their employment level to remain unchanged (65%) or increase (10%)
• 49% expect inflation to stay the same, while nearly half (46%) expect it to go up

Respondents were invited to provide comments related to the impact of the pandemic on their businesses. Comments ranged from a broadband provider who said, "Demand for our services has been higher than normal," to a respondent who said, "My business is 65% down. It is brutal. I am hanging on by threads."

Some business services firms noted that supply chain interruptions have been a problem while others noted the challenges and potential benefits of remote working. One respondent said, "Having staff working from home is a challenge to coordinate but shows a slight increase in productivity."

DEED and the Federal Reserve Bank of Minneapolis have conducted this survey annually since 2006. The DEED website has more details on the 2020 Survey of Minnesota Business Services Firms.

DEED is the state's principal economic development agency, promoting business recruitment, expansion and retention, workforce development, international trade and community development. For more details about the agency and its services, visit the DEED website or follow us on Twitter.

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation's central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin, and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.