Ramstad: As decisions on VP and interest rates loom, let’s get a grip on Minnesota’s economy

The Fed may cut interest rates Wednesday. Gov. Tim Walz may get tapped as Kamala Harris’ running mate anytime.

It’s a good moment to get our talking points straight about Minnesota’s economy.

Minnesota is performing more strongly than the nation in employment and wages. However, Minnesota is weaker than the nation in economic growth, and we may have been in recession during the first six months of the year.

For me, that suggests Minnesota would gain from a rate cut now rather than waiting for Fed policymakers’ next meeting in September.

This month’s Beige Book survey of conditions from the Federal Reserve Bank of Minneapolis showed weakening in its region from northern Michigan to Montana. Labor demand is softening, consumer spending is mixed, real estate’s flat and construction is up slightly.

An overlooked drag on the state economy has been the caution of Minnesota bankers, said Louis Johnston, regional economist at St. John’s University and College of St. Benedict. “Along with the increase in rates, bankers and lenders are more careful about the quality of their lending,” he said.

In Minneapolis, projects are gaining momentum, said Erik Hansen, director of the city’s Community Planning and Economic Development department. Lower interest rates and the end of legal challenges to the city’s 2040 Plan will soon help. “Now that we’re able to continue our work under 2040, we’re excited to see more development happen,” he said.

Let’s start from the top.

Population growth influences everything. Minnesotans get two data points each year: a census update for the whole state in the spring and a metro-area update from the Metropolitan Council in summer. This year, both once again showed Minnesota is adding fewer people than ever.

The Census Bureau estimated that Minnesota experienced 0.4% growth from summer 2022 to summer 2023. The U.S. grew 0.49% in that time. If Minnesota keeps its pace for the entire 2020s, the state’s population will grow about 4% for the decade. That would shatter the record for slowest growth in a decade in Minnesota, which was 6.8% in the 1940s.

The Twin Cities is growing faster than the state. The Met Council, which makes estimates for the seven-county metro region, announced last month that the region’s population grew 1.9% from 2020 to 2023. If that pace is spread out, the Twin Cities will grow in the 6% to 7% range for the 2020s — compared to 11% growth in the 2010s.

Housing units and households are growing at nearly twice the rate of the overall population. For all the heated conversations Minnesotans have about urbanizing, the metro region, and both Minneapolis and St. Paul themselves, are actually becoming less dense.

Minnesota remains a net loser to other states in migration, data for 2022 recently released by the IRS showed. The state lost a net total of nearly 14,000 of its 4.5 million taxpayers to other states that year. Wisconsin was the top destination, followed by Florida.

The strongest argument for a rate cut now is that Minnesota and most of the Midwest tumbled into decline during the first quarter of 2024. In Minnesota’s case, the size and timing of payments to farmers was a key factor. Farm income declined sharply last year due to lower prices amid average crop yields. Lower receipts for durable goods manufacturing also contributed to the 0.8% drop in the state’s GDP. For the country as a whole, GDP grew 1.4% in the same period.

Last week, the first reading on second-quarter GDP for the nation showed a 2.8% jump, surpassing expectations. We’ll find out at the end of September how Minnesota did in the second quarter. If it falls again, that meets the definition of recession.

For the last decade, labor conditions were tighter in the state than in the nation, even while Minnesota frequently had the highest percentage of people working of any state. At the moment, we’re sixth after North Dakota, Nebraska, Utah, Colorado and South Dakota in labor force participation.

As in the rest of the country, Minnesota’s unemployment rate ticked up slowly this year and was at 2.9% in June. The U.S. was at 4.1%.

Wage growth in Minnesota was 5.7% higher in June than a year earlier, while the U.S. saw wages increase 4.7% in that time. Both are well over the inflation rate, which is hovering around 3% nationally and is below that in Minnesota.

That growth in Minnesotans’ wages, along with strong growth in corporate profits nationwide, is yielding more revenue for Minnesota’s state government. The state closed the fiscal year ended June 30 with $30.2 billion in revenue. That’s $421 million, or 1.4%, more than expected in February, when its last official forecast came out.

That means if Walz jumps to the national stage, he’ll be able to say Minnesota’s budget stayed in the black even after the largest jump in state spending since the 1970s.

A big caveat: The effects of his riskiest economic move — paid family and medical leave — won’t be known until 2026 and 2027. While I don’t agree with all his policies, I give him a B for boldness and appreciate that he’s always game for a give-and-take about them.