The economic recovery in the Upper Midwest will continue to outpace the United States over the next 18 months, according to the latest forecast and midyear survey released Monday by the Federal Reserve Bank of Minneapolis.

The Ninth District, which spans Minnesota, the Dakotas, Montana, Michigan’s Upper Peninsula  and western Wisconsin, “appear[s] to be bucking some of the gloomy economic sentiment seen across the country,” the Fed report says.

Employment growth picks up, but not as fast in Minnesota
The Minneapolis Fed’s forecasting models predicts employment growth “will pick up somewhat in 2011 and 2012 after slow growth during the recovery.”

That projection is backed up by the survey of more than 150 business leaders across the region. Thirty percent of them expect to hire additional full-time workers over the next 12 months, while only 7 percent expect to reduce their full-time staffs.

However, the 2011 forecast for Minnesota in particular is more downbeat.

Employment growth is projected at only a 0.5 percent annual rate, the lowest growth in the region and well below the projected national average of 1.4 percent. It’s even lower than the 0.7 percent growth in the state in 2010.

By 2012, job growth in Minnesota is projected to accelerate to 1.7 percent. North Dakota is expected to continue to lead the region in job growth in excess of 4 percent through 2012. 

Businesses hopeful on economy
For the first time, the Fed’s midyear forecast also included the business  survey, which found leaders generally positive about the economy and their businesses.

Nearly two-thirds expect revenue increases, and 18 percent expect increased exports. More than half expect their costs to rise, too, prompting 39 percent to consider increasing their selling prices.

A “whopping 76 percent expect inflation to heat up over the next twelve months,” the Fed reports. But even with the cost increases, 58 percent expect higher profits — most likely because they also project higher selling prices and increased productivity.

Forecasts anticipate unemployment rates declining through 2012 across the region.

Minnesota’s unemployment rate is projected to decline to 6.2 percent by 2012, still above the state’s historical average of 4.9 percent but well below the projected national unemployment rate of 7.7 percent.

North Dakota’s unemployment rate is projected to flatten out at 3.6 percent, the lowest across the region and the nation, and below its historical average. Michigan’s Upper Peninsula is projected to see a slight decline in unemployment to 8.7 percent, the highest in the region but below its historical average of 9.9 percent unemployment.

Rebound seen in personal income growth
In good news for the regional economy, consumer spending this year will be buoyed by the fastest growth in personal income since before the recession. That follows two years of declines or slow growth in income.

The Minneapolis Fed’s forecasting models predict personal income in Minnesota to grow 7.1 percent in 2011 over 2010, compared with a historical average of 6.5 percent. South Dakota is expected to show the strongest personal income growth, 7.5 percent, while North Dakota at 5.3 percent, is projected to show the slowest growth. Personal income across the U.S. is projected to grow 7.4 percent this year.

The 2012 picture, though, shows slowing personal income growth across the region and the United States, with an actual decline projected for North Dakota. The Fed’s regional economist Toby Madden points to wide uncertainty in North Dakota’s forecast because of  the state’s small population and heavy dependence on volatile agriculture and oil industries.

One mixed — but potentially hopeful — sign for the battered construction industry:  Permits for housing construction “will turn the corner” by 2012 after declining for the previous six years, according to the Fed forecast.

In  2011,  housing authorizations are predicted to increase in the Dakotas (40 percent in North Dakota) but decrease in Minnesota, Montana and Wisconsin before rebounding more than 20 percent during 2012 in all states except North Dakota.

The Fed cautions that “despite these increases, home building will generally remain at relatively low levels.”