Climate by Design International is working on a new facility in Owatonna’s industrial park, doubling the size of what they currently occupy in three separate areas around town. (Photo courtesy of ISG)

The owner of the Contented Cottage Bed and Breakfast in Northfield is hoping to add to its facility, but rising development costs are making it difficult. (Submitted photo)

With construction costs on the rise, interest rates going up and consumer confidence declining, what has been a historically strong economy for local businesses now seems to show increasingly uncertain and foreboding signs.

To be sure, the bulk of economic indicators continue to show that Minnesota’s economy is in a strong position overall. Even with slowing job growth, the state’s Unemployment rate dipped to a record-low 2% in May, and monthly state tax collections have continued to rise.

Figures from the Minnesota Department of Employment and Economic Development show that the tight labor market has led to increased wages, but it hasn’t been nearly enough to keep up with rising inflation.

According to DEED’s most recent report, average hourly earnings rose just 3.4% over the last year — less than half the rate at which consumer prices have risen. Those and other figures have the state’s top economist, Laura Kalambokidis, and DEED Commissioner Steve Grove openly fretting about the potential for recession.

Despite the financial squeeze, consumers across the country have continued to spend. However, the 0.2% growth in consumer spending posted in May was the smallest in five months and significantly smaller than expected.

Nort Johnson, President and CEO of the Faribault Area Chamber of Commerce and Tourism, emphasized that rapid inflation, and related shifts it has triggered in the economy, have affected all businesses, forcing rapid recalculation of pricing models.

“Our businesses can’t pass every price increase on,” he said. “It’s a tough time to try to grow, especially if you happen to be offering a product or service that is ultracompetitive.”

With consumer demand still strong, some local businesses may be looking to expand operations locally. However, Johnson noted that an extremely tight labor market, rising construction costs and general economic uncertainty may give many businesses pause.

The Mortenson Cost Index, which tracks non-residential construction costs in Minneapolis and nationally, shows an increase of over 2% in construction costs over the first quarter of 2022. Over the last year, the increase comes in at nearly 20%.

In addition to the tight labor market, Mortenson’s report shows that costs have been driven up, because builders have had such difficulties getting building materials at an affordable price, for reasons ranging from supply chain shortages to manufacturing issues to rising fuel costs.

For those businesses in the process of expansion, Owatonna Area Chamber of Commerce & Tourism President Brad Meier said that there’s a strong incentive to complete expansions as quickly as possible to avert any further cost rises.

Among the local businesses in the process of expansion is Owatonna’s Climate by Design International. Once complete, CDI’s new $37 million facility will offer 200,000 square feet of workspace, double what the company currently has.

Fortunately for CDI, the company was able to move forward with the project early this year, shielding it from the bulk of recent and future price increases. However, the company is still moving to complete the project as quickly as possible.

Climate by Design International is working on a new facility in Owatonna’s industrial park, doubling the size of what they currently occupy in three separate areas around town. (Photo courtesy of ISG)

CDI Founder and CEO Tom Peterson said that the expansion is an urgent priority, as CDI seeks to meet surging demand. The homegrown company manufactures desiccant dehumidifiers and air handlers for clients in a variety of industries.

Over the coming years, CDI could be one of many companies in line to benefit greatly from the projected rise of electric vehicles. Already, CDI’s products are being used by manufacturers of the lithium batteries which power electric cars to ensure proper storage conditions.

While larger local businesses may be able to shield themselves somewhat from rising building costs, smaller businesses are left fully exposed to rising expansion costs. Among those hard hit has been Northfield’s Lisa Bolduc, owner of the Contented Cottage Bed & Breakfast.

The owner of the Contented Cottage Bed and Breakfast in Northfield is hoping to add to its facility, but rising development costs are making it difficult. (Submitted photo)

Bolduc has been seeking to add to her portfolio by opening the new Cottage Tearoom & Fare in downtown Northfield. However, she has struggled with rising labor and material costs, as well as the shortage of contractors, leading to project delays and further price increases.

“We’d like to open up at some point in August,” she said. “Unfortunately, a lot of that is now in the hands of contractors and how soon they can get it done.”

Andrew Deziel is a freelance writer. Reach the editor at editor@apgsomn.com.

Data included is taken from the Minnesota Department of Health Daily reports. Because all data is preliminary, the change in number of cumulative positive cases and deaths from one day to the next may not equal the newly reported cases or deaths.

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