Recession in Minnesota: Part 3 of three articles

Hard knocks over the years have made Northern Minnesotans as tough as tree bark.

From shuttered taconite mines to drought-ravaged wheat fields to job scarcities on Indian reservations, the state's northerners have deep experience with economic adversity.

Still, this recession has the region reeling. The downturn hit later here than in the Twin Cities. And its effects are spotty — devastating the Iron Range while just nicking Duluth, missing most farmers while knocking loggers flat.

"People who work in forest products around here know that the wood industry is cyclic, but they've never seen it fall so far so fast," said Larry Young, executive director of the Joint Economic Development Commission in Bemidji.

This recession is a sober reminder that however remote the region may be, its fortunes are tied to the Twin Cities and the world beyond. When the housing bubble burst in Hennepin County, window makers lost hours in Roseau County. When China cut steel orders, taconite miners lost jobs in Hibbing.

With the global variables uncertain, it worries Jim Skurla to see state officials push Minnesota's fiscal woes into the future, counting on recovery to help fill chasms in the state's budget. He directs the Bureau of Business and Economic Research at University of Minnesota Duluth.

"We are basically rolling the dice here," Skurla said.

"What we are seeing is not merely cyclical," he said. "The housing industry has never been in such bad shape before. The auto industry has never been in such bad shape. We are hoping the mining industry will come back, but it may take a while. ... It may only bounce back to 75 percent or 80 percent of the pre-recession levels."

Still, Minnesota is counting on its northerners to be as resilient as they've been in the past, to bounce back again and help balance state budgets.

Maybe it's the hardy spirit of the Paul Bunyan myth.

Maybe it's the remoteness.

Translating need into entrepreneurship
Whatever the reason, this region has a remarkable track record of translating need into entrepreneurial urges and impressive businesses.

Snowmobile and ATV enthusiasts created Arctic Cat Inc. 40 years ago, and now it's a $600 million a year enterprise in Thief River Falls. The Marvin family in Warroad grew their modest lumber yard into Marvin Windows and Doors, the world's largest made-to-order window and door manufacturer.

"So many of the significant employers in this area are companies that were started by somebody in a garage," said Nancy Vyskocil, president of the Northwest Minnesota Foundation.

Why here? Distance is one factor.

"It can be an hour's drive to someplace to get a part, or two hours," she said. "So people figure out how to make a lot of things and to be pretty self-sufficient."

In this sense, the north is a model for Minnesota's recovery.

Communities need to wake up from the dream of attracting a company offering 100 or more jobs from the get-go, said Jack Geller, former president of the Center for Rural Policy and Development in St. Peter. He's now a department head at the University of Minnesota Crookston.

A region has a far better shot at hitting the same job target by betting on entrepreneurs, by helping 20 small companies add 5 employees each.

And the lesson from the experience here, he said, is that "small business is big business whether you are talking about Marvin Windows, Christian Brothers Hockey or Polaris," he said.

So this recession may prove to be a new entrepreneurial moment.

Meanwhile, here's a look at its impact across the north.

Mining is hit hard
May's job statistics tell mining's story.

Unemployment in Duluth was 7.5 percent (not seasonally adjusted), just a hair lower than the statewide count. Head up to the Iron Range, though, and you find Hibbing with 14.6 percent; Virginia, 14.9 percent.

When the global recession set off a nosedive in steel orders, jobs plummeted on the Range. Duluth is faring better because it has diversified its economy since the last severe down cycle in the 1980s, said Drew Digby, regional analyst for the Minnesota Department of Employment and Economic Development (DEED).

Taconite mining companies have dramatically improved productivity since the 1980s and expanded their markets too. What they haven't been able to do is shield their operations from sharp economic swings.

"The biggest issue for the Range is how you deal with mining's cyclical nature," Digby said. "It is so vulnerable to recession, not just recession in the United States but in China and other countries."

Taconite's long-term prospects should be good. But recovery could take a while, said Skurla, the economic research director at UMD.

"With the auto industry on shaky ground, I really worry about the demand for taconite," he said. "This is unprecedented. We have never faced a situation like this. Who would ever have guessed that General Motors was on the brink of collapse?"

Forest Products
The wood products people were hurting even before the housing market collapsed. Now, nationwide demand for lumber is expected to sink this year to an all-time low, according to Timber Bulletin (PDF), an industry publication. Since 2005, the demand has dropped 55 percent, the steepest decline in the industry's history.

Hard times for lumber also spell trouble for oriented strand board, a plywood-like product that was seen until recently as a model innovation driving demand for Minnesota's trees.

Canadian-based Ainsworth Lumber Co. Ltd. has laid off most of its 600 workers at OSB operations in Cook, Bemidji and Grand Rapids.

Two years ago, forestry in the greater Bemidji area was a billion-dollar industry, counting the loggers, mill workers, truckers, mechanics and everyone else, Young said. The Ainsworth closing alone knocked $90 million out of that value and cost the region some of its best jobs.

And it's not the only plant cutting back. Like dominos, sales are falling correspondingly at restaurants, appliance stores, etc.

It will take some time for every domino to fall. And the prospects for setting them up again can't be fully assessed until home sales take off nationwide, finally sparking new demand for wood products.

Meanwhile, some laid-off Minnesotans are commuting to jobs in North Dakota's oil fields.

"They are out there living in trailers, working 12 to 15 hours a day and coming home on weekends," Young said.

Green jobs offer hope, but face challenges
Like so many other regions, Northern Minnesota is bidding for new green jobs, hoping to cash in on everything from the wind whipping across Lake Superior to corn scraps in the fields further west.

Even Duluth's port is hauling in green dollars as a shipping hub for items such as wind generator blades.

But it's too soon for the state to bank on the returns, Skurla said.

"This whole green thing has caused such a buzz," he said. "I'm not sure everybody is going to capitalize on it."

One reason for caution, he said, is that green entrepreneurs still face big challenges in delivering energy to major markets. Lake Superior's winds will turn generator blades, but use for the resulting power is limited by a lack of capacity to transmit it for any great distance.

To be sure, there are clear benefits from improving energy self-sufficiency and reducing greenhouse gas emissions. Precisely measuring the full economic effect is a different issue and very much a work in progress.

Poverty intensifies
Double-digit unemployment rates are nothing new in counties that are home to Minnesota's Indian reservations and their never-ending struggle for jobs.

Clearwater County, which includes parts of the Red Lake and White Earth reservations, had the state's highest unemployment rate in May, 13.7 percent compared to 7.8 percent for the state as a whole (not seasonally adjusted). In January and February, Clearwater's rate exceeded 21 percent.

By several measures, the recession has intensified poverty in Minnesota. The number of Minnesotans participating in the federal Supplemental Nutrition Assistance Program (formerly food stamps) was 14 percent higher this March than a year earlier, according to the latest data. 

And people who already were poor are likely to be more profoundly poor as the state shrinks programs for them.

"Health care is a huge issue here because of the funding cuts," said Vyskocil of the Northwest Minnesota Foundation.

"As some of the impacts of the recession trickle down to our local hospitals and clinics, there will be an awful lot of people who are least able to withstand these pressures having less access to the resources they need," she said.

"I don't know that we will have more people slip into poverty, but it will be more desperate," said Nancy Straw, president of the West Central Initiative in Fergus Falls. "We are hearing from more people who are struggling, who are one flat tire away from not being able to pay rent."

Women's shelters seeing effects
Among other fallouts, more women in the area are seeking refuge at shelters, she said.

"That definitely is related to the economy," she said. "Money problems cause fights."

Poverty takes its toll on Main Street too, especially in towns where merchants already were struggling.

"If any businesses are going to get squished out, it might be some of the main street merchants who were just hanging in there," said Art Nash Jr. of the University of Minnesota Extension Service in Crookston.

"Some small-town merchants are like farmers in that they choose to keep their shops open even though that's not the way they could make the most money," he said. "It's a lifestyle. My fear is that this recession might force some of them over the edge."

Manufacturing: The trauma is intense
This is another raw nerve.

Statewide, Minnesota lost 10.3 percent of its manufacturing jobs in the year that ended this May, or 34,800 jobs.

The north didn't necessarily lose the most, but the trauma is intense here because some pockets of the region rely so heavily on manufacturing.

Several of the region's start-from-scratch companies now rank among the state's largest manufacturers. Cut jobs in their plants, and the workers have few local alternatives within any reasonable drive from their homes.

"These places have been job magnets that reach out for several counties to find enough workers," said Geller in Crookston.

They reach even further to sell their windows and snowmobiles. It took a while, but now the global downturn has hit them hard, and hundreds of workers have been laid off or lost hours.

Thanks to federal stimulus dollars, work is picking up again at companies that make windows and weatherization equipment. But this region specializes in big-ticket items that many families have scratched from their budgets for the foreseeable future.

"We have big boat manufacturers here and also the companies making snowmobiles, ATVs and jet skis," said Nate Dorr, DEED's regional analyst for Northwest Minnesota.

"People aren't buying new toys. They are holding off on those purchases."

Agriculture: Crop farmers doing well
Like a keel on a boat, food production is keeping this region steady.

That includes not only farmers but also sugar beet processors, poultry operations, and related businesses.

"Places around here are serving the local area for food demands and also shipping nationwide," Dorr said.

Livestock farmers are struggling, but crop farmers are coming off a bumper year. And they spread their bounty to grain elevators, fertilizer vendors, truckers, railroad workers and legions of others in the region. 

Although some fields are soggy in the far northwest, Minnesota's crops are thriving again with 82 percent of the corn, 74 percent of the soybeans and 62 percent of the spring wheat in good to excellent condition, according to the latest report (PDF) from the National Agricultural Statistics Service. 

Still, everyone in farm country knows a week of bad weather can completely turn agriculture's fortunes around.

It's a gamble, like so much of the Minnesota economy right now.

Next: Watch MinnPost in the coming months for spot checks on Minnesota's economy.

Sharon Schmickle writes about science, national and foreign affairs, Greater Minnesota and other subjects. She can be reached at sschmickle [at] minnpost [dot] com.