Minnesota's economy slowed but remained resilient in last months of 2022

Minnesota's economy lost some momentum in the last three months of 2022 and continued to trail the nation's rate of growth.

The state's gross domestic product (GDP), or the value of goods and services produced, rose 1.3% in the fourth quarter, according to inflation-adjusted data the U.S. Bureau of Economic Analysis released Friday.

That was half the pace of economic output for the U.S., which saw a 2.6% increase in that same time period.

GDP growth decelerated at the end of the year for both the state and the U.S., which logged 2.3% and 3.2% increases respectively in the third quarter.

The slowdown came as the Federal Reserve has been aggressively hiking interest rates in order to slow the economy and tame high inflation.

"We still see a lot of stability in Minnesota's economy, even given all of the kind of shakiness of what's happening around us," said Sean O'Neil, director of economic research for the Minnesota Chamber of Commerce. "But it does mean that the rate of growth and expansion is going to be inhibited by that."

For the full year, economic output increased in 42 states, including Minnesota, which logged a 1.2% increase compared to 2.1% for the U.S.

O'Neil added Minnesota has seen slower economic growth than many other states coming out of the pandemic as it's struggled with a tight labor force and a slower job recovery. The state ranked 35th for GDP growth from 2019-22.

"It's really hard to grow and expand your economy when you have fewer people in the workforce than you did prior to the pandemic," he said.

Last month, Minnesota finally recovered all private sector jobs lost in the pandemic, a milestone the U.S. reached last summer.

O'Neil also noted the state's economic growth has been similar to many other Midwestern states, which like Minnesota have lost some of their populations to domestic migration.

Minnesota, as well as the U.S. as a whole, started off last year with two consecutive quarters of negative GDP growth, which is one definition of a recession. But most economists agreed it didn't qualify — at least not yet — as a recession because the labor market continued to be strong with robust job growth.

In the fourth quarter, 46 states logged some GDP growth.

The state with the most growth was Texas with 7%, where mining was the biggest contributor to the increase. Meanwhile, South Dakota had the biggest drop at -4.3%, with agriculture, forestry, fishing and hunting industries being a major factor in its decline.