Minnesota economy lags much of region

The economy in the nation's midsection is on the mend, based on a business survey released Monday, but Minnesota's economy lags the progress of some neighbors.

"Minnesota is much more like the nation than the rest of the region," said Creighton University economist Ernie Goss, who conducted the survey of supply managers. "Housing has been a much bigger issue in Minnesota."

For the first time since last August, the nine-state survey's "business conditions index" rose above 50, which indicates economic growth.

The regional index, which measures factors such as new orders, climbed from 49.3 in June to 51.7 in July. When Goss analyzes that number, he said he's concluded that "the recession is ending in the third quarter, not that it ended in July."

But, he added, the economic "pickup is going to be somewhat anemic."

In Minnesota, the overall index rose from 43.9 in June to 45.2 in July -- it was the 12th consecutive month that the survey signaled contraction in Minnesota's manufacturing sector.

The state's economy, which includes a bigger portion of wood products and building material businesses, may not see a recovery in manufacturing until the fourth quarter, Goss said. As the national economy improves, Goss said, "It will lift the boat of Minnesota, but it is a slow rise."

"We expect manufacturing employment to shrink some for the remainder of the year," Minnesota state economist Tom Stinson said in a Monday interview. "It won't be until early- to mid-2010 before manufacturing employment stabilizes."

Minnesota's unemployment rate in June rose to 8.4 percent, and Goss projected that the rate will peak at 8.9 percent in the fourth quarter of this year.

The Institute for Supply Management, which conducts a comparable national survey, reported Monday that the U.S. manufacturing sector declined for the 18th consecutive month. But the pace of contraction is slowing, and the U.S. manufacturing index jumped from 44.8 in June to 48.9 in July.

Norbert Ore, chairman of the national manufacturing survey's committee, was encouraged by new-order reports, but said manufacturing employment was still shrinking.

"It would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggest that we will see growth in the third quarter if the trends continue," Ore said in a written statement.

With rising unemployment rates, some consumers don't have much money to spend, and many of those still holding jobs are being more cautious with consumer purchases.

Stinson said it's unclear when there will be a substantial turnaround in consumer spending. For now, Stinson said, "We don't expect total employment in Minnesota to get back to pre-recession levels before 2012."

In July, North Dakota, Missouri, Oklahoma, South Dakota and Nebraska reported slight growth. Besides Minnesota, Iowa, Arkansas and Kansas reported contraction.