Businesses squeezed by rising costs, Fed survey finds

Fargo tattooist Meg Felix decided not to raise her hourly rate during or after the COVID-19 pandemic.

“I wanted to be in the same boat as everyone,” she said.

That connection with her clients has helped her maintain their trust, she said. Overall, this year has been good for business, and her clientele has been growing.

But with rising costs and some tariff effects, she raised her hourly rate this year from $150 to $175, an almost 17 percent increase.

“This year I finally decided to give myself a raise because with tattooing, nobody gives you a raise, you make that decision when it feels like the time is right,” she said. “It was just a slight increase to be in competition with the other tattooers as far as their hourly prices.”

Many businesses are in a similar situation, according to a new survey from the Federal Reserve Bank of Minneapolis.

More than 900 businesses across the Ninth District — which includes Minnesota, Montana, the Dakotas, and parts of Wisconsin and Michigan — responded to the July survey about business conditions.

In the second quarter of the year, most respondents said profits were down compared to 2025, and many said rising expenses are 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 Federal Reserve Bank of Minneapolis.

Over 90 percent of respondents said wholesale prices are increasing and about 70 percent, a growing share, reported raising their retail prices since last year.

“Many of them were also saying they were eating a lot of these costs as to not drive away their customers,” Chinander said.

The survey found another major challenge was government policies. A majority of businesses said tariffs are having a negative effect on business through higher costs and impact on customers. For instance, most of the states in the Ninth District share a border with Canada, and border crossings have been down since Trump’s return to office.

“We did have a lot of mentions of declines in Canadian tourism, and not just tourism, Canadian customers coming over and spending across the border,” Chinander said

The Trump administration’s July announcement of new tariffs on Canada was made in the middle of the survey window. Canada announced Tuesday it would be retaliating.

Statewide policies are having a negative impact on some employers, too. Most businesses surveyed are in Minnesota and some said the state’s new paid leave policy is causing staff shortages and adding administrative costs, such as the time it takes to fill out paperwork and ensure compliance with the law.

“One business even mentioned that they were overstaffing just to plan ahead for when someone goes on leave,” Chinander said.

Across the district, wage growth has been slow, according to the survey. Compared to 2025’s survey, a smaller share of respondents reported having higher wages than they did a year ago. That’s been a trend since at least 2023.

Still, a majority of employers have raised wages in the last year.

“We had a decent amount of comments from smaller businesses mentioning how they really want to raise their wages because they fear losing their staff if they don’t,” Chinander said. “One business owner even commented that they cut their personal salary way back just to be able to afford increased wages for their staff.”

Chinander said smaller businesses were most likely to cut wages and more likely to report sharp declines in revenue and profit than larger ones. She likened the situation to the so-called “K-shaped economy,” which describes a purported widening gap in consumer spending between high-and-low-income consumers — although a writer at the Minneapolis Fed found contrasting data for that trend.

“That dynamic seems to be similar to what we’re seeing on the business side with larger businesses versus smaller ones,” Chinander said. “The larger ones are faring decently better in these current conditions, while smaller businesses are just grappling with more severe challenges here.”

That gap exists when looking toward the future, too. Smaller businesses were more likely to be pessimistic about profit and revenue for the rest of the year compared to larger ones. For all businesses, the outlook leaned negative, but better than it was a year ago.

“People are generally a little more positive about their expectations than what they recently experienced,” Chinander said. “We saw that again in the survey, over half had experienced profit declines, but under half were expecting those declines to continue for the next quarter.”

In Fargo, Meg Felix feels pretty optimistic about the rest of the year. Not just for her business, but for her husband’s barbershop, too, which is in the same space as her tattoo parlor.

Working in the service industry with a loyal and growing clientele, Jed Felix said both he and Meg have been relatively insulated from twists and turns in the economy.

“I’m fortunate, with barbering, there’s not that much [to buy] once you have your clippers and everything,” he said. “I haven’t really felt anything, but I know pretty much every other business in town definitely has.”

They’re insulated, but not immune. Some tattoo supplies from Canada have become more expensive after tariffs. Plus, as a household, their everyday costs are still going up, especially with a three-year-old to feed.

“Groceries are very expensive,” she said. “And we’re not getting anything fun. We’re getting, you know, your meat, your milk, veggies, stuff like that. We’re not splurging, but … we don’t have a lot of extra spending.”