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
Everyone agrees that manufacturing jobs are an important part of the economy, but in Minnesota, we should be glad they aren't a bigger part of the economy than they are.
Gov. Mark Dayton has declared "Minnesota Manufacturers Week," an annual event designed to educate the public about the role manufacturing plays in the state’s economy.
“For decades, manufacturing has been a crucial sector of Minnesota’s economy, providing good jobs and living wages for middle class families,” Dayton said in a press release. “I want to thank our state’s manufacturers, and the 300,000 Minnesotans who work hard every day to build the high-quality, innovative and reliable products our global economy demands.”
But one of the reasons Minnesota has weathered the downturn and recovery so much better than its eastern neighbors (see state unemployment rates below) is precisely because manufacturing is not as "crucial" here as it is in Wisconsin, Michigan and Ohio.
This data I gathered from the Bureau of Labor Statistics is going to be a bit hard to read, but check it out anyway. The key information is there:
As you can see, Minnesota and Wisconsin have pretty much identical employment, but a larger share of Wisconsin's workforce has been and continues to be working in manufacturing. Places like Milwaukee, Racine, Sheboygan and Appleton are famous for their historic manufacturing prowess, and almost one in five Wisconsin jobs was in manufacturing in 2003.
Over the past decade, that hasn't been an economic advantage. Both Minnesota and Wisconsin lost about 12 percent of their manufacturing jobs over the past 10 years, but because Wisconsin had more people working in manufacturing to begin with, it lost almost 18,000 more jobs. That's a significant difference, and you can see that it has helped Minnesota nearly catch up with Wisconsin in total employment.
It's worth mentioning here that Minnesota's GDP has been and continues to be greater than Wisconsin's, even though slightly fewer people have jobs here. And in manufacturing, Minnesota's annual output grew by 30 percent from 2003 to 2012, even though employment fell 12 percent.
So not only does Minnesota depend less on manufacturing for employment, but factories in the state are increasing output faster than other states. This is not surprising considering the high value of many of Minnesota's manufactured goods, such as medical devices.
I've included data for Michigan, Ohio and Illinois, states with bigger economies where manufacturing took an even bigger hit. Employment overall is negative in those states over the past decade (which it would not be in Ohio or Illinois absent the manufacturing declines).
But Wisconsin and Minnesota are the key comparison. Manufacturing jobs are at best stagnant across the Midwest today, thanks to automation and the constant pull of offshoring, and the fact that Minnesota's economy is less dependent on the blue-collar work of making things has turned out to be a benefit to the state.
Note: I updated this piece with GDP data at the suggestion of @tobycmadden
The tax climate of Minnesota ranked 47th this year out of all 50 states, according to the right-leaning Tax Foundation, thanks to increased income taxes on the wealthiest Minnesotans.
Minnesota fell two spots and is now ranked better than only California, New Jersey and New York in the State Business Tax Climate Index. Wisconsin is ranked 43rd.
“The states that lost ground this year usually did so because they changed policy in a way that makes the tax code more complex, burdensome, or economically harmful,” said Tax Foundation economist Scott Drenkard. “By contrast, the states that improved did so because they are moving closer to a tax code that collects revenue without unnecessarily distorting business decisions. Their tax codes became more neutral.”
Despite its low ranking, Minnesota’s economy was the fifth-fastest growing in the nation in 2012 and the unemployment rate in August was 5.1 percent, compared with a 7.3 percent U.S. jobless rate.
The state has chosen over the years other priorities than a business-friendly tax climate, and up to now the strategy has paid off. Lou Glazer, who runs a think tank in Michigan (ranked 14th in the nation for tax climate), has written a lot on the comparisons between Minnesota, a relatively high-tax state with a strong economy, and Michigan, a relatively low-tax state whose economy is struggling.
The comparisons favor Minnesota.
The top ten states in the Tax Foundation's 2014 rankings are Wyoming (#1), South Dakota (#2), Nevada (#3), Alaska (#4), Florida (#5), Washington (#6), Montana (#7), New Hampshire (#8), Utah (#9), and Indiana (#10).
The 10 lowest ranked states are Maryland (#41), Connecticut (#42), Wisconsin (#43), North Carolina (#44), Vermont (#45), Rhode Island (#46), Minnesota (#47), California (#48), New Jersey (#49), and New York (#50).
"We're talking about just tactics, and I think one of the big challenges right now is people are struggling to understand what our strategy is. What are we trying to achieve? I think by communicating a strategy, a goal for what we're trying to get to, that by itself is going to be much more informative than talking about is it going to be 85, 75 or 95 billions of dollars."
Personal income growth in Minnesota and several nearby states stalled in the second quarter of 2013 as farm income fell, according to new data released Monday by the U.S. Department of Commerce.
It was the second straight quarter of weak personal income growth in Minnesota.
The problem in the first quarter could be explained mostly by the expiration of a two-year federal payroll tax holiday, and an end-of-2012 rush to report income before a tax hike hit high earners at the beginning of 2013.
The problem in the second quarter was falling crop prices. Income in the state actually rose slightly, up one-tenth of one percent to $256.8 billion, despite the $1.2 billion decline in farm income.
“What a lot of farm income is based on is balance sheet change,” said Michael Swanson, an agricultural economist in Minneapolis for Wells Fargo. “You can get some pretty wild changes on farm income, and you really don’t know until you sell it.”
A farmer who had corn in the bin at $7.50 per bushel in December would have been forced to cut the price by the end of the second quarter.
“It’s down to $5.75, which is still a good price, but it’s a big loss in terms of your potential income,” Swanson said. “That’s the risk that farmers take in terms of holding onto corn…It’s a high volatility way to live.”
Nebraska, Iowa and South Dakota were the only three states in the country who saw their total personal income fall in the second quarter, reflecting the broader impact of farm income. Minnesota and North Dakota were the two slowest-growing states among those with a positive number.
In Minnesota, net earnings were down two-tenths of one percent, thanks mostly to the drop in farm income. Personal income in most other categories – construction, manufacturing, professional services, for instance -- was up slightly.
Income from dividends, interest and rent was up 2.9 percent in Minnesota.
Minnesota’s job market in August surpassed its pre-recession peak, adding 12,200 jobs in its strongest month since January.
The unemployment rate ticked downward to 5.1 percent, compared to a national unemployment rate of 7.3 percent, the Minnesota Department of Employment and Economic Development reported Thursday.
It is a watershed moment for the state, which becomes the 17th in the nation to return to its prerecession levels of employment, said Steve Hine, labor market economist for the state.
“We have certainly passed a milestone that’s a significant one,” Hine said. “After 19 months of rapid decline and 47 months of modest growth, we’re now 5,100 jobs above our previous peak.”
The peak was set in February 2008, when 2.78 million people in Minnesota had jobs.
But the mix of available jobs has shifted. While some industries with high-paid jobs have added employment, key middle-class sectors like construction and manufacturing still employ far fewer people than they did in 2008.
"A lot of the job mix that we see now compared to 2008 would be shifted towards generally lesser-paying occupations than we might have seen before the recession hit," Hine said.
Minnesota had a near-record number of job openings this summer, and good jobs are available, but the median wage offer has fallen to $12.50 an hour and available jobs have increasingly been temporary.
Logging and mining, financial activities, professional and business services, education and health care, leisure and hospitality, and government all employ more people now than they did in early 2008.
Construction, manufacturing, trade transportation and utilities and information still employ fewer people than they did in 2008.
About 152,000 people remain unemployed in Minnesota. That's the lowest number since April 2008, but not low enough to signal that all is well with the state economy.
"We would be much happier with about 30,000 fewer unemployed Minnesotans by these official numbers than we currently have," Hine said.
As of July, 16 states had surpassed their pre-recession employment levels, Hine said.
Colorado, Iowa, Montana, Nebraska, North Dakota, Texas, Utah and West Virginia were above their peak. Employment in Alaska, the District of Columbia, Louisiana, Maryland, Massachusetts, New York, Oklahoma and South Dakota had risen above the prerecession peak in the past 12 months, but since declined.
Wisconsin is Minnesota's only neighbor in neither category.
The big gainers in Minnesota in August were private education, which recovered from an inexplicable dip in July, Hine said, and retail trade, transportation and warehousing, and health care.
The state’s labor force participation rate – the percentage of people who could work who are either working or looking for a job – fell to 70.3 percent, its lowest rate since January 1982.
But Hine said that’s mostly a reflection of the state’s aging population, as the number of discouraged workers appears to have fallen over the past 12 months.
“The number of discouraged workers in Minnesota has fallen from 10,900 last August to 6,900 this August, so that does suggest that the decline that we’re seeing in participation rates is driven more by demographic or permanent factors,” he said.
One area of concern is manufacturing, which shed 3,400 jobs on the month and has lost 8,500 jobs since January.
“Manufacturing is really struggling,” Hine said. “It’s the third consecutive month of decline for the sector.”
The state has added 63,100 jobs in the past year, a 2.3 percent growth rate that exceeds the national rate of 1.7 percent.
(Photo: Shoppers at Target. Retail added 3,600 jobs in the state in August. Marlin Levison/Star Tribune file)