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Southern, Central regions show a patchwork of distress

Minnesota in Recession: Part 2 of three articles

Lewiston celebrated Heartland Days with a chicken barbeque and other festivities even though the town has lost some 200 jobs and its only grocery store this year.
MinnPost photo by Sharon Schmickle
Lewiston celebrated Heartland Days with a chicken barbecue and other festivities even though the town has lost some 200 jobs and its only grocery store this year.

LEWISTON, Minn. — Heartland Days featured everything you could want from a summer festival in a sweet town like Lewiston, Minn.: a chicken barbecue, flags, fireworks and wholesome beauty queens tossing candy along the parade route.

Still, Craig Porter worried about the future of this town of 1,500 even as he sold hot dogs from a trailer at the tractor pull. He’s the president of the Lewiston Area Chamber of Commerce. And commerce is severely threatened here.

The town’s largest employer, Herff Jones Inc., scaled back its Lewiston operations this year, laying off some 200 workers. And the town’s only grocery store closed in June.

“This is a drag on how people think about the future of the town,” Porter said.

Craig Porter
Sharon Schmickle
Craig Porter

The heartland is hurting along with the rest of the nation.

Pain is concentrated
In Southern Minnesota, though, the pain is concentrated in patches here and there rather than spread across the whole quilt that is this region’s economy.

Overall, the recession didn’t hit this region as early or as hard as some other parts of the state.

One pillar of the region’s economy — health care services at the Mayo Clinic and other regional centers — has taken its blows but nevertheless held strong.

With more than 30,000 people on its Minnesota payroll, Mayo draws workers from 50 miles away to its hospitals and clinics in Rochester and provides more jobs at satellite facilities, said Bruce Schwartau, of the University of Minnesota Extension Service in Rochester.

Bruce Schwartau
U of M
Bruce Schwartau

“It takes a lot of people to make that place run, and people drive a long way to come to work here,” he said.

Another pillar, food processing, is holding steady too. It has lost jobs, but not as quickly as many other industries.

“Food is a staple,” said former Rep. Tim Penny, now president and CEO of the Southern Minnesota Initiative Foundation. “Everyone needs it. So that is one of the few areas where we are still hanging onto jobs.”

Step further back in the food chain though, to the farm, and you find mixed blessings.

Farmers in southwestern Minnesota had one of their best years ever in 2008 as corn prices soared. But over in the southeast, dairy farmers struggled. Feed costs climbed while milk prices fell, and some farmers sold off their herds. 

Further, all farmers were kicked hard by last year’s high fuel prices.

“Farmers are really stuck when it comes to energy costs,” Penny said. “It impacts so much of their production costs and it impacts their inputs because a lot of the chemicals they use are oil-based.”

Tim Penny
Tim Penny

To see the full measure of the recession’s punishment, you need to visit towns where workers manufactured everything from auto parts to glass to hardware supplies.

“We’ve got a lot of manufacturing down here, and it’s taken a real hit,” Penny said. “Many of those employers have had at least a 10 percent workforce reduction.”

And some have closed for good.

Lewiston’s example
The upshot in Lewiston is that fortunes have changed door to door. (See audio/slide-show report below.)

The door closed permanently this month on Wiens Food Center, the only grocery store in town.

This store was more to Lewiston than a place to pick up ice cream. It was one of those small-town hubs where you could get a deal on the ingredients for a church bake sale and some publicity too.

“The kids graduating from high school this spring were born the year we took over the store,” said Scott Wiens. “Over the years, about 120 students worked here.”

Even before the recession, Scott and LouAnn Wiens were struggling to compete with big-box stores in Winona and Rochester. The layoff at Herff Jones, just down the highway, was the proverbial last straw.

“If you didn’t have a clock, you still would know when the workday had ended at Herff Jones because people would stop here and pick up a few things,” said Scott Wiens. “We lost all of that.”

Next door, though, at Lewiston Auto, Scott Nienow said “Business is not too bad, actually.”

It’s a profound observation considering the impact an auto dealership can have on a small town’s economy. This one provides 25 jobs in little Lewiston.

It will be months before Minnesota can tally the damage town by town from the auto industry’s forced closings of dealerships. But it’s a safe bet some communities will suffer.

One key to Lewiston Auto’s success is that people come from miles away to shop here for Chevys.

“We have a larger footprint than just Lewiston,” he said.

Reaching for regional recovery
Now, the region defining that big footprint is Lewiston’s best realistic hope while it looks for new employers or grows them at home. The town has a shot at hanging onto residents who lost jobs here if they find work 30 miles to the west in Rochester or 13 miles east in Winona. 

In reaching for regional recovery, Lewiston expresses one of the best prospects for bringing prosperity back to Greater Minnesota. Long ago, identity and loyalty could be tied to one town where a person could work, learn, sleep and shop. And competition for business was defined town by town or at least county by county.

That perspective is changing in the face of global competition, said Scott Marquardt, senior economic development officer for the Southwest Initiative Foundation.

“It’s a new lens for us,” Marquardt said.

Thinking regionally, the initiative foundations and 14 other organizations have launched an ambitious project to boost the competitiveness of 38 counties across Southern Minnesota, home to nearly 1 million people.

Lagging in several indicators
The first look through their new regional lens was sobering. Even before the recession hit, Southern Minnesota lagged behind the rest of the state in per capita income, job growth, productivity and economic staples such as venture capital and broadband access, according to a study by the Rural Policy Research Institute’s Center for Regional Competitiveness in Columbia, Mo.

By several measures, Minnesotans here had been far less prosperous than their neighbors in the Twin Cities. In Fillmore County, for example, the median household income was $43,776 in 2007, compared with $60,943 in Hennepin County and $79,213 in Scott County.

Things aren’t disastrous in the state’s southern reaches. But it’s slower.

And it could get slower yet, Penny predicted, if the region doesn’t scramble now to recover from the recession.

“You are going to have a lot of career shifting going on,” he said. “People are going to have to look at their skill sets and figure out, ‘What else can I do that’s needed in this economy?’.”

Still, Penny was optimistic about the long-term prospects.

“There are lots of assets to build on here in Southern Minnesota,” he said.

They include ready-built bases for new innovations related to health care, farming and food processing.

“We’ve got a lot of ideas percolating in this part of the state that are tied to bio medical or pharmacy applications of crops and to animal health as it relates to human health,” Penny said. “We really ought to be on the cutting edge of some of this stuff and we can be if we don’t dawdle.”

Central Minnesota led state into recession
All the way back in 2005, Richard MacDonald saw trouble brewing as he compiled data for ROI Central Minnesota, a quarterly business report he co-authors. Judging from housing permits and other measures, the area’s booming building sector was losing steam.

MacDonald couldn’t have known at the time, but the region was leading Minnesota into a serious recession.

Richard MacDonald
St. Cloud State
Richard MacDonald

“We started our adjustment before the Twin Cities,” said MacDonald, an economics professor at St. Cloud State University who also serves on Minnesota’s Council of Economic Advisors.

To understand the reasons this region took the plunge first, you need to go back even further, to 1999 when MacDonald started surveying area business leaders. Their biggest problem at the time? Believe it or not, it was a worker shortage.

While agriculture was holding its own, manufacturing also had taken off in the region, creating the kinds of jobs where someone with ambition could learn skills and get ahead with or without a college degree.

St. Cloud became fastest-growing metro area
Workers responded in droves, giving St. Cloud bragging rights that it was Minnesota’s fastest growing metro area. Housing developers followed, creating more jobs for more workers. 

MacDonald recalls driving around the region wondering, “My gosh, who is going to buy all of these houses?”

Those heady days are gone. Businesses leaders who once called for more workers now fill MacDonald’s quarterly surveys with reports of layoffs, reduced hours and shrunken employee benefits.

Some of the layoffs are in manufacturing as the global recession depresses orders for freezers, specialized instruments and other items made here. This region relies on manufacturing for 16 percent of its jobs, the highest rate in the state. That compares with about 11 percent in the Twin Cities.

So far, though, manufacturing seems to be riding the recession rather than collapsing altogether. Chances are good for recovery.

‘More than cyclical adjustment’
It’s the construction jobs that worry MacDonald. Some never will come back, he predicts. 

“We are seeing more than cyclical adjustment here,” he said. “We are seeing structural adjustment. We will see a smaller share of workers employed in the construction sector. … For the long run, we probably over-allocated to that sector. We got caught up in this froth of things that we are now going to have to take some time to work through.”

Beyond jobs, prices of some homes will fall further, and some construction projects already underway will “not be sustainable,” he predicted.

“I don’t think we are close to reaching bottom yet,” he said.

Health-care facilities gain strength
On the plus side, the St. Cloud area’s major employers, health-care facilities, are gaining strength here as they are in regional hubs statewide.

And while higher education is reeling from state funding cuts, hundreds of high-quality jobs remain stable at St. Cloud State and nearby private colleges.

Of course, there is more to Central Minnesota than the St. Cloud area. Randy Olson works with companies throughout the larger region as vice president of business finance for the Initiative Foundation in Little Falls, one of six projects created with help from the McKnight Foundation to bolster Greater Minnesota’s economy.

If you knew what you were looking for, you could drive north of the Twin Cities on I-94 and see a long lineup of vacant buildings — both commercial and residential — that are the casualties of the recession, he said.

14-county region has half of nonmetro foreclosures
The 14-county region the Little Falls-based foundation serves accounts for half of the foreclosures outside the Twin Cities metro area in 2008, Olson said.

Beyond the developers who went down with the real estate crash, companies in crisis include small-scale cabinet shops, granite countertop makers and businesses that made components for boats.

Some of those businesses will disappear, Olson predicted.

“There are some companies that are simply not in the right sectors right now, that do not have the ability to survive this recession,” he said.

Victims of bad timing
Other struggling companies are victims of bad timing.

“Owners paid too much for some companies that were acquired between 2003 and 2006, and now they owe more than they own,” he said. “They are upside down on their businesses like so many people are on homes. … We have a number of businesses sold pre-recession that, in hindsight, were valued too high.”

Far more companies are positioned to ride out the recession, though. They include food companies, software developers and many of the tourist attractions in the Brainerd lakes area.

“Sales are flat, margins are not as good as in 2008,” Olson said. “So it’s certainly not a good time. Still, these companies seem to be holding their own.”

Next: MinnPost looks at Northern Minnesota’s economy.

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

Comments (9)

  1. Submitted by Dale Carlton on 07/08/2009 - 12:57 pm.

    Excellent reporting Sharon.

  2. Submitted by david granneman on 07/08/2009 - 02:06 pm.

    Hello all
    If president obama and the democrats pass the cap and trade bill there will be millions of jobs created in the home building and improvement sector of the economy. The reason for this is the fact that all homes in the country must be upgraded to CALIFORNIA BUILDING REQUIREMENTS. This means before the government will allow you to sell your home, you must have the home inspected to ensure the home has been upgraded to these new environmental standards. This mean you may need to replace all windows and doors in the home. The insulation and roofing may need to be upgraded. The appliances will need to be replaced with new more efficient appliances. The furnace and air conditioning will also need to meet CALIFORNIA REQUIREMENTS. As you can see most homes in America will not meet these standards and will require thousands of dollars to invested to allow the home owners to be allowed to sell their home.

  3. Submitted by David Broden on 07/08/2009 - 02:15 pm.

    The series on the Minnesota economy across the state is a very effective and important message that all Mn should pay attention to as we work thru the economic recovery and the associated changes that will evolve. As a former small business hardware and farm equipment dealer in Swift County I have been thru this shift and will make some comments that need to be considered although many of the readers of this comment may not concur. The articles written in parts 1 and 2 focus on the change in the small town etc. due to lack of jobs etc. This bottom up approach is real. The missing ingredient is how the changes in the supply and financing of products for business changes. If you consider the Lewiston grocery closing ask if it was lack of customers or the lack of a efficient delivery and supply of grocery products–most likely the later. The problem with hardware and implement dealers is that up to the mid 60’s the suppliers would provide the financing and provide product to the dealers in the spring and hold payment until fall when crops came in. That changed in the early 70’s and as a result there was no way for business to build an inventory–thus no business. Then there was the impact of big box stores vs. the small town business–how can they compete. Many people say the problem was lack of customers as population changed–I will argue that it is both. There needs to be a discussion of both the local area impact and how the supply side changes impact the local area. While I may have different political view than either Lee Egerstrom former of Pioneer Press or Dave Frederickson –Sen. Klobuchar –Agriculture Staff director-both of whom I grew up with–we will like agree on this issue. Lets expand the dialogue to both sides as we look to Minnesota’s future. By the way I also was a small town paper boy and now getting papers in outstate or converage of outstate issues is weak. This issue too impacts the vision ahead.

    Dave Broden

  4. Submitted by dan buechler on 07/08/2009 - 02:56 pm.

    Its so good to read about Minnesota again. Not just the metro or the lakes or the arrowhead or the mines but the whole of it.

  5. Submitted by dan buechler on 07/08/2009 - 03:02 pm.

    Mr Broden, Do you think an Aldi’s style grocery store could make it in a small town? They have extremely effecient supply and delivery of grocery products. A german company that sells good quality at 25% or more less.

  6. Submitted by Glenn Mesaros on 07/08/2009 - 05:17 pm.

    If you think your driving costs are too high now, get ready to really pay through the nose. Plans are under way to charge you by the mile driven, a scheme which necessarily involves tracking your every move. This plan is where the green agenda of the behaviorist fascists meets Big Brother, in an orgy of social control. Like all such schemes, it was developed in the bowels of the British Empire, tested in England, and is now being imposed upon the United States.

    The details are laid out in a report by the National Surface Transportation Infrastructure Financing Commission released earlier this year, entitled “Paying Our Way / A New Framework for Transportation Finance.” The theme of the report is that “Our system is underpriced,” and that “users and direct beneficiaries” should “bear the full costs of using the transportation system.” The NSTIFC, a commission created by Congress, asserts that the current system of fuel taxes “provides users with only weak price signals… users do not bear anywhere near the full costs of their travel; and fuel taxes have no direct link to specific parts of the system being used or to times of the day and thus cannot be used to affect these kinds of traveler choices.”

    Therefore, the commission recommends “more direct forms of ‘user pay’ charges, in the form of a charge for each mile driven (commonly referred to as a vehicle miles traveled, or VMT fee system)… as the consensus choice for the future.” Furthermore, this VMT system should provide “a foundation for state and local governments that choose to use it to develop their own mileage-based systems that piggyback on the Federal system in order to raise their share of needed revenues in ways that spur more efficient use of the system.” The technology deployed should be designed “in anticipation of the potential for state, local, and private toll roads [!] to piggyback on the national system,” the report added. The commission also recommends “actions to facilitate and encourage private-sector financial participation,” as “private capital can help deliver more projects and thus play a role in helping to address the investment gap.” It also recommends that all such fees be indexed to inflation, so that they will rise automatically.

    Don’t believe the Obamination could do this? Check out their official report:

    More information about the NSTIFC, and its report, can be found at

  7. Submitted by dan buechler on 07/08/2009 - 05:53 pm.

    Glenn for your info the governor and almost every top official in Minnesota is for this plan. Hey I think you are a little off topic here.

  8. Submitted by Suzy Gilmour on 07/09/2009 - 09:13 am.

    When you use the phrase “labor shortage” or “skills shortage” you’re speaking in a sentence fragment. What you actually mean to say is: “There is a labor shortage at the salary level I’m willing to pay.” That statement is the correct phrase; the complete sentence, the intellectually honest statement.

    If you start raising your wages and improving working conditions, and continue to do so, you’ll solve your “shortage” and will have people lining up around the block to work for you even if you need to have huge piles of steaming manure hand-scooped on a blazing summer afternoon.

    Re: Shortage due to retirees: With the majority of retirement accounts down about 50% or more, people entering retirement age are being forced to work well into their sunset years. So, you won’t be getting a worker shortage anytime soon due to retirees exiting the workforce.

    Okay, fine. Some specialized jobs require training and/or certification, again, raise your wages and improve benefits! You’ll incentivize people to self-fund their education so that they can enter the industry in a work-ready state. The attractive wages, working conditions and career prospects of technology during the 1980’s and 1990’s was a prime example of people’s willingness to fund their own education.

  9. Submitted by David Broden on 07/09/2009 - 11:07 am.

    In response to Dan’s comment about can Aldi’s grocery work in outstate Mn –the answer is perhaps. Thr real issue is broader than a specific solution-the issue is to establish a vision for the outstate areas of Mn and other states that provides for the infrastructure and distribution networks to allow goods and services to be available economically and timely to all areas. There really is no reason why this type of adaptable retailing distribution cannot be established–yes regionalization outstate is real and other say that the 87 counties need to be 10 etc. Even with those thoughts people still exist across all area and convenience is part of everyday life and also key to public safety. It may be a bit of a stretch but the decay of a effective distribution infrastructure in outstate areas may in some ways be compared to the pain that less developed nations have due to lack of infrastructure–this is not a scare tactic but a good thought to keep in mind as the economy and related support systems change and are reduced. The answer is vision thinking and innovation–the private investment business sectors will make this work if given the incentives and interest.

    Dave Broden

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