Nearly half of the people now working in Minnesota were carrying lunchboxes to school or playing in sandboxes the last time the state faced a recession like the one some economists are expecting.
"The forecasts are almost changing daily and getting more pessimistic each time," said Nariman Behravesh, chief economist of Global Insight, an economic forecasting firm based outside Boston.
In the U.S. economic downturns of 2001 and 1990-91, Minnesota could boast of escaping the worst of what the national downturn wrought on many other states. Not this time, said Minnesota state economist Tom Stinson: "In the recession of 2008-2009, it looks like we're going to get hit a little harder than the U.S. average."
"Don't expect a rapid snapback," Stinson said, considering the outlook for the Minnesota economy. "This isn't 1991. This isn't 2001. This is going to be more like the twin recessions of the 1980s."
That view is not universal.
A national recession that economist Dan Laufenberg believes started last month is more likely to be "typical" than "severe," in his view.
"This is going to be an average recession," said Laufenberg, chief economist at Minneapolis-based Ameriprise Financial Inc.
He expects a national recession -- with rising unemployment and a decline in incomes, consumer spending and business investment -- to last 10 months, with unemployment rising to 7 percent, from 6.1 percent last month. The economy, in his forecast, will shrink at an annualized rate of 1.7 percent.
By contrast, the 1982 recession lasted 16 months, with the nation's economy contracting at an annual pace of 2.6 percent. The U.S. unemployment rate rose from a prerecession level of 7.2 percent to a high of 10.8 percent.
What separates Laufenberg from a more pessimistic pack of experts?
Unlike many other economists, he believes the housing market may be poised for recovery.
"Because the housing sector has been in a recession for over two years, it may be bottoming," Laufenberg said. "It will be one of the sectors that sort of lead us out."
Other economists think home sales will lag for years to come, depriving the Minnesota economy of a key element of past economic turnarounds.
In the past, said Eugenio Aleman, senior economist in the Minneapolis office of Wells Fargo & Co., "the Federal Reserve lowers interest rates and that lowers mortgage rates. They use housing as a propeller to lift us out of recession. That's not going to happen now."
Burned by billions in losses on mortgages, lenders will be more cautious than ever about home lending, Aleman said.
Don't look to manufacturing
Another problem for the Minnesota economy in the current slump: No one expects Minnesota manufacturing employment to rebound.
In the recessions of the 1970s and 1980s, manufacturing employment in Minnesota revived faster than across the nation. In the 1990s, Minnesota manufacturing employment enjoyed a revival even as factory jobs disappeared nationally.
"Manufacturing peaked in 2000," said David Senf, labor market analyst at the Minnesota Department of Employment and Economic Development (DEED). "It peaked forever."
This time, a far greater share of goods bought by Minnesotans and consumers around the country are imported. To Aleman and other economists, that means a resurgence in consumer spending may do more to help China, Japan or Germany than Minnesota.
Even Laufenberg's relative optimism about the economy's prospects has a downside. He believes the nation's economy may take years to bounce back to levels of employment seen before the downturn began. Widespread fears of a widening financial crisis will be hard to calm, he said.
"Jobs come back much slower because businesses, if they just get a whiff of the economy slowing down, are quick to downsize and get ready for it," he said.
How deep will the trough be?
In a mid-October report, Global Insight forecast a downturn of three back-to-back quarters of U.S. economic contraction. The nation hasn't seen that kind of downturn since the worst post-World War II recession, in 1973-74.
But Behravesh said the recession that he believes started last summer and predicts will end next March, April or May will be more like the recession of 1981-82. The forecast calls for the loss of 2.2 million jobs nationwide from peak employment before the recession and an unemployment rate of 7.5 percent in late 2009. The U.S. jobless rate was 6.1 percent in September.
If that forecast comes true, the economic news for Minnesota in the year ahead is likely to be grimmer than at any time in a generation.
"It's going to be very, very weak performance," Aleman said.
Forecasts changing on the fly
In a report released last week, DEED forecast that Minnesota will lose nearly 30,000 jobs by the end of the third quarter of 2009.
But that report was issued when Global Insight, the state government's forecasting beacon, was offering a brighter outlook. In the 1981-82 recession, Minnesota lost more than 100,000 jobs and took about three years to recover to the levels of 1980.
By the next time Global Insight's computers spin out an economic forecast, next month, Behravesh said, the risks of a worse recession will have increased sharply, as uncertainty about the nation's financial system is climbing.
"In a couple of weeks, we may have to change the jobs recovery to 2010 and highest [unemployment] rate to 8 percent," he said.
Even that forecast is subject to amendment. In its October forecast, Global Insight offered 1-in-4 odds that the economy could deteriorate further than expected.
"In this scenario, the unemployment rises to a peak of 9 percent," Behravesh wrote. That's not a worst-case scenario, he said, but a plausible alternative to the most likely outcome.
Minnesota job growth had been lagging behind the nation's since early 2006. The outlook for Minnesota workers and job seekers could end up sagging faster than the nation as a whole, said Aleman at Wells Fargo.
"You will see further deterioration in the employment market and then kind of stagnation," he said. "No growth for a year and a half or so."
Mike Meyers • 612-673-1746