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All Minnesota metro areas’ GDPs grew in the past two years except one: Duluth’s

Duluth’s location on the western edge of Lake Superior has long defined its economy.

Duluth is kind of having a moment. In recent years, it’s been named the best town in America (by Outside Magazine). The transformation of its Canal Park with shops and restaurants has helped revitalize its waterfront area. Tons of parks and trails make the Duluth area something of an outdoors mecca. And it’s home to some of the state’s destination breweries.

But not everything has been on the upswing for the Duluth metro area. Specifically, Duluth’s gross domestic product, a metric that looks at the total value of all the goods and services produced, used by economists to measure the health of an economy, is down.

That makes the Duluth metropolitan statistical area, which includes Carlton and St. Louis counties in Minnesota and Douglas County in Wisconsin, the only metro in Minnesota that has seen a decline in GDP for the last two years, according to data compiled by Minnesota Compass, a research division of the Amherst M. Wilder Foundation.

All the other metros — Moorhead, Grand Forks, Mankato, LaCrosse (which includes parts of Minnesota), the Twin Cities, Rochester and St. Cloud — have seen the value of goods and services produced by their economies make modest to moderate gains in the last couple years.

Though Duluth’s GDP saw a recovery after the Great Recession, its GDP declined by 5 percent in 2015 and 1 percent in 2016. Last year, its GDP was roughly $11.1 billion, down from nearly $11.8 billion in 2014 (all figures are in 2009 dollars to adjust for inflation).

Gross domestic product by Minnesota metro area, 2006-2016
Duluth is the only metropolitan statistical area in Minnesota to see its gross domestic product decline in 2015 and 2016. For scale reasons, the Twin Cities metro was not included.
Source: Bureau of Economic Analysis, compiled by Minnesota Compass

That might seem odd, given Duluth’s spiffed-up image. But it likely reflects some attributes unique to Duluth’s economy.

Dependence on natural resources

Located at the junction of the St. Louis River and Lake Superior, Duluth’s big economic driver has historically been its status as a hub for shipping natural resources, particularly iron ore, mined on Minnesota’s Iron Range and shipped across the Great Lakes.

More than other metro areas in Minnesota, natural resources — prone to booms and busts and vulnerable to international commodity prices — remain a driving force in Duluth’s economy.

While mining, for example, accounts for just  2.5 percent of jobs in the Duluth metro (about 3,150 jobs, per the Bureau of Labor Statistics), it accounts for about 11 percent of the area’s GDP.

And it’s not just the mining sector itself that’s dependent on iron ore.

“When they make those taconite [a form of iron ore] pellets … they come down by rail to the Duluth Harbor, their product goes through Duluth out on the Great Lakes over to the steel mills in places like Gary, Indiana, and Flint, Michigan,” said Heather Rand, director of business and economic development for the City of Duluth. “That’s a lot of product that keeps moving back and forth, and that’s a lot of jobs.”

But the mines have been closing, especially in recent years  as iron ore prices declined. Some of the jobs in professional services in the Duluth area, from finance to manufacturing of mining equipment, are also tied to administering natural resources, Rand said, making them vulnerable to that sector’s ups and downs.

While the area has seen GDP gains in sectors like manufacturing, real estate, rental, and leasing, and education, health care and social assistance, they weren’t enough to offset losses in sectors like mining and construction.

Gross domestic product by select industries for Duluth, 2013-2016
GDP gains in several industries weren't enough to offset losses in mining and construction. Note: "Other industries" include agriculture, forestry, fishing, and hunting, manufacturing, wholesale trade, retail trade, information, finance, insurance, real estate, rental, and leasing, professional and business services, arts, entertainment, recreation, accommodation, and food services, educational services, health care, and social assistance and government.
Source: Bureau of Economic Analysis

Today, education and health care is the biggest economic sector in Duluth in terms of GDP, at 16 percent. But again, where Duluth really stands out among major Minnesota metro areas is in its dependence on the mining sector.

In the Moorhead area, real estate, insurance and finance is the largest economic engine, making up 25 percent of GDP. In Rochester, education and health make up 38 percent of local GDP. And in the Twin Cities, 22 percent of GDP — the largest share of any industry — comes from finance, real estate and insurance, followed by 17 percent produced by professional and business services.

“Because of the sheer amount of the iron ore that’s going through and the tonnage of that, that’s something that makes the region unique. To have a natural resource that can boost (or drop) GDP like that,” said Erik White, the Minnesota Department of Employment and Economic Development's northeastern Minnesota regional analyst.

A changing economy

There are signs Duluth’s GDP slide might be over, at least for now. Many of the mines that shuttered in recent years are open again, and iron ore exports rose meteorically in the third quarter of this year, with ore, slag and ash product exports up nearly 770 percent, the Duluth News Tribune reported Monday. In the third quarter, Canada bought $88 million in these products, compared to $1 million in the same quarter last year. Japan bought $48 million in ore, slag and ash in the third quarter, up from $4 million in last year's third quarter.

GDP contributions by arts, entertainment, recreation, accommodation and food services — the category that best captures recreation and tourism — have increased modestly in the last three years from about $419 million $433 million, though its share of GDP has remained relatively stable over time. Duluth is hoping to see gains here, between the appeal of the waterfront and some revitalization of neighborhoods.

“We’ve got a neighborhood just west of downtown called Lincoln Park that’s really taken off embracing the whole craft/artisan (aesthetic) as a district,” Rand said. That area’s seen gains in terms of resident and visitor traffic.

Duluth is seeing a real estate resurgence as well, with several new high-end apartment buildings built in the last few years, Rand said. Between 2015 and 2016, real estate and rental and leasing's GDP contribution increased from $625 million to $819 million.

And as the metro area’s economy changes to become more reliant on health care and education, its GDP could become more stable in the long-run.

Since 2001, health care, education and social assistance's GDP has increased from roughly $1.2 billion to $1.8 billion, increasing its share of GDP from 12 percent to 16 percent. And demand for health care is only likely to increase — northeastern Minnesota’s population is older, on average, than other parts of the state.

“The Northland economy is really one that’s shifting and changing, and moving away from mining, as important as mining still is in that area,” said Ellen Wolter, research scientist for Minnesota Compass. “It really is a shifting economy, and you’re probably going to see some fluctuation in the GDP as that economy changes.”

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Comments (7)

Wait a minute,

a few years ago I was told by many here at Minnpost that the Duluth economy was great and moving from mining/shipping to medical/insurance jobs was the future. As I stated back then, no medical job was going to make up for the loss of 100K jobs on the docks moving products thru the Great Lakes. I knew too many good folks in Duluth working 2 low paying jobs trying to make up for the loss of 1 good paying job.
To all of you who comment on this site, what happened? I thought Duluth, with its Democrat mayor, was the jewel of the north. Something I learned long ago, figures lie and liers figure. All those numbers that stated new job growth in Duluth were folks tak8ng 2 low paying jobs trying to make up for the loss of their good job. Passing that off as good economics was pulling the wool over Minnesotians eyes, again.

Duluth GDP

An article on the Duluth economy's sagging GDP and not one word about the effect of the regulatory environment?

Interesting

…that Mr. Smith and Mr. McCoy imply that the Duluth economy is something of a shambles, and somehow it's all due to DFL politics and the loss of mining jobs.

If mining jobs were so super, why is mining in decline? Could it be that it's A) hard work; B) hazardous to one's health; and C) subject to forces like international prices over which miners have zero control?

Mr. McCoy's innuendo makes the same implication, but puts the implied blame on the "regulatory environment." I suppose he means those burdensome rules that make mining companies clean up after themselves, or don't allow them to obviously poison area drinking water, or require them tomake at least minimal efforts to make their mines relatively safe for the miners working in them.

I sense more right wing trollery by people safely isolated from the consequences of eliminating mining regulations altogether.

There is no debate as to whether

Democratic policies have hurt mining. They have! My point was a few years ago liberals here on Minnpost were touting the Mayor and Duluth’s job creation as proof of Democratic policies working. I made the point that the numbers were misleading.
The Iron Range and Duluth have hemorrhaged good paying jobs. To throw job creation numbers that included minimum wage, part time and poor paying jobs then claim a strong economy was not accurate. The Obama economy didn’t help middle America and that is why folks voted out Democrats in record numbers starting in 2010.
That was my point.

Duluth?

Why is Duluth lumped with the range. It seems like Duluth is awesome, but the range is still having really a hard time. And the range isn't really a "metro" more a collection of small rural towns, isn't it? Someone once told me duluth was closer to St. Paul than parts of that county. I haven't been up there in a long time. Can someone explain this?

The Range Economy in Need

What would be the utility of putting former miners to work in long-term infrastructure jobs rather than putting them in short-term mining jobs and threatening everything dear to us in Minnesota for 500 years? I don't think jobs in northern Minnesota have to be an either/or decision. I think they can be but/and. Put people needing jobs to work doing meaningful work that has unlimited benefit to our air, water, soil, roads, and bridges.

Replies

Sorry, but the real crash for Duluth was in the 70's and 80's. The heavy, labor intensive manufacturing went. Some has gone in the last two decades, but not as much. The range employment has been shrinking because of automation...not any regulation. It is boom and bust depending on the rest of the economy. When they can build something like the Roy Hill Mine in Australia..producing 19 million more tons a year than all the range mines put together...with a much higher grade ore body..and eventually replace production truck drivers with driverless systems....employment will continue to shrink. The pulp industry has collapsed due to the internet...things have just changed and there hasn't been a national policy to deal with it. . Tourism is always given in aggregate numbers, but in reality most tourism jobs pay crap. The real benefits go to owners. It is much like measuring mean income with Bill Gates in the room..it looks good except the other nine people are living in hovels and eating bark. So, they give this enormous aggregated number, but it doesn't translate into jobs you can build a life on. The biggest boosts have been Cirrus...Medical care..Altec. Maurices headquarters remaining here and building downtown probably did more than anything else. There are also enough stable university and government jobs to maintain an illusion, but the fact is underneath it all, as in most places, there is a hollow shell. The incomes just aren't there...that's the problem and it is the problem everywhere. It's not regulation..it's the oligarchy.