In what threatens to be the longest postwar recession on record, the Minnesota economy will see jobs vanish and unemployment rise in the year ahead, Minneapolis Federal Reserve Bank forecasters said Wednesday.
The same will be true, the central bank's economists said, in many other parts of the Ninth Federal Reserve District, which also encompasses North Dakota, South Dakota, Wisconsin, the Upper Peninsula of Michigan and Montana.
"The district economy will continue to contract well into 2009," said Minneapolis Fed economist Rob Grunewald.
The forecast calls for Minnesota unemployment to rise to 7 percent next year. That contrasts with an estimated 6.2 percent average for 2008 and an average 4.7 percent state jobless rate over the last 31 years.
If that prediction comes true, Minnesota's jobless rate next year will be the highest in the district -- with the exception of an 11.4 percent unemployment rate in the Upper Peninsula of Michigan, long a center of economic hardship.
As bad as it is, the central bank's economic forecast for next year may be overly optimistic. That's because it did not incorporate data from October and November, when the economic slide seems to have accelerated.
Grunewald said a housing recovery may be more than a year away.
Toby Madden, a regional economist with the Minneapolis Fed, said the four-year downturn in housing intensified this year. Housing permits declined about 27 percent this year, and the central bank's forecasters foresee a 17 percent decline coming next year. Wisconsin, which saw housing permits fall 13.7 percent this year, might see a drop of 10.8 percent in 2009.
Across the Ninth District, only Montana -- helped by oil and cattle revenue -- is expected to see growth in housing permits next year.
Minneapolis Fed economists stopped short of saying that Minnesota and other states in the district have been hampered by a "credit crunch" in which consumer or business loans are starved for fresh cash by lenders. A Minneapolis Fed survey of 2,500 businesses and 367 banks across the Ninth Federal Reserve District found credit available but harder to get.
"Credit still is available, but with more strings attached," said Ron Wirtz, editor of the Fed Gazette, a newspaper published by the Minneapolis Fed. "We did hear, anecdotally, that businesses are having to shop around for credit," he said.
A survey of business executives across the district, conducted by the central bank as part of its year-ahead outlook, found pessimism abounds for employment, profits, investment and other economic benchmarks.
"The outlook for local economies is dismal across most of the district, the worst in the 18-year history of the business leaders poll," the Minneapolis Fed said in a statement.
Mike Meyers • 612-673-1746
