Mixed outlook for Minnesota's recovery

A slow recovery is ahead for Minnesota and the rest of the Federal Reserve's Ninth District, according to the annual outlook report released Monday.

The report featured forecasts for a slightly elevated 8 percent unemployment rate in Minnesota, flat manufacturing across the district, slower home building and an optimistic agriculture sector.

The mixed report held a batch of good and bad news as Fed Regional Economist Toby Madden declared "the recession is over," but that it'll take some time to feel as if it is.

This year was brutal, Madden said, "but it doesn't look like it's getting worse." He said the Minneapolis Fed expects the region's economy to "gradually mend in 2010. However, not all areas of the economy are anticipated to pull through with similar strength, and downside risks continue to linger."

Hundreds of surveyed business leaders expressed pessimism for the year ahead, Madden said, but the degree of pessimism is lower than a year ago. Nonfarm employment is expected to worsen in Minnesota, Wisconsin and the Upper Peninsula of Michigan, but improve in Montana, South Dakota and North Dakota. Part of that is because of slow rehiring and the fact that discouraged workers are beginning to reenter the job force.

Retailers, manufacturers, business services and construction firms reported that they expect only slight decreases in employment at their companies in 2010, said Rob Grunewald, an associate economist with the Fed. He said Minnesota's unemployment is expected to rise from its November rate of 7.4 percent to about 8 percent for all of 2010 as more, previously discouraged workers resume the job hunt.

In addition, the Federal Reserve projects that 11,400 jobs will be lost in Minnesota in 2010. To compare, those losses are on top of the 83,500 jobs the state lost during the 12 months ended in November. The Fed's year-end forecasting model shows Minnesota will likely suffer a 3.4 percent decrease in employment from the fourth quarter of 2008 through the fourth quarter of 2009. That's the equivalent of about 93,500 jobs.

Since the start of the recession in December 2007, Minnesota's economy has lost 122,200 jobs.

Grunewald and Madden's report did foresee some good news. Minnesota's unemployment rate is about 2.6 percent better than the national rate, a positive difference that they expect will continue. In addition, personal income is expected to rise slightly next year in Minnesota, Montana, South Dakota and Wisconsin. And business leaders expect to see small wage increases of 1 to 3 percent and flat pricing levels. Ag, retail and manufacturing executives reported that they expect to see prices rise, while construction pricing levels are expected to fall below 2009.

Grunewald and Madden noted that farmers enjoyed a decent 2009, despite a wet spring and fall. However, ranchers and dairy farmers had a tough year.

"The overall outlook for ag [in 2010] is good," Madden said. Farmers and ranchers should see their costs drop and their prices for livestock rise, he said.

The manufacturing sector, which was hammered across the district in 2009, should begin to see sales, profits and production rise next year. However, employment is not expected to improve much, and investments in machinery and equipment will shrink again, but not to the level seen this year.

Regardless of the sector, "It's still a job market that will be more difficult for employees than employers," Grunewald said. "Those that are looking for work likely will have to work harder to find work."

Laid-off workers are not the only ones who will struggle in 2010. Fed officials noted that access to credit remains tight, despite federal regulators pumping hundreds of billions of dollars into the banking system. In November, 35 percent of business leaders surveyed said access to bank credit had deteriorated over the past three months. One-quarter of manufacturers reported credit tightening.

"Overall credit market conditions are more difficult," Madden said.

Dee DePass • 612-673-7725 Chris Serres • 612-673-4308