Signs point to a growing economy in Minnesota and the region in 2015, according to new projections from the Federal Reserve Bank of Minneapolis.
Unemployment should fall from 3.7 percent to 3.3 percent by year’s end and personal income will grow slightly faster than last year, Fed economists said Tuesday in an annual outlook based on surveys of businesses and statistical models.
“Expect another good year in Minnesota, with more employment, fewer unemployed people, increases in personal income,” said Toby Madden, an economist at the Minneapolis Fed.
Dramatically lower gas prices are also fueling economic growth by freeing up about $70 per month in disposable income for the typical family and goosing profits for farmers, airlines and trucking companies.
“For consumers, lower gas prices have freed up funds to spend elsewhere,” said Rob Grunewald, also an economist at the Minneapolis Fed. “However lower oil prices are not good news for companies involved with oil production and drilling.”
The Minneapolis Fed’s region, the Ninth District, includes Minnesota and also the Upper Peninsula of Michigan, northern Wisconsin, North and South Dakota and Montana.
Business leaders in the region profess near-record levels of optimism heading into the new year after a slow climb back from the recession, according to the Fed’s survey of 315 businesses. Those surveyed registered an all-time high in confidence in outstate Minnesota.
Across the region, they expect to do more hiring in 2015 than in 2014, especially in the Twin Cities and northwest Wisconsin. Most bosses in the Upper Midwest expect to offer workers 2 or 3 percent wage and salary increases, and the tiny share expecting to give more generous raises crept upward slightly, the Fed economists said.
Still, stubbornly sluggish wage growth and continued weakness in new home construction continue to work against economic growth, and the effects of low oil prices for several months could be damaging in North Dakota.
Personal income growth in 2014 was faster than 2013 but still below historical averages, and economists are unwilling to declare economic victory until they see faster income growth.
“One of the big concerns of a lot of people is that wages haven’t gone up much, and that’s one thing that’s tempering [enthusiasm] somewhat,” Madden said. “Personal income is pretty decent at 4.6 percent [growth], but not a lot to write home to grandma about.”
Housing construction is expected to be flat in 2015, thanks to slow household formation among young people and the continued need for correction after the housing bubble of the mid-2000s, Madden said.
In farming, which is a significant part of the regional economy, prices for corn, soybeans, wheat, milk and hogs are expected to decline in 2015, while beef prices should rise.
“A mixed bag in agriculture,” Madden said.