Slower growth, but no recession.
That’s how the Federal Reserve Bank of Minneapolis thinks the new year will play out in its far-reaching territory, which stretches from Michigan’s Upper Peninsula to the western border of Montana.
Tobias Madden and Rob Grunewald, economists with the bank here, summed up the bank’s outlook for the region today in a briefing for journalists. Their forecast reflects economists’ consensus that growth in the nation will ease in 2008, but not so markedly that the economy will shrink for the first time since it contracted in the recession of 2001.
Like all such forecasts, this one features a blizzard of often-bewildering numbers. But in recent months, what’s in the wind for the economy seems to matter more.
World is watching
The Fed itself is in the midst of a broad effort to avert a recession through a serious of cuts in short-term interest rates. In a related strategy, the Fed and four other central banks last week launched a massive market intervention scheme — the largest since the 9/11 terrorist attacks — to persuade banks to lend more readily, thus easing the fears that have caused the credit markets to seize up.
And as the nation heads into a presidential election year, the state of the economy is emerging as a major issue. In the latest Wall Street Journal survey of forecasters, economists pegged the odds of a recession at 38 percent — the highest in more than three years.
The new regional outlook envisions Minnesota once again struggling to keep up with the pace of U.S. economic growth. In a troubling trend that has become evident in recent years, the state’s economy has lost its longtime star status relative to many other states.
The bank predicts that nonfarm jobs will climb only 0.4 percent next year in Minnesota. (The Fed estimates job growth in Minnesota will be 0.6 percent for 2007.) It expects higher job growth (0.9 percent) in the United States and also in Montana (2.1 percent), North Dakota (1.9 percent), South Dakota (1.5 percent) and Wisconsin (0.9 percent). In the bank’s district, only the Upper Peninsula is expected to see lower job growth than Minnesota.
Madden attributed the robust gain in Montana to strong conditions in the mining, wheat and cattle farming, and tourism industries.
Sources of the trouble
Why is job growth in Minnesota expected to continue lagging?
Grunewald says the state, with its relatively large window-making and lumber industries, is somewhat more dependent on the troubled housing sector than the nation. Another possible factor: the large professional and business services sector, where the bank expects flat job growth in Minnesota vs. 2 percent growth in the nation.
One bright spot across the entire region: agriculture. The Fed said this sector had an outstanding year in 2007 and called its outlook for 2008 upbeat.
The Minneapolis Fed’s economists base their outlook on the bank’s statistical models and results from surveys of 1,036 business, agricultural and manufacturing leaders in the district.