Rising Costs Squeeze Upper Midwest Businesses as Profits Slide, Minneapolis Fed Survey Finds

Businesses across the upper Midwest are reporting that climbing expenses are cutting into their earnings, according to a new survey from the Federal Reserve Bank of Minneapolis. Smaller companies appear to be bearing the heaviest burden.

More than 900 businesses in the Ninth District responded to the July survey on business conditions. The district covers Minnesota, Montana, the Dakotas and parts of Wisconsin and Michigan. Most respondents said their second-quarter profits were lower than in 2025, and many named rising expenses as their biggest challenge.

"Some of the commenters wrote that even if their revenues grew, rising costs were just really, really eating away at their profits," said Haley Chinander, an analyst at the Minneapolis Fed.

More than 90 percent of respondents said wholesale prices are going up. About 70 percent, a growing share, said they had raised their own retail prices since last year. Chinander said many businesses also reported absorbing a large portion of the added costs to avoid driving customers away.

Government policy was another major concern. A majority of businesses said tariffs hurt them through higher costs and effects on customers. Most states in the district border Canada, and border crossings have fallen since President Trump's return to office. Chinander said respondents frequently cited fewer Canadian tourists and fewer Canadian customers spending money on the U.S. side of the border. The Trump administration announced new tariffs on Canada in the middle of the survey window, and Canada said it would retaliate.

State policy also drew complaints. Most of the surveyed businesses are in Minnesota, and some said the state's new paid leave program has caused staff shortages and added administrative work, including paperwork and compliance. "One business even mentioned that they were overstaffing just to plan ahead for when someone goes on leave," Chinander said.

Wage growth across the district has been slow. Compared with last year's survey, a smaller share of respondents said wages were higher than a year earlier, continuing a trend that dates to at least 2023. Still, most employers raised wages over the past year. Chinander said some small businesses wanted to give raises for fear of losing staff, and one owner cut their own salary sharply to pay for higher wages.

Chinander said smaller businesses were the most likely to cut wages and to report steep drops in revenue and profit. She compared the split to the so-called K-shaped economy, which describes a purported widening gap between high- and low-income consumers, though a Minneapolis Fed writer found contrasting data on that trend among consumers. Smaller firms were also more pessimistic about the rest of the year. Overall outlooks leaned negative but were better than a year ago, and while more than half of respondents had seen profits fall, fewer than half expected declines to continue next quarter.

In Fargo, tattoo artist Meg Felix said business has been good and her clientele is growing. She held her rates steady during and after the COVID-19 pandemic, but this year raised her hourly rate from $150 to $175, nearly 17 percent, citing rising costs and some tariff effects. Some tattoo supplies from Canada have become pricier. Her husband, Jed Felix, who runs a barbershop in the same space, said their work has left them relatively insulated from economic swings, though household costs, particularly groceries, keep rising.