Just as for Mark Twain, reports of the death of the Minnesota economy are greatly exaggerated.
Yes, the stock market is down. Yes, state and local governments face a severe budget crunch, as do many nonprofit organizations such as private colleges that depend on donations or income from endowment funds. And yes, the price of gasoline is high if you don’t adjust for inflation.
More importantly, many people who would like to have jobs do not have them. Unemployment does have a direct human cost and society should not minimize how hard it is to be out of work.
But the economic picture is not all grim, or all that grim. It is important to recognize areas in which we are doing pretty well right now and to acknowledge to ourselves that some of our current somber mood is due to other psychological factors and not the dire state of the economy per se.
As young economists gain experience working with economic indicators, nearly all learn not to pay too much attention to short-run changes, especially from one month or quarter to another. We measure things imperfectly and myriad quirks in the data can make short-term shifts look much more dramatic than the underlying reality. “Year-over-year” numbers often give more reliable insights.
Two years ago, the world seemed much rosier. The attacks of Sept. 11 were still months in the future, stock prices were higher and the Fed had just embarked on a series of rate cuts. A comparison of our situation in mid-winter 2003 to the same time in 2001 is instructive.
Non-farm employment in Minnesota dropped about 2 percent between January 2001 and January 2003. Not good, especially considering that our population and labor force continued to grow. But we are not exactly in the middle of the Great Depression, either.
“Service industries,” broadly defined, employ four out of five people in our modern economy and jobs in this sector are about the same as two years ago. Manufacturing, which makes up a little over 13 percent of all employment, suffered more, with a decline of some 44,000, or 12 percent, from 2001. But most of the losses took place a year ago. Only 12,000 of the 44,000 lost manufacturing jobs disappeared in the last 12 months.
Construction has helped carry the day here in Minnesota. Indeed, the ongoing strength of the construction sector has been a happy surprise to many local economists. Housing permits jump around from month to month much more than employment, but total permits for January 2003 were up 29 percent over 2001 (but down 16 percent from 2002). Varying winter weather accounts some of that variation over both years, but home building certainly is not in the doldrums.
“Weekly hours in manufacturing” is a useful indicator of business for factories and needs to be considered along with total employment in the sector. The normal workweek is 40 hours, but when orders are pouring in, factory workers put in overtime and when order books come up short, some get sent home early.
Back in the “boom” years of 1995-1999, weekly manufacturing hours for Minnesota often were around 42, indicating that many workers were getting some overtime. Now it they are at 39.2, up slightly from 2002, but down 36 minutes from 2001.
That is for the state as a whole. In the Twin Cities, which has more than half of Minnesota’s manufacturing jobs, hours in January 2003 were higher than in either 2002 or 2001.
Earnings in manufacturing, a related indicator, are up about 5 percent for the Twin Cities, before adjusting for inflation. Gross wages thus are up about $44 a week from 2001.
The number of unemployed people does look much worse, with 125,700 Minnesotans in this category in January vs. only 93,800 in 2001. That 34 percent increase is where the shoe really pinches right now.
Focusing on the state’s budget problems and on international political uncertainties can make one feel pretty pessimistic. But compared to our grandparents’ experience during the Depression, we have it pretty good, even if we don’t feel as good as we did four years ago.
Reports of actual state tax receipts take months to tabulate, but the most recent figures show little change in sales tax receipts in the past two years. It is on the income tax side that the hit has come, with a $55 million decline in monthly receipts between June 2000, and June 2002. As newer numbers come out, that picture may look worse.
In summary, while common economic indicators show a Minnesota economy that has “hit a soft patch,” to use a Greenspan phrase, all is not gloom and doom.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.