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The good and bad of Minnesota's economy

By Don Davis, Forum News Service

Minnesota's economy is a study in contradictions.

So much of the news looks good: near record-low unemployment, overall wage payments rising, few signs of the recession remain.

But there also are warning signs: manufacturing, mining and farm economies lag; some parts of Minnesota enjoy better economies than others; home construction is slowing; finding people for some jobs is becoming difficult.

It is unusual for Minnesota, but the state's residents may find its economy trailing the country as a whole.

A recent state government economic forecast predicted Minnesota’s economic expansion will "continue over the next several years, but at a generally slower pace than the national average. Both employment and wage income growth are expected to remain modest in 2016 and 2017, with the average nominal wage slowly accelerating."

The forecast is nothing dire, but as economists try to look at the good and the bad, they make sure the downside is presented.

Minnesotans in general are more optimistic about the economy (58 percent) than countrywide (50 percent), a recent USA Today Wells Fargo forum learned. Matt Schoeppner, a Minnesota Management and Budget economist, said that a low gasoline price "means big savings for Minnesota" and "household wealth is climbing to new peaks," resulting in a good feeling.

"The labor market's performance also has been very impressive," he added.

However, Minnesotans may not be looking at the global scene when they say they are optimistic.

State Economist Laura Kalambokidis said some of the economy's downside can be blamed on struggling farm commodities markets (selling grain, for instance) and low iron ore prices (which are forcing northeast Minnesota's taconite industry into massive layoffs).

"The fundamental factors that are influencing this have to do with uneven global growth and, in particular, a slowdown in China," Kalambokidis said.

Ironically, China is a major American competitor, but one that Kalambokidis says many in Minnesota should cheer on to a better economy. The country can be a top buyer of Minnesota goods.

Manufacturing, farms and taconite industries had "a tough 2015," she said. International sales could help all three sectors of the economy, but predicting a better situation is tough at this point.

In another contradiction, the farm economy was a strong point that helped keep the state economy on track a few years ago during the recession when other states were hurting worse than Minnesota.

While Minnesota's job growth generally is good news, the contradiction is that with few unemployed people there are not workers to fill many of the openings.

"Some demand for labor is going unmet," Kalambokidis said.

Why? "There are some mismatches from where the jobs are to where job seekers are."

For instance, about 2,000 Iron Range workers are jobless as American companies are buying cheap foreign steel, so steel made from taconite is priced too high for many businesses. But those idled workers are in the wrong place and do not have the skills or training needed for many of the state's 98,000 vacant jobs.

Many rural Minnesota towns have manufacturing and other jobs available, and are forced to bus in workers from miles away because they do not have the local workforce. The communities often also do not have housing for workers.

"This (economic) forecast reminds us that we must continue to grow our workforce," Commissioner Myron Frans of Minnesota Management and Budget said. "We can do more, and we must, in expanding opportunities for all in Minnesota."

Legislators and Gov. Mark Dayton have said they need to help Minnesota industry, but have not agreed on the approach.

A report compiled by St. Cloud State University showed at the request of the office of Secretary of State Steve Simon showed the mixed economy.

“This year, as I traveled throughout Minnesota on my first 87-county tour as secretary of state, I heard firsthand from small businesses and entrepreneurs how important these reports are to forecasting and understanding Minnesota’s economic environment,” Simon said.

Economic indicators were down in all six regions of the state in the third quarter of 2015. However, employment grew in all areas other than the mining-heavy northeast.

“Softening in the national economy and some slowdown in residential building permits largely contributed to a mixed economic outlook...” said King Banaian, report co-author and dean of the School of Public Affairs at St. Cloud State.

Economy by region

St. Cloud State University broke down each Minnesota region's economy.

Twin Cities: Business conditions are expected to be steady for several months, after new business filings with secretary of state increased 5 percent over a year ago. Employment increased 0.8 percent, with a 3.1 percent unemployment rate compared to the statewide 3.5 percent.

Central: Businesses likely will experience slower growth. Three of five measures of the economy turned negative and new business filings fell 3 percent. On the other hand, unemployment dropped and more people were working.

Northeast: Despite temporary and permanent mine closures, area businesses are expected to see a steady economy. The index of leading economic indicators fell slightly in the third quarter and new business filings dropped 1.1 percent from a year earlier. Unemployment was 4.6 percent, up from the 4.3 percent reported in 2014.

Northwest: Business conditions are predicted to soften in the next few months with economic indicators falling in the third quarter. New business filings are down 3.6 percent while employment was up 1.8 percent. Unemployment was slightly below the state average at 3.4 percent.

Southeast: A softer business economy is predicted even though the area experienced a 5.1 percent increase in business filings. Unemployment was well below the state average at 2.8 percent and nearly 1,400 more people have jobs than a year ago.

Southwest: Softer economic conditions are expected as new business filings dropped 8.8 percent in a year. Employment increased 1.4 percent and 3,000 more area residents held jobs. The unemployment rate was 3 percent.

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