Minnesota’s economy and deficit: “Not a cheerful outlook”

Minnesota management and budget commissioner Tom Hanson and state economist Tom Stinson this morning laid out the grim detail about Minnesota's economy and it's new bigger projected budget deficits.

Asked if the new, worse budget outlook meant a new round of cuts by the administration via "unallotment," Hansen said, "Talk to my boss." That's Gov. Tim Pawlenty, of course, who's expected to react to the budget forecast this afternoon.

UPDATE: MPR political reporter Tom Scheck on Twitter: Pawlenty said spending cuts will be the only way he'll balance the budget.

"We're clearly on the long, slow path upward," Stinson said. That was pretty much his most positive statement. He acknowledged the overall budget and economy forecast was "not a particularly cheerful outlook."

Here's a link to the entire forecast and to the handouts reporters received this morning.

Here are the highlights of what Stinson and Hanson said this morning:

More job loss

The February forecast estimated 120,000 Minnesota jobs lost in the recession. Now it's 154,000 with more than 130,000 already lost. Stinson said he's forecasting a turnaround in employment starting this spring. But much of that will be driven by the hiring of Census workers.

How about the stuff Minnesota really depends on?

"We think there's going to be a small turnaround in construction," Stinson said. "We think the construction industry has hit bottom" and will grow, but not rapidly. He expects a little improvement in home construction and road building. But he's not expecting to see growth in business investment outside of home construction for the next year, year and a half.

Minnesota's manufacturing sector will stop hemorrhaging jobs and will stabilize (40,000 jobs have been lost there in the past year.)

Health care employment will rise along with some increase in leisure and hospitality jobs, But retail is going to be flat, Stinson said.

Unemployment will fall but "much more slowly than we're used to seeing," said Stinson, who added it will be a "long slow climb out of what has been a very deep and extended recession."

Wages

With the lousy economy and rising unemployment, a drop in wages and hours was expected, but the new forecasts showed the recession producing an "unprecedented decline in wages," Stinson said.

In February, economists expected total wages paid in the U.S. economy would shrink by less than one percent. Now because of fewer jobs, lower hours worked and lower average hourly wages, officials see a 4.5 percent decline in wages in 2009, with Minnesota doing a little worse than the nation, he added.

Since wages make up 70 to 75 percent of the state's income tax base, state revenue is taking a huge hit.

State budget

Projected revenues for the next two budget years are down $1.156 billion, mostly from the income tax revenue decline tied to wages. Forecasts for corporate and sales taxes are pretty close to prior projections, officials said.

So Minnesota faces a $1.2 billion shortfall in the 2010-2011 budget cycle and a projected budget deficit of $5.4 billion for 2012-2013 (not including inflation).

That long-term hole "reflects a lot of one-time solutions we used in this biennium," including federal stimulus money that won't be there in 2012-2013, Hanson said.

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Thoughts on where the Minnesota economy is headed? Have you seen your wages or hours drop in the recession? Post below or contact me directly and share your story.

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