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Minnesota’s economy: We’re looking at ‘a long, slow, gradual slog upward’

It’s been a long ride. And, like the kids on your family’s cross-country vacation, we can’t help but ask, “Are we almost there?”

For months, Minnesotans have taken heart from signs of economic recovery: The state’s unemployment rate has hung well below the national rate all year. Temp hires are up. So is Minnesota’s collective personal income.

We’re recovering well ahead of the nation, news reports tell us.

But, sorry kids. We’re not there yet.

We’re not even close if you gauge recovery by the technical definition, which is getting our jobs numbers back to where we were when the recession started, said state economist Tom Stinson.

“It’s frustrating for everybody involved, but this has been the Great Recession, the longest and deepest economic downturn since World War II,” Stinson said. “We have to expect the recovery to be a long, slow, gradual slog upward. And that’s what we are seeing.”

More than 100,000 jobs to go
The locomotive for the economic train is the number of jobs in the state. When the recession officially started in December 2007, Minnesota had 2.77 million jobs. The most recent available count is 2.66 million jobs in August.

In other words, we have more than 100,000 jobs to go before we’re back where we were nearly three years ago.

“Unless we have an amazing surge in employment, we are several years from getting back to that level,” Stinson said.

We should celebrate the fact that the state added some 32,500 jobs during the year that ended in August.

 Let’s say we do even better in the months ahead and grow about 50,000 jobs a year.

That puts us into late 2012 before we are back to the pre-recession level — back to full recovery and ready, at long last, to expand the state’s economy.

Peering through dark clouds
It’s interesting to note that Minnesota seems to be recovering faster than the nation as a whole with an August unemployment rate of 7 percent. That compares to 9.6 percent for the United States.

But that’s a distinction with a dubious difference if you look at the numbers state by state.

The proverbial elephant in the national data set is California, with an economy so large it dwarfs the economies of most nations around the world. California and its next door neighbor, Nevada, were seduced more than other states by the mirage of million-dollar homes.

Now, nearly three years after the burst of the housing bubble, their struggle to recover is reflected in their unemployment rates — 12.3 percent for California in July and 14.3 percent for Nevada. Throw in the beleaguered automaker, Michigan, with its 13.1 percent rate, and you see that the national picture is skewed by a few large states with unusual circumstances.

Eight states have lower unemployment rates than ours
Adjust for that and here’s what you see: Eight states had lower unemployment rates than Minnesota in July. And another 21 states, like Minnesota, were below the national rate.

In other words, 30 of the states are doing better than the national numbers lead us to believe.

Of course, no state is an economic island. And recovery remains fragile in these relatively well-off pockets as long as states like California are suffering, said Kyle Uphoff, acting director of labor market information for the Minnesota Department of Employment and Economic Development (DEED).

“If we don’t see better improvement in the national numbers, we can’t expect that Minnesota is going to sustain its employment gains for very long,” Uphoff said.

Incomes are rising
Still, there are many reasons to cheer about the state’s economy. By several measures, we’ve climbed a long way out of the depths of the recession.

“We are well into recovery — far better than we were a year ago,” said Toby Madden, regional economist for the Federal Reserve Bank of Minneapolis.

One measure Madden watches is personal income — how much we collectively brought home in paychecks, bonuses, payments from the government, rent on our properties, dividends from investments, etc.

The recession may have started in 2007, but you wouldn’t have known it from personal income in Minnesota. In 2008, that income peaked at about $226 billion on an annualized basis. Then it dropped in 2009 to about $218 billion. In early 2010, a year beyond the low point, it was back up to $221 billion.

“In other words, we are in recovery mode but we are not yet in expansion,” Madden said.

Many analysts say that reaching the 2008 peak still would leave us short of full recovery. We’re conditioned in this prosperous state and nation to expect income to grow over time. The expectation is about 3 percent growth a year, Madden noted.

So if the goal is to make up for lost time — not simply to regain that previous peak — we have even further to go.

Foreclosures up in year’s first half
Minnesota families and their bankers have worked through a good share of their shaky mortgages. But now, prolonged unemployment is pushing thousands of other families into default territory.

Foreclosures were up during the first half of this year over the same period in 2009 in both the Twin Cities and the state as a whole, according to Minnesota Housing Link’s latest tally of sheriffs’ auctions [PDF].

Foreclosures in Minnesota
Source: Minnesota Housing Link

By mid 2010, there had been 13,093 foreclosures in Minnesota, up from 11,165 for the same period a year earlier.

As employment slowly picks up, we can hope foreclosures are a lagging indicator in that they reflect trouble that started months ago, not what’s happening today.

We can hope.

Temps, hours and help-wanted signs
There are hopeful signs that many of those jobless workers will be bringing home paychecks again sometime soon, said Uphoff at DEED.

He based optimism on three benchmarks:

• Temporary workers are the first to be dismissed when the economy turns down and the first to come back as employers tentatively pick up the pace. Temp hires in Minnesota are up about 12 percent over the same time last year. But they’ve hit a plateau during the past three months. “I’m not sure what that means,” Uphoff said.

• The average Minnesota worker put in 32.9 hours a week in July, up from 32.7 hours at the beginning of the year. To me, that’s a puny increase — just skipping a coffee break or two. But Uphoff says the hours add up to the equivalent some 13,000 full-time workers. More important than the numbers is the message the employers are sending: They’re pushing their workers harder, and at some point that strategy will hit a limit where they have to start hiring.

• In June, job openings had grown 32 percent over a year earlier in Minnesota. Last year at this time, there were about eight job-seekers for every opening. Now there are about five per opening.

What’s more, some job turnover is starting to happen in a market that had been frozen in fear.

“People within the labor force are becoming a little less cautious, starting to vacate some jobs and look for others,” Uphoff said. 

Housing, the caboose
A new report from the national research firm Hanley Wood Market Intelligence says that housing — once the locomotive of the economic train — now is the caboose.

“The days of home building being a primary economic driver are behind us, and for housing to recover, job growth must lead the way,” the report says.

In that light, Hanley Wood ranks Minnesota No. 1 among its “Sweet States” where the unemployment rate is relatively low and new home closings are up. Other “sweeties” include Maryland, Colorado, Missouri, Oklahoma, Virginia, Texas and Washington. 

Gary Aulik agrees with that assessment. He’s president of the Builders Association of the Twin Cities and also owner of the company Aulik & Associates.

“We’re nicking away at unemployment in Minnesota and that’s a very encouraging sign,” Aulik said. “We’ve had a long decline. We believe we’ve hit the bottom of the trench, and we’ve started to see a slow incline.”

Tax credit distorted market
Any true trend is hard to see because a federal tax credit for first-time home buyers severely distorted the market this year, prompting a buyer rush before the April 30th deadline for the credit and leaving the market in a slump during summer months.

The result is a dismal report this week from the Minneapolis Area Association of Realtors.

Pending sales in August were down 30.7 percent from a year earlier, the report said. And inventory grew 8.8 percent from a year ago, the largest spike since February 2008. Meanwhile, the median sale price was $172,165, down 1.6 percent from a year ago.

The association estimates there is an eight-month supply of homes on the market — very much a buyers’ market. In a healthy, stable market the supply should be about five months.

Reason for confidence
Still, Aulik insists that Minnesota’s outlook is not as bleak as we might think from watching the national news.

“We’ve had a lot of very gloom and doom reports on the national level, but Minnesota has reason to be more confident in what’s going on locally,” he said.

“Our waves of supply and demand are less volatile and less erratic than in other parts of the country.” 

Several indicators — from the declining unemployment rate to a recent rise in building permits — suggest Minnesota is poised to climb out of its deep housing trench.

“I think it’s a long, gradual climb, and I don’t think we are going to see what anybody would characterize as a rebound,” Aulik said. “But there are encouraging signs, and I think Minnesota needs to hear about them.”

Sharon Schmickle covers science, the economy, Greater Minnesota and other subjects. She can be reached at sschmickle [at] MinnPost [dot] com.

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Comments (3)

  1. Submitted by Paul Udstrand on 09/17/2010 - 11:53 am.

    Three things. First, it was always nuts to claim that “housing” was the engine of the economy, commerce is the engine of any economy and housing can never be more than one of many areas of commerce. Furthermore, it was never an engine, it was a bubble. It’s impossible for housing to be an engine in the US and has been since the post WWII era. Why? Well you’ll notice that the vast majority of Americans currently have a place to live. The only ones who don’t are the homeless, and they’re not going to be buying any houses any time soon, and even if they did there aren’t enough of them to drive the economy. Population simply isn’t increasing enough to drive a REAL housing boom. After WWII there was actually a shortage of housing. You can find photos of surplus Quonset hut projects in MPLS and around the twin cities that were built to house the families of returning soldiers- that was a housing shortage, and that was a real housing boom. There was nothing even remotely approaching that kind of demand during the so-called housing boom of the 90s, and there will be no such demand in the foreseeable future. The masters of finance tried to re-inflate the housing bubble but that’s just not going to happen so stop being surprised by housing data. And by the way, affordable housing is not going to be a bad thing for the economy. Eventually these underwater and failed mortgages will work their way out of the economy, and it will take a lot longer since we decided to bail out the banks instead of homeowners. Some investors are going to take a hit sooner or later, but ordinary people will not hurt by affordable housing and realistic household budgets. In other words, forget housing, we got more than enough houses, retail space, and commercial buildings. Focus on jobs and wages, that where the recovery will happen if and when it happens.

    Second, for the author, I would suggest that in the future you ask two questions that are frequently overlooked when we talk about unemployment rates.

    First, I think the total unemployment rate, including marginal workers, and discouraged workers should always be presented. This would be the U-1, U-4, and U-6 measurements.

    http://www.bls.gov/news.release/empsit.t15.htm

    These numbers give us a much more complete picture of unemployment and make it possible to compare historically. The total unemployment rate (U-6) nation wide for instance is 16.7% Compare that Great Depression highs of 25% and you get some idea how bad this really is. Now the State doesn’t calculate U-4 and U-6 but Stinson can give you a pretty guess if you ask.

    Second, on the federal level, they keep changing the way they measure unemployment, the effect being lower unemployment rates. Clinton for instance eliminated the U-4 measurement thus lowering the over-all rate, Reagan did something to but I can’t remember what it was. For instance if we measure unemployment today the same way we did in in 1990, the rate would be 11% instead of 9.6%. By the way, that would put our unemployment rate ABOVE the 1983 recession because the 83 rate was 10.8% unadjusted. I don’t know how or if the state has changed the way it measures unemployment, but it would be nice to know. If the state has followed the fed’s lead, it would be nice to know how that’s effected the numbers. In fact I’ve never been able to find when you look at historical comparisons if you’re looking at adjusted numbers, I don’t they are. maybe Stinson would know that as well.

  2. Submitted by Glenn Mesaros on 09/18/2010 - 03:15 am.

    Prosperity is just around the corner.

    These “professional economists” are idiots and morons and should go out and get a real job.

    Here is a typical job seeker from New Jersey:

    Until recently, Wands had managed to nimbly adapt to the changing job market for much of his career.

    He started out as an electrician and machine maintenance worker for a wire manufacturer, working nights while he earned bachelor’s and master’s degrees in graphics technology at Kean University.

    After graduating in the mid-1980s, he took a second job as a scanner operator, leaving the field a decade later when he believed it was dying, and learning to retouch photos, removing blemishes and enhancing colors and contrasts.

    The last time he was laid off — when his employer, Sterns, was acquired by Macy’s in 2001 — he sent out 40 résumés and got three job offers. But opportunities have shrunk as companies have increasingly used low-wage retouchers in the Far East, he said.

    He estimates he has sent 9,000 résumés in his current search, yielding three interviews and no permanent job.

  3. Submitted by Richard Schulze on 09/19/2010 - 10:14 pm.

    There is a tremendous amount of slack in the economy. Businesses can simply tap some of this unused capacity rather than hire more employees. The number of hours worked dropped during the recession. Companies can simply increase the hours worked by their existing work force before hiring new people.

    Productivity is still increasing. This means businesses are still getting more and more out of their existing workforce. Because of high unemployment, there is the added benefit of lower wages/salaries. From a business owner’s perspective, this is a win/win scenario.

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