The bad news is Minnesota’s economy grew more slowly than the U.S. last year. That might also be the good news

REUTERS/Jim Young
In addition to having a strong agriculture industry and some natural resources production, Minnesota has a major metropolitan area with sectors like finance and real estate.

We have jobs. We have lakes. We have smart people.

We have a lot of things in Minnesota that other states would like to have. But there’s something some of them have that we don’t: a fast-growing economy.

Between 2016 and 2017, Minnesota’s gross domestic product, a measure of economic output used to gauge an economy’s might, grew 1.9 percent.

That’s growth, yes, but it’s slower than the national average of 2.1 percent, according to data released by the Bureau of Economic Analysis in May.

This might sound like cause for alarm: economic growth is one of the few things most people, even Democrats and Republicans, seem to be able to agree is a good thing these days.

But economic analysts say the fact that Minnesota’s economy is expanding slower than many states’ may, in part, reflect its strength.

Slow growth

Gross domestic product measures the economic output of a place by quantifying the value of goods and services it produces, including consumer spending, government spending, business investment and net exports.

Minnesota, which has the country’s 17th largest GDP and produces about 2 percent of the United States’ GDP, saw its output grow from $300 billion in 2016 to $305.6 billion in 2017. (All data are adjusted for inflation.)

That steady growth has been pretty typical of Minnesota over the last few years. Since 2009, when the recession caused the state’s economy to shrink, Minnesota has had positive, steady growth in its GDP, with year-over-year increases in the 0.8 percent to a little over 3 percent range.

Between 2016 and 2017, Minnesota ranked 21st for GDP growth. Washington, the state with the fastest-growing economy, grew at 4.4 percent. Louisiana and Connecticut, two of three states with shrinking GDPs, came in last, at -0.2 percent growth.

The advantages of a diverse economy

Minnesota and Louisiana are obviously pretty different places, and one key difference in the two states’ economies helps explain their divergent GDP results. Louisiana’s shrinking GDP, now a two-years-running phenomenon, is the result of tough times in some of the state's biggest industries.

The economic fortunes of Louisiana are closely tied to the oil and gas industry. The price of oil, which crashed a few years ago, has made some recovery, but as onshore drilling in places like Texas has become less expensive, Louisiana’s major offshore industry has struggled.

While many of Louisiana’s industries saw declines in GDP between 2016 and 2017, a big drop was seen in manufacturing, which makes up a large share of the state's overall GDP.

Louisiana's GDP by industry, 2007-2017
Figures are in millions of real 2009 chained (inflation-adjusted) dollars
Source: Bureau of Economic Analysis

In that way, Louisiana is different than Minnesota. Because Minnesota's economy isn’t particularly reliant on any one industry, it tends to see steadier year-over-year GDP changes than some other states.

In addition to having a strong agriculture industry and some natural resources production, Minnesota has a major metropolitan area with sectors like finance and real estate. In terms of where the output comes from, Minnesota looks more like the U.S. as a whole than it does like Louisiana.

“Our economy is very diverse in terms of (having) strong representation from all of the different industries,” said Monica Haynes, director of the Bureau of Business and Economic Research at the Labovitz School of Business and Economics at the University of Minnesota-Duluth.

Some of Minnesota’s industries saw GDP growth slower than the national average between 2016 and 2017, including mining, quarrying and natural gas extraction, and information, while others, including education, health care and social services and wholesale trade, saw larger than average gains.

Minnesota's GDP by industry, 2007-2017
Figures are in millions of real 2009 chained (inflation-adjusted) dollars
Source: Bureau of Economic Analysis

Minnesota's economic diversity can insulate the state from the benefits of economic boom, but it also works as a buffer against busts, said Neal Young, the economic analysis director at Minnesota’s Department of Employment and Economic Development.

“The highs are maybe not quite as high, the lows are maybe not quite as low as some of those states that really have more of their eggs in one basket,” Young said.

Share of total GDP by industry, 2017
Note: Totals don't necessarily add up to 100% due to rounding.
Source: Bureau of Economic Analysis

Yes, our economy grew slower than some states now. But it also didn’t fare as poorly during the recession: in the last decade, Minnesota only saw annual GDP drop between 2008 and 2009, when the recession began, while Louisiana has seen several years, some post-recession, with negative growth.

While economic diversity is a strength of Minnesota’s, there’s another regional trend putting constraints on the state’s growth.

Where the population growth isn’t

Look at a map of GDP growth across the country, and it’s clear that states in the Mountain West, on the West Coast and in the Sunbelt are seeing their economic output grow fastest, while states in the Midwest, out East and some down south are seeing slower gains.

Many of the states gaining most are the ones adding population. In addition to capitalizing on those workers, states that are gaining population have seen gains in the construction industry from the building that’s occurring to house new residents.

One state that's seen a lot of population growth in recent years is Washington: in the last decade, its population has increased by 15 percent, bringing new people to work jobs in an expanding economy.

Washington, home to companies like Amazon and Microsoft, made GDP gains in sectors where those companies operate, including retail and information, which make up roughly 12 percent and 10 percent of the state's GDP, respectively. Between 2016 and 2017, Washington saw an 18 percent increase in GDP output in retail, and a 10 percent increase in output in information.

Washington's GDP by industry, 2007-2017
Figures are in millions of real 2009 chained (inflation-adjusted) dollars
Source: Bureau of Economic Analysis

For Minnesota, whose population grew at less than half the rate of Washington's, slow population growth is an economic constraint, and it’s not alone. States in the Midwest are losing population to the West and the Sunbelt, leaving companies scrambling to find enough workers to fill jobs. Most of Minnesota’s net population gains come from international migration, with a modest increase in domestic migration in the most recent available data.

While lack of workers puts a damper on growth, Haynes said the relatively slow growth of Minnesota’s economy, at least right now, isn’t likely cause for concern.

With slow population growth and aging workers, “I don’t anticipate seeing big increases in GDP over and above 2 percent,” for now, she said.

Comments (3)

  1. Submitted by Tom van der Linden on 07/16/2018 - 10:54 am.

    Ag a small slice

    I’m surprised by the small slice of the economy comprised by ag/forestry. When driving across Minnesota, past acres and acres of crops/forest, I guess it gives one a false impression. Of course, the dairy in the city depends on the dairy farm, even if those dairy jobs are listed as manufacturing?

    • Submitted by Rory Kramer on 07/16/2018 - 11:34 am.

      Don’t be so shocked

      These GDP figures only account for agricultural products that are actually sold on the open market. The corn and soybeans that are used for livestock feed don’t get included, only the value of the beef/pork/chicken products sold in supermarkets and other sources. The same goes for the corn and soybeans used in ethanol or bio-diesel production. Yes, farmers sell their corn and soybeans to the biodiesel and ethanol plants but it’s just the ethanol or biodiesel that gets sold that adds to the GDP of the state. In 2016, over $16.8 billion worth of crops and livestock were marketed/sold in the state.

      https://www.mda.state.mn.us/~/media/Files/agprofile.ashx

  2. Submitted by Curtis Senker on 07/16/2018 - 02:38 pm.

    Minnesota State gov spends much more than most states. Exclude that spending, and growth looks even worse.

    That’s probably not true for those leftists who think government spending and the accompanying high taxation is a good thing, but one cannot believe that corporate CEO’s are among them…not even leftist CEO’s. (See Amazon vs. Seattle)

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