As President Obama stumps his jobs message across the Midwest this week, he is encountering a regional economy that has lost some of its post-recession luster.
A key gauge of Midwest manufacturing activity -- a sector that helped lead the region out of the recession -- has fallen four of the last five months. The jobless rate has ticked up in recent months in Minnesota, Wisconsin and some other Midwestern states. Housing prices are falling faster than in other regions.
Toby Madden, regional economist for the Federal Reserve Bank of Minneapolis, said he sees "modest growth but increased risk."
"The chance of recession has probably increased a bit," Madden said.
The Midwest still looks stronger than much of the nation, particularly Sun Belt states that were hardest hit in the housing market collapse. Agriculture, in particular, has benefited from high commodity prices.
The average unemployment rate across 12 Midwestern states from North Dakota to Ohio was 8.3 percent in June, nearly a full percentage point below June's national rate of 9.2 percent.
"President Obama is making a good move in coming to the Midwest," said Creighton University economist Ernie Goss. "For any economic policymaker, you are going to feel a lot better in this part of the country than you are in the Arizonas, the Georgias, the Floridas, Californias and so on ... [because that's] where the unemployment rate is much higher and the economic conditions are much weaker."
But economists say the Midwest has lost some of the momentum it had coming out of the Great Recession.
Creighton University's widely watched Mid-America Business Conditions Index recently slid to 54.1, near the 50 threshold for expansion.
The survey of supply managers from nine states -- Minnesota, Iowa, the Dakotas, Missouri, Nebraska, Kansas, Arkansas and Oklahoma -- showed them lowering sales forecasts, pulling back on hiring and cutting pay raises to just 1.7 percent in July.
Supply managers at some of the region's largest factories and warehouses complained of high energy prices, rising raw material costs, a slight dip in export demand and bruised confidence levels.
"Higher energy prices, uncertainty surrounding the national economy and a weak housing sector are restraining business expansion in the Mid-America region," Goss said.
Obama is visiting Minnesota, Iowa and Illinois this week to reach out to constituents who are less than thrilled with the economy, high unemployment and the fighting in Washington that culminated in the last-minute debt-ceiling deal.
Perhaps the single biggest concern has been the slow rate of job growth in the region.
According to the Bureau of Labor Statistics, Midwest job gains between June 2010 and June 2011 were mostly miniscule: 1.2 percent in Minnesota, 1.4 percent in Wisconsin, 1.8 percent in Michigan, 0.7 percent each in Iowa and South Dakota, 4.8 percent in North Dakota and 1.1 percent in Illinois
Coming out of the recession, Minnesota's unemployment rate steadily decreased, from 8.4 percent in June 2009 to 6.5 percent by April 2011. But it ticked back up to 6.7 percent in June. The jobless rate will temporarily rise even higher once July's state shutdown is factored in.
Reason for hope
There are pockets of good news, insisted Mark Phillips, commissioner of Minnesota's Department of Employment and Economic Development.
"There are lots of mixed signals," Phillips said. "We still have too many people unemployed, and the problem is that many have been unemployed for a long time, sometimes two years. But that is one problem. There are a lot of other signals that are much more positive."
Several high-tech companies recently expanded factories and testing centers. Mining investments are up statewide. Polymet in Hoyt Lakes and Twin Metals in Ely recently spent more than $20 million in feasibility studies, engineering projects or on environmental permits.
Goodrich Corp. in Burnsville and the First District Association cheese makers in Litchfield recently expanded their factories. In addition, Minnesota had record exports in the fourth and first quarters.
Agriculture remains a bright spot. High prices for everything from corn and soybeans to hogs are lifting the rural Midwest, driving solid farm equipment sales and retail revenue. And a weaker dollar has boosted ag exports.
That prompted U.S. Agriculture Secretary Tom Vilsack to tell reporters on Monday that "things are strong ... We're looking at perhaps the best year from an agricultural income standpoint ever, in terms of real income."
Real estate remains a question mark, both in the Midwest and elsewhere.
Midwest housing prices didn't experience the huge boom and crash that the Sunbelt and other parts of the country did. Yet home prices have continued to fall, weighing down consumer confidence and household finances. The latest data from the National Association of Realtors shows that the median single family home price fell 2.8 percent nationally from a year ago, but dropped 5.4 percent in the Midwest in the same time period. The median price plunged 17.7 percent in the Twin Cities.
Star Tribune staff writer Jim Spencer contributed to this report.