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Signs point to national recession. What might that mean for Minnesota?

In general, Minnesota is poised to weather recessions better than some states, experts say.
REUTERS/Brendan McDermid
In general, Minnesota is poised to weather recessions better than some states, experts say.

The U.S. economy might be on its way toward a downturn.

It’s somewhat inevitable. The economy tends to have ups and downs, and while we’re in the midst of the longest economic expansion ever, these things usually don’t last forever.

Predicting if and when the economy will slow down is difficult, but economists are seeing signs in the bond market that it could happen soon (you might have heard of the inverted yield curve — that’s what they’re talking about).

If the economy does take a downward turn, it’s likely that’ll hit some places harder than others. What would a recession mean for Minnesota?

A diverse economy

Generally speaking, Minnesota is poised to weather recessions better than some states, experts say, because its economy isn’t overly reliant on any one industry. In fact, Minnesota’s economy closely mirrors the U.S. economy as a whole, with output spread throughout sectors, though there’s some concentration in industries like finance, insurance, real estate rental and leasing, and business and professional services.

Share of GDP by industry, 2018
Source: Bureau of Economic Analysis

“When you have a diverse economic base like we have, it gives you some resilience during downturns,” said Laura Kalambokidis, Minnesota state economist. “If any single industry is contracting, another industry might be able to pick up those workers.”

That means Minnesota’s less susceptible to busts, but generally also less apt to see economic booms: the state’s economy often grows at a relatively slow clip.

There’s an upside to Minnesota’s comparatively steady economy: During the recession in 2008, Minnesota’s unemployment rate never rose as high as the national rate, and it recovered to pre-recession levels before national unemployment did.

Quarterly unemployment, Minnesota and U.S.
Data are seasonally adjusted.
Source: Federal Reserve Bank of St. Louis

Weak spots

If a recession does come to the U.S., there’s no indication it’ll be as bad as the one in 2008, said Mark Wright, senior vice president and director of research at the Federal Reserve Bank of Minneapolis.

But no two recessions are the same. And the effects of any future recession, in both the U.S. and Minnesota, would depend on what triggers it: a slump in agriculture hurts places that are dependent on agriculture. A manufacturing bust hurts places that depend on making and exporting goods.

“Look at states where they have a concentration of activity or employment, those are areas where they might be vulnerable if that is the industry that’s contracting during a recession,” Kalambokidis said.

The economy in Louisiana, for example, could be more susceptible to a recession that hits manufacturing, which makes up 20 percent of that state’s GDP, compared to 11 percent of national GDP.  In Nevada, a recession that strongly affects arts, entertainment, recreation, accommodation and food services could hurt. That industry makes up more than 16 percent of Nevada’s GDP compared to 4 percent of national GDP. In Alaska, 16 percent of GDP — compared to less than 2 percent of U.S. GDP — comes from mining, quarrying, and oil and gas extraction.

But just because Minnesota’s economy is broad-based doesn’t mean the state is immune to economic downturns, Kalambokidis said.

And if, as some economists predict, the next recession comes from external factors, like sl0w growth in other countries and tariffs, Minnesota could take a hit.

Compared to the U.S. as a whole, Minnesota is slightly overrepresented in the manufacturing and agriculture, forestry, fishing and hunting industries — which rely heavily on exports.

Other signs

An inversion in the yield curve like we’re currently seeing suggests investors are nervous about a future recession.

While such inversions aren’t a surefire sign of a downturn, they’re a pretty good predictor. But it sometimes takes a while for recessions to happen after a yield curve inversion.

Wright said he’ll be watching the yield curve for signs of further inversion. Other concerns would include a slowdown in consumer spending — a sign people are worried about the future — and slowdowns in hiring.

Still, these things are tough to predict — especially because much of the data lag a few months, making it difficult to tell what’s going on in the economy right now.

“It’s usually the case that the data’s a little murky,” Wright said.

Comments (8)

  1. Submitted by Joel Stegner on 08/27/2019 - 11:25 am.

    The rural parts of Minnesota, except for cabin and resort country, are most vulnerable to a recession. That provides a test of the One Minnesota concept, as those parts of the state have actually most strongly supported Trump and his policies that have had such harmful impact of agricultural exports. If rural Minnesota residents who voted for Trump admit their mistake, that creates an opportunity to reduce the divisions in the state and focus on positive changes that benefit all. I hope that when we have a recession, which is inevitable, that it brings us together rather than separates us and that Minnesota can lead by example as states deal with their own set of distinctive issues.

    • Submitted by John Evans on 08/27/2019 - 12:42 pm.

      Now, now. Voters don’t “admit mistakes.” Sometimes they realize they’ve been betrayed, and sometimes they get mad about it.

  2. Submitted by Joe Smith on 08/27/2019 - 12:35 pm.

    According to NY Times Paul Krugman the economy was going to collapse in 2016….. Still waiting…. At one point the pundit elites will be correct, not sure it is today.

    • Submitted by Pat Terry on 08/27/2019 - 01:57 pm.

      And it looks like he’s right. It just took a couple of years for his incompetence to overcome the healthy economy he inherited.

      Its like Trump’s business failures. He’s an incompetent businessman who kills everything he touches. But sometimes it takes a few years.

    • Submitted by Tim McCarthy on 08/28/2019 - 10:47 am.

      According to Joe Smith, Paul Krugman said something.
      I invite Mr. Smith to provide a citation for his assertion.

  3. Submitted by Pat Berg since 2011 on 08/27/2019 - 01:33 pm.

    How much of this is the tail wagging the dog? Every time I read about the inversion curves – which signal that investors are worried about a future recession – I find myself wondering if that worry itself might be all it takes to plunge us into one.

    All this talk about “What if we’re headed for recession?” could itself be causing people to pull in tight and circle the wagons.

    Of course Trump flapping his lip and changing course every 15 minutes isn’t helping, either. I remember when Democrats were in power, and Republicans were all over them screaming about how taxation creates uncertainty, and how awful it was for the health of business and the economy to have uncertainty. And now we have the Republicans’ own “Uncertainty Instigator in Chief” generating it every chance he gets.

    • Submitted by Gerald Abrahamson on 08/28/2019 - 12:42 pm.

      “Taxation creates uncertainty”. Tariffs are taxes (HUGE taxes), so we know the cause of the economic problems. This will be fun to watch.

  4. Submitted by Dennis Tester on 08/27/2019 - 07:25 pm.

    A recession is defined as two consecutive quarters of negative growth. Let’s wait until we have one quarter of negative growth before we start wringing our hands.

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