Minnesota growth outlook: Slow

The outlook for Minnesota job growth, wage growth and economic growth can be summed up in one word: slow. The word peppers the 2008 economic forecast from the Federal Reserve Bank of Minneapolis.

The central bank forecasters see no recession in sight but describe a year to forget before it begins.

Its economists expect the state unemployment rate to rise and the pace of job growth to inch ahead at one-fourth the historical average. Other states in the Federal Reserve's Ninth District, particularly the Dakotas and Montana, should outperform Minnesota next year thanks to their bigger stakes in booming commodity markets, including metals, oil, natural gas and coal. The district also includes northwestern Wisconsin and the Upper Peninsula of Michigan.

"The slowdown in housing will likely continue into 2008," said Toby Madden, Minneapolis Fed regional economist. "Minnesota, even though it's well diversified, is a little more heavily involved in housing-related production, in paint and windows, et cetera."

The Fed estimates the rate of decline for housing permits in Minnesota to ebb to about 3 percent next year. But that slowing will come in part because housing starts have fallen so precipitously already -- off 17 percent this year after sliding 38 percent in 2006.

The 2008 outlook calls for anemic growth in other key areas of the Minnesota economy:

•Nonfarm employment, up 0.4 percent. That compares with an expected 0.6 percent gain this year. The historical average, based on data going back to 1977, is 1.6 percent.

•Personal income, up 5.1 percent, before adjusting for inflation and population growth. The number is expected to hit 7.8 percent for 2007. The historical average: 6.9 percent.

The few bright spots in the forecast called for high farm commodity prices to boost the fortunes of Minnesota agriculture, and strong exports, thanks to a weak dollar prompting robust gains in exports of Minnesota manufactured goods.

Across the Fed district, an uptick in sales by manufacturers has done little to improve the job market.

"Manufacturers were busy in 2007," Madden said. "Production was up, but employment was flat." Why? "Productivity increased, with companies adding capital equipment but not employees."

Nevertheless, Minnesota posted some job growth in a report released Tuesday. The state's November unemployment rate fell to 4.4 percent -- below the national average of 4.7 percent. While Minnesota last month added 6,900 jobs, the state's job growth rate was 0.1 percent, compared with a U.S. average pace of 1 percent, according to the Minnesota Department of Employment and Economic Development.

For instance, construction employment has been hard hit, down 5,500 jobs this year. The 1,900 job gain in November may reflect how much lower than usual construction employment was in October.

"There were fewer construction workers to lay off this year," he said.