Economic growth slowed in Minnesota, Midwest last year

Minnesota's economy grew at a slower pace in 2014, along with much of the Upper Midwest, thanks to declines in agriculture, financial services and mining.

The state's gross domestic product grew 1.4 percent in 2014 to $288 billion, according to preliminary figures released Wednesday by the U.S. Department of Commerce.

"The Upper Midwest is close to full-employment status and also has very slow population and labor force growth," said Mark Vitner, a Wells Fargo & Co. economist who tracks the regional economy. "This makes it harder to grow all that rapidly."

Minnesota's economy grew slower than the U.S. average, which was 2.2 percent in 2014. The state's growth compared favorably, however, with much of the region. Wisconsin grew at 1 percent, Iowa at 0.4 percent and South Dakota at 0.6 percent.

North Dakota remained the fastest-growing economy in the nation in 2014, growing at a rate of 6.3 percent. The only other states that grew faster than 5 percent in 2014 were Texas, West Virginia, and Wyoming.

Slower global economic growth and the decline in oil and iron ore prices are also affecting the Midwest. Vitner believes growth has probably decelerated further in 2015, when the dollar surged and cut into exports.

In Minnesota, the parts of the economy that grew the most in 2014 were manufacturing and professional and business services. Manufacturing, which accounts for one in seven dollars of Minnesota's GDP, grew by 4.1 percent in 2014. That was better than the national average and a strong sign for the state economy.

The growth in manufacturing likely reflects investments made in the past few years, said Bill Blazar, of the Minnesota Chamber of Commerce.

"We saw decisions made in 2012 that we think contributed to 2014 being a good year," he said.

Companies introduced new products and aggressively looked for customers in Minnesota and outside of the state in 2012, according to the chamber's surveys of businesses. More recent surveys have been less bullish.

A cutback in energy exploration in North Dakota's Bakken field and a steep decline on the Minnesota Iron Range are also showing up in the state numbers.

"You've got four taconite plants on the Range that are now either down or on the way down," said Blazar. "That's a big, big chunk of Minnesota's mining industry, and that's a function of the world price for steel, which is pretty depressed."

Some sectors of the financial services industry — banks, specifically — have struggled because of low interest rates. The industry, a crucial part of Minnesota's economy, contracted by 1.3 percent in 2014, according to the new figures from the Commerce Department.

The weakness in real estate, rental and leasing — a nearly 2 percent decline — is more difficult to explain, given the strength in Minnesota home sales and falling apartment vacancy rates, Vitner, of Wells Fargo, said. He believes that figure will be revised upward, as will the overall growth of the state's economy.

"Minnesota's economy sure feels like it grew faster than 1.4 percent," Vitner said. "I do believe that growth is understated, however, and would expect this year's 1.4 percent preliminary state real GDP number to be revised up to somewhere closer to 2 percent."

Such a revision would likely come a year from now, when the Commerce Department next updates state figures. It revised Minnesota's 2013 GDP figure downward to 2.1 percent growth from the initial reading of 2.8 percent, which was made a year ago.

Adam Belz • 612-673-4405 Twitter: @adambelz