Minnesota economy in 2021 beat pre-pandemic level even with fewer people working

Minnesota's economy fell harder than the nation's when coronavirus hit in 2020, but the state matched the pace of the national recovery in 2021.

The state's real gross domestic product — its total output of goods and services, adjusted for inflation — rose 5.7% to $345.2 billion last year, the U.S. Commerce Department said in a release of preliminary full-year economic data for states Thursday.

The department a day earlier reported that the U.S. as a whole saw 5.7% real GDP growth in 2021, which was the fastest calendar-year growth since 7.2% in 1984. Both years followed recessions.

The rebound in Minnesota was big enough that the state surpassed its 2019 output by 1.5% even though fewer Minnesotans were working.

"In level terms, the output of the state economy and national economy was higher last year than it was before the pandemic," said Joe Mahon, regional economist at the Federal Reserve Bank of Minneapolis. "That doesn't necessarily mean we're where we would have been had the pandemic not happened."

State economic officials reported last week that, through February, the Minnesota work force had 120,000 fewer people working than it did in February 2020, just before the virus proliferated.

Job vacancies are high and unemployment in Minnesota is at the lowest level since the late 1990s, and some economists speculate that an ultra-tight labor force will become a feature of the economy for years to come.

As the pandemic spurred a brief recession in 2020, Minnesota's economy fell 4%, more than the 3.4% drop the nation experienced that year. That performance stood in contrast to the 2000 and 2008 recessions, when the state's economy didn't fall as steeply and rebounded more quickly than the nation's.

In many states, service industries led economic recovery in 2021. But the data showed manufacturers gave the biggest jolt to Minnesota's economy. They were followed by financial and other professional service businesses. The state's agriculture sector produced marginal growth, and the retail sector shrunk for the second straight year.

"There's been a pattern over the last two years where goods-producing industries tend to be overperforming and services are underperforming," said Adam Kamins, a regional economist at Moody's Analytics.

"What jumped out at me when I looked at manufacturing in Minnesota was the combination of sectors where demand for goods held strong," he said.

Makers of medical devices, industrial equipment and high-tech components were among the top producers of growth. And, with manufacturers present throughout the state and proportionally more influential in the economies of small towns, the effects of the rebound were widespread in Minnesota.

Minnesota's economic growth last year ranked 18th among the states, just ahead of Texas, a perennial fast-grower that experienced a 5.6% jump. Tennessee led all states with 8.6% growth, followed by New Hampshire at 8.5% and California at 7.8%.

For years, the Midwest has routinely been the slowest-growing regional economy, and it was again last year. The new data showed that Plains states, including Minnesota, averaged 5% growth and Great Lakes states, including Illinois and Ohio, averaged 5.2%. Of the Midwest states, Indiana had the fastest growth last year at 6.9%, and North Dakota was the slowest at 2.1%.