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Is Minnesota headed for an economic downturn?

Minnesota’s business leaders plan to scale back growth for the third consecutive quarter.

Business leaders throughout Minnesota are the most pessimistic they’ve been about business conditions in this state in more than four and a half years, according to TCB’s Quarterly Economic Indicator survey, completed by 354 respondents in late March.

Twin Cities Business

The percentage of respondents expecting conditions to weaken in the months ahead has increased in the last six consecutive quarters and now stands at 28 percent, more than double from one year ago at this time. The percentage of those expecting conditions to improve (45 percent) also has slipped for six consecutive quarters. Respectively, these are the highest and lowest percentages seen in more than 20 quarters.

Respondents also have grown more pessimistic about business conditions nationwide and globally. Some 34 percent expect conditions to weaken between now and June 30—again, more than double one year ago at this time. Only 16 percent expect conditions will improve.

Hiring is expected to continue at about the same pace as it has in the last three quarters, with 36 percent of respondents saying they plan to increase headcounts, while 55 percent plan to maintain levels as they are. However, layoffs are ticking upward, with 9 percent now indicating they’ll reduce employment levels, up 66 percent from one year ago at this time and the highest level of anticipated job-cutting since the first quarter of 2013.

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Capital expenditures, research and development, and revenues are expected to grow less during the second quarter than they have in recent periods.

Capital expenditure plans are the weakest they have been since the first quarter of 2013. The percentage of respondents who say they plan to increase spending in this area by June 30 (32 percent) is down by 10 percent from a year ago at this time. Meanwhile, the percentage of respondents who plan to cut capital expenditures this quarter (17 percent) is up 44 percent from those who planned to cut back three months ago, and up 72 percent from the second quarter of 2015.

R&D spending plans are the weakest they have been since this survey began in mid-2011. The percentage of respondents who plan to increase R&D spending (17 percent) is down 24 percent from last quarter and down 22 percent from one year ago. The percentage of survey takers who say they plan to cut spending in this area (10 percent) has increased by 14 percent from last quarter and 35 percent from last year at this time.

While 56 percent of respondents one year ago anticipated revenue growth in the months ahead, only 41 percent think so heading into the second quarter of 2016. This represents a 28 percent drop from one year ago at this time. Some 13 percent of respondents expect revenues to slide—the steepest drop since the first quarter of 2013 and more than double the percentage of those respondents expecting revenues to drop one year ago.

Gov. Mark Dayton’s approval rating: 28.5%

(down from 32.8% last quarter)

The governor’s approval rating among survey respondents is down 15 percent from last quarter and 21 percent from a year ago at this time. The percentage of those who disapprove of him increased 11 percent from last quarter, to 57 percent today. Compared with a year ago at this time, 19 percent more disapprove. Meanwhile, 14.5 percent remain unsure.

Operating profit margins are expected to drop, according to 19 percent of respondents. This is up 69 percent from one year ago. Some 27 percent of respondents expect margins to improve.

Employee productivity levels are expected to remain about the same as they have been in the past four quarters.

Finding qualified labor also continues to be of high concern among survey takers; 48 percent say they expect it to become even more difficult in the months ahead.

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For the biggest business challenge in the next three months, finding—and, increasingly of concern, retaining—good employees topped the list among the 278 written responses. Other responses that hit upon common concerns:

  • “Maintaining a reasonable profit while you are growing and diversifying your lines of businesses.”
  • “The political climate and all of the legalese that has become commonplace to do business.”
  • “Finding a new warehouse and office space for our growing business. Very difficult to find in the southern metro area.”
  • “Cash flow—billing milestones take longer than cash out, so cash flow is hard to balance, especially when you need to keep up with new technology.”
  • “Overcoming the high taxes in Minnesota to remain competitive nationally.”
  • “Retirements—loss of institutional knowledge.”
  • “The Minneapolis City Council and their labor law overreach. The mayor and council [have considered or proposed] laws that will put small business out of business, raise prices on goods, drive business to move and reduce jobs.”

TCB’s survey also gives respondents a chance to mention issues not on the survey. Among them:

  • “Business is good and we anticipate the year to be about the same as last year. We are seeing it slow down for next quarter, though.”
  • “The first quarter of the year is normally our weakest quarter. The election process and its uncertainty is [eroding] our revenue base. This could continue through our second quarter. We are attempting to broaden our lines of business for growth.”
  • “Selling prices are in contraction, raw material prices are increasing, labor is tight and more expensive. Costs are increasing somewhat. The squeeze is apparent.”
  • “We are proactively looking to move to Texas or Florida. Last month we visited Florida, and in May we will visit Texas. The overregulation, exploding health care costs and the migration of our clients out of Minnesota result in our inability to logically stay in Minnesota.”
  • “The regional and national economy are very weak, and the Minnesota tax environment will eventually be detrimental to our economic growth.”
  • “Minnesota has many things going for it. I don’t understand why its government officials don’t recognize that, rather than chasing businesses, talent and wealth out of the state.”
  • “The ride will be bumpy until the elections, then it will get really rough.”

Another question asked was whether those businesses that plan to expand will do so in Minnesota. This quarter, 49 percent indicated they would, down from 57 percent three months ago; 28 percent said they won’t, up from 24 percent three months ago; and 22 percent answered “unknown,” which was up from 19 percent last quarter.

About the survey

Since mid-2011, Twin Cities Business has sent more than 11,000 business leaders throughout the state the same set of questions every quarter, asking them about plans and expectations for the next three months. This issue’s survey, conducted at the end of March, provides insight about the second quarter of 2016 ending June 30.

Survey responses are used to compile TCB’s Minnesota Economic Outlook Index, which comes in at 46.1 this quarter, below the trailing 19-quarter average of 50.6. An index above 50 indicates healthy business growth; below signals slowing business growth. This indicator has slid downward for four consecutive quarters.

Above, percentage of respondents anticipating increases or improvements in these areas during the second quarter of 2016—diffusion-indexed: for each question, all responses for “increase” added to one-half of responses for “maintain/stay the same.” Above 50 is positive, below is negative.

Percent of 354 Minnesota businesses, by industry, that anticipate increases in these areas during the second quarter of 2016:

Percent of respondents, by county, that anticipate increases in these areas during the second quarter of 2016:


Twin Cities Business conducts its survey quarterly to provide a look at business planning and sentiment among leaders across all industries in Minnesota. An email link to an online survey was sent to 11,772 Minnesota business leaders in late March, and reminder emails were sent the following two weeks to those who had not yet completed the survey. The Minnesota Chamber of Commerce provided some of the email addresses used in this outreach. As of March 31, 354 leaders responded, resulting in a 3 percent net response rate. Of those who responded, 92 percent represented privately held businesses.

This article is reprinted in partnership with Twin Cities Business.