Minnesota’s job market continues to cool, thanks to restaurant and wholesale sector slowdowns

Minnesota’s employment market continues to cool, with the state losing another 1,100 jobs in July.

The state follows the nation in the slowing of new hiring — but it’s also exactly what economists want to see to keep the overall economy level.

While the July losses are statistically flat, the unemployment rate ticked up to 3.2%, still far lower than the nation’s 4.3% rate, according to data released Thursday by the Minnesota Department of Employment and Economic Development (DEED).

Kevin McKinnon, DEED’s deputy commissioner, said he was not worried about Thursday’s report. The state has seen job growth in eight of the past 12 months, plus several companies have expansion plans and there are still a sizable number of open positions.

“We’re looking at a lot of that sort of data here, but certainly we’re keeping a keen watch on this,” McKinnon said during a virtual news conference Thursday morning.

Over the year, Minnesota gained 29,200 payroll jobs. And according to the Bureau of Labor Statistics, Minnesota employers had more than 169,000 open positions in May, an increase over the month before.

The sectors with the largest job declines in July were “trade, transportation and utilities” because of reductions in wholesale jobs; the hospitality industry because of a slowdown in restaurant work; and the financial services sector.

Afro Deli restaurant chain owner Abdirahman Kahin said he wasn’t surprised to see job losses in July for his restaurant industry.

Many restaurants are like his. Three of his four Afro Deli stores sit right by college campuses in the metro area and lose their student customers during the summer. That means either job declines or “no job gains” for the summer months, Kahin said.

He added that he sees job losses in the wholesale sector, too. His product suppliers have cut back on weekend deliveries this summer due to staff shortages, higher minimum wages, high gas prices and inflation, Kahin said.

For July, DEED saw the number of retail jobs remain flat. But jobs grew in education, health services, professional services and construction.

The overall results continue the job declines the state saw in June, when Minnesota reported the loss of 3,200 jobs — mostly in professional/business services, hospitality and manufacturing.

DEED on Thursday also revised its May-to-June job report downward, noting the state actually lost 7,500 jobs instead of the previously reported 3,200 job losses. The change mainly stemmed from larger losses in the professional services and hospitality areas.

In July, the labor force participation rate was flat at 67.8%, even though 2,200 people left the labor force.

“Despite monthly variance, Minnesota’s economy remains in a strong place,” said DEED Commissioner Matt Varilek in a statement.

Varilek added that the state is “also eagerly watching macroeconomic factors” including pending interest rate decisions by the Federal Reserve.

In a nod to the upbeat, Angelina Nguyen, DEED’s labor market information director, noted that average Minnesota wages again rose in July, increasing by $1.42 per hour or 3.9% over the year. That’s higher than the rate of inflation, which rose just 2.9% over the year. It marked the first time inflation rose less than 3% since 2021.

With a slowdown in hiring and decreased inflation, consumers and economists alike have their eyes glued to what the Federal Reserve might decide to do with interest rates during its next meeting, in September. Many expect an interest rate cut, though there is strong debate about whether it could be a quarter-point or half-point rate cut.

McKinnon said all indications suggest the Fed has achieved a soft landing — meaning that it raised interest rates sufficiently to cool down the hot economy but without shoving the nation into a recession.

The state, along with the nation, continues to experience a relatively tight labor market where employers struggle to find workers with the skills needed to drive significant growth, McKinnon and Nguyen said.

To help, DEED released nearly $35 million in funding grants over the last six months for three new workforce training programs. The grants are designed to bring more Minnesotans into the workforce and on the path to careers with family-sustaining wages.

“The bottom line is that Minnesota’s over-the-year job growth is still positive, our unemployment rate still low, wages are outpacing inflation, and the labor force participation rate is still high,” Nguyen said. “Minnesota has gained jobs eight out of the last 12 months, and we’re working hard to drive job growth going forward.”