Vibrant economies aren't found only in cities

Most Minnesotans, if pressed to draw up a list of the state's economic hot spots, would quickly agree on the usual suspects.

Chances are, Mankato, Owatonna and Willmar would not make the cut. That they should is one of several surprising findings in a just-released analysis of Minnesota's outstate economy by the University of Minnesota's Center for Urban and Regional Affairs (CURA).

The study of "Trade Center Hierarchy in Greater Minnesota" is an attempt to measure and rank the economic vitality of cities outside the seven-county Twin Cities metro area. But it's more than an interesting academic exercise. Past studies have been used by policymakers to help set spending priorities for state highway projects. Community development officials also rely on the data to help recruit new businesses, including national retailers that may be scouring the countryside for promising non-metro markets.

If you're skeptical about whether this really happens, I have one word for you: Cabela's. It came to Minnesota via Owatonna.

The study was conducted by Will Craig, who is CURA's associate director, and Bruce Schwartau, an associate extension professor with the U who works closely with community development officials in outstate Minnesota.

Among the more revealing takeaways:

•The rural economy is stronger than most Minnesotans probably appreciate, and it's not just about soybeans, mining and lakeside resorts.

Since 1990, Greater Minnesota's share of the state's retail and service sales has actually increased slightly, from 35 percent to 37 percent.

But that strength isn't distributed evenly. In general, cities with more than 7,000 residents are growing faster than smaller ones. As these large cities add more businesses, they draw from an ever-widening trade area.

"It's been happening since the advent of the Model T: People are willing to go farther and farther to purchase their goods and services," Craig said. "That leads to a decline of things available for sale in smaller places."

Still, Craig was somewhat surprised by the 2009 data, which suggested that, at least during the early stages of the recession, people seemed more inclined to shop locally, with even some of the smallest cities showing an increase in sales between 2003 and 2009.

•The rural economy is more dynamic than you might think.

The latest study, like its predecessors, assigns outstate cities to a trade center level. Level 1, primary regional, is the highest. Level 7, hamlet, is the lowest.

In 1989, Duluth was the only city at Level 1. By 1999, Rochester and St. Cloud had moved up.

This year, Mankato made its first appearance as a Level 1 city, with taxable retail and service sales of about $900 million. Since 2003, it has grown faster than St. Cloud, Duluth or Rochester.

"Mankato is the big surprise," Schwartau said. "It is really the major shopping center for all of south central Minnesota."

•Size is not destiny.

One of the more striking aspects of the data is the disparity between cities of similar sizes. Marshall does better than Hutchinson, while Owatonna outperforms Faribault.

While the survey measures more than retail activity (it includes taxable sales reported by a dozen different industry classification codes), the presence of a single big-box retailer can significantly boost one city's fortunes at the expense of another.

Schwartau illustrated how that's happening in Fairmont, a city that doesn't have a building materials retailer. His analysis suggests people are leaving Fairmont to buy building materials at the Home Depot in Mankato.

Once they get there, it only stands to reason that they're more likely shop for other things as well, such as clothes or groceries.

The anti-big-box crowd might say this illustrates exactly why small cities should be discouraged from recruiting chain retailers, but Schwartau suggests the opposite might be true. The best way for Fairmont to protect its local retail base might be to recruit its own big-box home improvement store.

"Somehow, they need to be more competitive on building equipment," he said.

While Craig hopes that the new data will give policymakers a clearer picture of what's happening around the state, the real value may be in helping development officials on the ground in those cities do their jobs better.

"I think the real opportunity is learning from the success of others," he said.

ericw@startribune.com • 612-673-1736