Mpls. Fed Sees Sunny Outlook for MN in 2012

The Minneapolis Fed predicts faster-than-average employment growth of 2.8 percent in Minnesota next year and anticipates that the state's unemployment rate will fall below 6.5 percent; meanwhile, Minnesota is expected to return to pre-recession employment levels by the first quarter of 2013.

Minnesota's economy is expected to improve in 2012, the Minneapolis Federal Reserve Bank of Minneapolis said in an outlook report released Tuesday.

The Minneapolis Fed predicts faster-than-average employment growth of 2.8 percent next year and said that the state's unemployment rate should fall below 6.5 percent next year. (The jobless rate through September was 7.1 percent, but the rate decreased to 5.9 percent in November, so a downward adjustment is expected after the full-year numbers become available.)

Additionally, the Minneapolis Fed expects Minnesota to return to pre-recession employment levels by the first quarter of 2013-not as quickly as neighboring South Dakota, which is expected to get to that point next year, but faster than Wisconsin, which should return to such levels in the first quarter of 2014.

The just-released report pointed to a number of positive indicators showing economic recovery. One is that consumers appear to be opening their purse strings, albeit cautiously. A University of St. Thomas holiday spending survey found that local households were expected to spend 3.4 percent more on holiday gifts in 2011 than they did the prior year.

Additionally, average gas prices in Minnesota dropped below $3.20 a gallon in December, down from almost $4 a gallon in the spring and 25 cents per gallon higher than a year earlier.

But there are some headwinds that continue to blow. Home prices in the Minneapolis-St. Paul area were 6.5 percent lower in 2011 than they were in 2010-and the agency said those falling prices have lowered consumer wealth and, consequently, consumer spending. In 2012, authorized housing units are expected to decrease in Minnesota.

Still, employment in the Fed's Ninth District-which includes Minnesota, the Dakotas, Montana, northwestern Wisconsin, and the Upper Peninsula of Michigan-has outperformed the nation as a whole since the start of the economic recovery in June 2009, the agency said.

The Fed's forecast was based on survey responses from 238 businesses in the Twin Cities and outstate Minnesota-and from a separate survey of 474 manufacturers. Among the survey's other findings, as reported by the Star Tribune:

  • Fifty-eight percent of Twin Cities businesses were “somewhat” or “very” optimistic about the economy; in outstate Minnesota, the figure rose to 65 percent.
  • Seventy-eight percent of Twin Cities businesses reported that productivity rose last year, which gives them hope for a better 2012.
  • Business leaders expect to give wage increases of 2 percent to 3 percent next year.