Minnesota’s thawing labor market a good sign for the economy’s soft landing

As the economy continues to take center stage in a white-hot election season, a slowly loosening labor market in Minnesota and across the U.S. has kept hopes for a soft landing alive.

Minnesota lost 3,200 jobs from May to June but has added jobs in eight of the last 12 months, routinely besting the country as a whole on unemployment, labor force participation and wage growth, according to data the Minnesota Department of Employment and Economic Development (DEED) released Thursday.

That track record means the 0.1% month-over-month drop in new jobs is unlikely to become a pattern, DEED officials said during a virtual news conference. The state has gained nearly 30,000 jobs year-over-year.

“We’re not making any predictions,” DEED Commissioner Matt Varilek said, “but based on a look back at the historical trend for the last 12 months, for example, seeing that some months we go up, some we go down, but that the total is eight out of 12 months of growth, we don’t yet see this as amounting to a longer-term trend.”

Of the 11 “supersectors” DEED measures, six lost jobs through the month, with professional and business services; leisure and hospitality; and manufacturing leading. Year over year, professional and business services — a vast sector encompassing many white-collar professions — lost more than 19,000 jobs, a nearly 5% drop. Declines were specifically in the management of companies and enterprises; administrative and support; and waste management and remediation services, according to DEED.

DEED reported a statewide month-over-month loss of 8,600 jobs in May, but it revised that number to 6,300 jobs lost, the agency reported Thursday. The state unemployment rate has ticked up a tenth of a percentage point for each of the past two months, reaching 2.9% in June. The national unemployment rate also rose slightly last month to 4.1%.

“We will, of course, continue to keep a close eye on all these indicators as the [Federal Reserve] continues its efforts to achieve the so-called ‘soft landing’ of reducing inflation without a sharp slowdown in output,” Varilek said. “In Minnesota and elsewhere, we continue to believe that job growth, and especially in certain sectors, is constrained by a shortage of available workers with necessary skills.”

More than 3,100 people left Minnesota’s workforce in June, and the labor force participation rate ticked down to 67.8%. That’s still higher than the national rate, which rose slightly to 62.6% month-over-month.

“Looking at the longer run, our labor force participation rate has been hovering around 68% for years since recovery from the pandemic,” DEED Labor Market Information Director Angelina Nguyễn said.

Wages have continued to grow in Minnesota and nationally, outpacing inflation. Average hourly wages for private sector workers in the state increased $2.02 year over year, a 5.7% bump nearly double the consumer price index of 3%, according to DEED.

Nationally, wage growth has cooled from a high of 6.7% in June 2022 to 4.7%, a welcome sign for Fed officials seeking to keep both inflation and unemployment low, a two-part goal known as the dual mandate. Though wage inflation can give workers more buying power, it can also make services more expensive.

“Right now, the labor market is in a sweet spot: Employment growth is not excessive when accounting for immigration, nominal wage growth is near the rate consistent with price stability, the unemployment rate is close to what is thought of as its long-run value, the job vacancy rate is near its pre-pandemic level and the involuntary layoff rate has held steady at 1% for over two years,” Fed board member Christopher Waller said in a speech Wednesday at the Kansas City Fed. “In terms of the employment leg of the dual mandate, we may well be able to achieve the soft landing.”