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What are the forces moving the Minnesota economy? Adam Belz tries to identify the trends and show the connections between Minnesota and the larger U.S. and global economies. You can connect with him on Twitter: @adambelz

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The 10 biggest economics stories of 2012 in the Upper Midwest

Posted by: Adam Belz Updated: December 28, 2012 - 10:24 AM

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Here are the Top 10 economics stories of 2012 in the Upper Midwest, loosely defined as the region from Michigan to the Dakotas, plus northern Illinois and all of Iowa. Please weigh in with a comment.

1. The North Dakota oil boom is attracting capital and population, shifting job markets, rerouting railroads, helping create frac sand riches and controversy in Wisconsin, and changing the U.S. energy picture. It’s clearly the most dynamic and far-reaching story in the region.

2. Labor lost big legislative battles in Michigan and Wisconsin, and employers are locking out workers all over the place. Wisconsin Gov. Scott Walker won his 2012 recall election easily after he championed a law that ended collective bargaining rights for most public employees. Then in December, Michigan Gov. Rick Snyder signed a right-to-work law in the home state of the United Auto Workers, which Monica Davey of the New York Times called “a moment startling in its symbolism.” In Minnesota, symphony players, sugar workers and NHL players have all been locked out by their employers.

3. Demographics. For instance, in Minnesota, as the population ages and baby boomers cycle into retirement, the state’s workforce is shrinking. And the young people that will make up a disproportionate share of the future workforce will be black and Latino, populations that in 2009 and 2010 were graduating from high school at rates of only 51 percent and 52 percent. High school graduation is a minimum standard for adult success that barely even passes muster in the Minnesota of the next 50 years. By 2018, 70 percent of jobs in Minnesota will require some postsecondary education. (h/t Anna Nelson)

4. Midwest farmland prices may have finally peaked. Dan Piller at the Des Moines Register reports that overseas farmers will ramp up production in response to high commodity prices, and the result will be a gradual decline in prices and therefore land values, which in Iowa hit a record average $8,296 per acre in 2012. “It won’t be a crash, like we saw in the 1980s, but a slow decline,” said Mike Duffy, an economist at Iowa State University.

5. Minneapolis Federal Reserve President Narayana Kocherlakota, generally thought of as an inflation hawk, became one of the most vocal proponents of keeping interest rates low indefinitely. He wanted explicit goalposts for interest rates and inflation to govern Fed monetary policy. He said publicly several times that the Federal Open Market Committee should keep interest rates low until either unemployment drops below 5.5 percent or the inflation outlook rises above 2 percent. Neither has happened yet, and the Fed announced in December it would use a similar national standard – 6.5 percent unemployment and 2 percent inflation.

6. The housing market appears to be improving. National home prices rose 4.3 percent from October 2011 to October 2012, and in Minnesota they rose 9.2 percent over the same period. Housing oracle/blogger Bill McBride said “house prices probably bottomed earlier this year.”

7. Minnesota's largest companies face a leadership challenge. Best Buy’s turmoil and founder Richard Schulze’s attempt to take over the company headline the list. But 3M, Carlson, Supervalu, Medtronic and Nash Finch also have recently-appointed leaders. (h/t Bill Blazar)

8.Two important debates in American manufacturing: 1) Whether there is a skills gap, and 2) Whether companies are bringing jobs back to America. I tend to think the skills gap is less pronounced and more complicated than some manufacturers would like the public to think. At very least, average wage trends don’t point to a gap. On the question of jobs returning to the U.S., rising Chinese wages could help move work to other countries, but I tend to agree with Alan Tonelson, who argues the work isn’t coming back to the U.S.

9. The drought may not have devastated the farm economy, thanks to crop insurance and resilient seed varieties, but it did squeeze one of the nation’s key shipping lanes: the Mississippi River. Low water below St. Louis brought barge traffic to a halt this summer and is still a problem. It’s something to watch in 2013.

10. The fight for survival in the region’s forest products industry. Reports of innovation at Sappi have been overshadowed by closures in Sartell, Duluth and Brainerd. Both we at the Star Tribune and John Schmid at the Milwaukee Journal-Sentinel wrote lengthy articles on the forest industries.

Honorable mentions:

-- Magnetation has been a success story amid a bit of brightness in the U.S. iron ore industry. The innovative Grand Rapids, Minn., taconite processing company opened its first plant in Keewatin in early 2009 and has grown quickly, attracting investment from Cargill. The firm transforms the Iron Range’s plentiful waste ore into a higher concentrate with the help of magnets. By year’s end, Magnetation had 218 employees, a second plant in nearby Coleraine, a joint venture with Steel Dynamics near Chisholm, and plans for a new plant in Indiana.

-- The poor holiday shopping season, fiscal cliff negotiations and uncertain economic outlook for 2013. Who knows what it all means?

-- The lean finely textured beef controversy, which lost a lot of meatpacking workers their jobs and is leading to lawsuits against ABC for using the term “pink slime,” with all its dreadful public relations consequences.

-- The debate over whether to build the Keystone XL pipeline, which would run close to the Bakken basin in North Dakota and hinges to a large extent on Nebraska.

-- Chicago’s housing market continues to suffer, with prices falling again in October.

-- The growing prominence of Minnesota’s water technology sector, including companies like Ecolab, Pentair, SJE Rhombus.

Bonus:

Elon Musk had a big 2012. If electric cars ever succeed in the U.S. market and if humans ever establish a presence on Mars, Musk will have to be mentioned in the history books, and the economic implications would be far-reaching.

Minnesota small businesses can tap into state loan program

Posted by: Adam Belz Updated: December 24, 2012 - 3:31 PM

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Small businesses who can’t get a loan could find lenders through a little state program that needs to start moving money in 2013.

The program is only just picking up steam.

Some $15.4 million in Treasury funds came to Minnesota to help encourage small business lending thanks to the Small Business Jobs Act of 2010. The programs offer loans and loan guarantees to businesses with fewer than 500 employees, preferably much smaller, minority-owned and in economically distressed parts of the state.

Federal guidance says the state should distribute $9 million in loans and loan guarantees by October 2013. So far, a little more than $1 million has been used.

“Activity is increasing, and we expect to meet that goal,” said Blake Chaffee, spokesman for the Minnesota Department of Employment and Economic Development.

The point is to stimulate private lending with public dollars. DEED reports that in 2012, $1 million in publicly funded loans and guarantees for 31 businesses have helped leverage $15.9 million of private money. According to state estimates, 233 jobs were created and 472 retained.

Only lenders who’ve been OK’d by DEED can make the loans, each of which must also get final approval from DEED. The lenders are generally foundations and neighborhood development corporations.

The largest of the programs is the Emerging Entrepreneurs Fund, which can lend up to $150,000 to a small business, provided private lenders match public dollars. The program loaned $615,000 in 2012, which helped create $10.8 million in private loans.

“The goal is 10 to 1,” Chaffee said.

If DEED can get $10 of private investment for every $1 it commits to a small business, that would be $154 million of investment in Minnesota small businesses.

“It is a demand thing, so we’re going to work our way to the 80 percent by 2013,” Chaffee said.

Banks have said for months that loan demand is weak. Lending by traditional institutions like banks has slowed since the recession as loan officers tighten credit standards and consumers try to chip away at their debt. Depoosits at U.S. banks now outnumber loans by $2 trillion, which is a problem for institutions that make the bulk of their profit by lending and chargning interest.

The state's entrepreneurs fund is designed specifically for minority- or women-owned businesses and businesses in economically distressed areas. Another way to use the federal money is called the Capital Access Program, which tries to encourage lenders to work with companies that might not meet their credit standards. It uses a special loss reserve to bolster these questionable loans.

Companies like Northshore Manufacturing Inc. in Two Harbors, the French Hen Café in St. Paul and Raices Residential Cleaning in Brooklyn Park each received federal dollars to help leverage larger private loans. The largest state commitment was for a $224,000 loan guarantee for STAFF Manufacturing in Lester Prairie, which DEED says helped attract $2.2 million in private loans.

“One of the biggest challenges faced by promising small businesses is gaining access to capital in the early stages of their development,” said DEED Commissioner Katie Clark Sieben. “This program provides Minnesota businesses with funding that will enable them to expand and create jobs.”

A full list of the programs' recipients and their lenders is here.

Minnesota adds 10,800 jobs in Nov.

Posted by: Adam Belz Updated: December 20, 2012 - 12:36 PM

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The biggest holiday hiring spike in a decade headlined a Minnesota job report full of good cheer, as the state added 10,800 jobs in November.

Stores, delivery companies and similar businesses drove the gains, according to figures released Thursday by the Minnesota Department of Employment and Economic Development.

“We’ve seen strong retail sales this holiday season so far,” said Steve Hine, a labor market economist for the state. “November’s job gains on an unadjusted basis was the strongest we’ve seen in about ten years.”

Also pointing to the strength of consumer spending were hiring gains in leisure and hospitality, a category that’s suffered most of the year. Restaurants, hotels and arts and recreation businesses hired 3,200 people in November. The gains were bolstered by upward revisions to the October job numbers showing that instead of losing 8,100 jobs the state lost only 4,800.

Minnesota has now gained 55,200 jobs in the past year, a growth rate of 2.1 percent, compared with job growth nationally of 1.4 percent during that period.

The state has more than 2.7 million jobs and has clawed back just over 100,000 of the 156,300 jobs it lost in the recession, according to the monthly report. (State economists believe the numbers are better than the monthly reports indicate.)

The unemployment rate ticked down to 5.7 percent in November, compared to a 7.9 percent U.S. jobless rate.

Minnesota posts 8th-fastest personal income growth in U.S.

Posted by: Adam Belz Updated: December 19, 2012 - 12:46 PM

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Minnesota’s personal income growth was among the fastest in the nation in the third quarter, according to estimates released Wednesday by the Bureau of Economic Analysis.

Earnings grew 0.8 percent in Minnesota over the three month period that ended Sept. 30, and are projected to be $248 billion for the year. The growth was driven by farm earnings, durable goods manufacturing jobs, management positions, health care, and state and local government wages.

Personal income in the finance and insurance industry fell during the quarter. Overall, income growth has slowed each of the past two quarters, after growing 2 percent in the first quarter of the year.

Minnesota ranked #8 among states for earnings growth, and the Upper Midwest shows up well in the rankings. North Dakota led all states, with the oil and gas boom driving personal income growth of 1.4 percent. Also in the top ten were Arkansas, Montana, Indiana, Idaho, Oregon, Texas, Ohio and Mississippi.

Nationally, personal income grew by half a percentage point in the quarter, a rate that's slowed since the first quarter, when it grew 1.6 percent.

Friday's U.S. jobs report will be discouraging, but don't be discouraged

Posted by: Adam Belz Updated: December 6, 2012 - 1:36 PM

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Analysts think tomorrow’s report will show that the economy added 80,000 jobs in November.

That’s less than half as much as in October, and the blame will go to Superstorm Sandy, simply because road closures and sustained power outages forced businesses in the northeast to shut down temporarily.

We shouldn’t read too much into the numbers, though. Company shutdowns are now a thing of the past, and disaster cleanup can act as a stimulus for a community.

Iowans have seen this with Cedar Rapids, a town that’s doing quite well after a devastating flood in 2008 thanks to a reconstruction building boom.

The effort to rebuild from Sandy should create jobs as well. Expect a bad jobs report tomorrow and sunnier predictions for the December numbers.