The state of Minnesota’s economy

The twice-a-year budget forecast is based on an in-depth review of Minnesota’s job market and overall economy. The analysis is probably the most exhaustive assessment of the state’s economy available anywhere. (And as thorough economic analyses go, the forecast is eminently readable.)

The forecast’s economic assessment is often overshadowed by “the number;” that is, the projected budget surplus or deficit and the political battles that will ensue as a result.

Here, then, are some of the latest forecast’s observations about Minnesota’s economy.

JOBS

The latest news on Minnesota’s labor market is encouraging.

In 2011, Minnesota’s employment growth turned positive, the average length of the workweek continues to climb back toward pre-recession levels, and hourly compensation is unusually strong.

Minnesota’s labor market is in recovery, but will be unable to appreciably improve on the current pace of job creation during the first part of 2012.

Until there are clearer signs of a self-sustaining expansion, employers will remain cautious about further hiring decisions and Minnesota’s economy will remain under stress with low confidence, slow wage growth, high debt burdens, depleted wealth, and discontent in the political process.

The November forecast estimates that it will take until early-2014 before Minnesota employment exceeds its pre-recession peak.

UNEMPLOYMENT

The recent drop in Minnesota’s unemployment rate has resulted from household employment gains outpacing labor force growth, not from people growing discouraged and dropping out of the workforce.

Needless to say, with initial claims for unemployment insurance recently falling to levels statistically linked with better job growth, this is an indicator MMB economists will be watching very closely over the next three to six months.

HOUSING

Residential home construction continues to remain a drag on Minnesota’s outlook.

If household formation rates continue to worsen in 2011 and 2012 as a result of weaker labor market conditions and the housing downturn continues to deepen later into 2013 it is unlikely that Minnesota’s economy will perform as forecast.

LOTS OF RISKS

… such as further deterioration in the financial markets, failure to extend the 2 percent payroll tax holiday, weaker business investment, weaker home sales, a rapid change in price levels, or if confidence remains depressed and consumer spending proceeds more slowly ….

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