MPR: Where to from here?

Where to from here?
By Bill Catlin
Minnesota Public Radio
October, 2001


For laid-off workers, the September 11th attacks may weaken a job market ...	... already producing fewer jobs ... (See larger image)	... amid soaring layoffs. (See larger image)

Even before terrorists flew commercial aircraft into the World Trade Center towers and the Pentagon, the weakening U.S. economy had shed one million manufacturing jobs over 13 months. Minnesota officials are bracing for rising layoffs, but say it's too soon to gauge the attacks' full impact in the state.

Months of looking for a job in a weakening economy have done little to dampen Nilabh Narayan's steadfast cheer. Narayan was laid off in May from his job as chief technologist at Tennant Company, a maker of industrial cleaning equipment based in Golden Valley. Despite a slew of layoffs, Minnesota still has relatively low unemployment, and the state's economic base is celebrated for its diversity and resilience.

But as of August, Minnesota has lost more than 12,000 relatively high-paying manufacturing jobs in a year. "Things are slow, and that was a little surprise to me," he says.

A native of India, Narayan has lived in Minnesota for 19 years. Even before September 11th he'd expanded his job hunt beyond the state. Now, in the wake of the attacks, Narayan expects the search to take even longer, in part because of the beating stocks have taken since then.

"The first thing that the senior management does is to try to figure out how they're going to get their stock prices up. So all of the decisions will be delayed," he says.

"We don't know how the attacks are going to effect the Minnesota economy. It's just too soon to tell. What we know is is that it's not going to make things better."

- Tom Stinson

By virtually all accounts, the likely caution and retrenchment stemming from the terror strikes will worsen the job market and further weaken the economy. Before September 11th, economists debated whether the economy was in a recession.

Dan Laufenberg, chief U.S. economist with American Express Financial Advisors in Minneapolis, says even then it was something of an academic debate. "At that point we knew there were 10 consecutive months of declining output in the manufacturing sector, and since then we've discovered we've had 11 months of declining output. So the manufacturing sector was in recession. We had a profits recession. Profits just took a nosedive in 2001, late 2000 and into early 2001," Laufenberg says.

Laufenberg stands out for his optimistic prediction that the economy will grow in the 4th quarter. Many other analysts are predicting recession in the second half of the year.

In Minnesota, and elsewhere, the airline industry has taken the heaviest blow so far. Eagan-based Northwest is slashing its schedule and cutting 10,000 jobs, nearly half in Minnesota. The industry's plight prompted a $15 billion federal bailout, but Northwest's planes were half empty following the attacks.

The airline's jeopardy worries business leaders like Bill Blazar, of the Minnesota Chamber of Commerce, the state's largest business group. "Much of our success as a center for corporate headquarters, for high-technology manufacturing and, maybe most importantly, as a center for this emerging and growing information economy, goes back to being able to get our well-educated and hard-working people around the world quickly. And without a world-class airport and world-class airline, you can't do that," he says.

State economic development officials expect the pain from Northwest's troubles to spread, with each Northwest job loss costing two more jobs. The latest numbers show consumer confidence was plummeting even before the attacks and the huge airline industry layoffs that ensued. Now the question is how much the all-important consumer spending will suffer.

At the Mall of America, a citadel of consumerism, traffic looks sparse nine days following the attack. Mall officials say the numbers have been returning to the modest levels typical in September.

But the owner of the Street Corner News shop, who would only give his name as Jim, says his sales are down considerably. "The Mall of America is a destination, vacation spot. And we're not seeing a lot of that. Some of that, this time of year, you have the falloff because school started. But you usually see the young couples without kids, the retired couples, a lot of tourists, those type of things and we're not seeing that business right now, at least not in the numbers we used to see them," he says.

Over the past year, consumer spending kept the economy out of recession as business investment shriveled. And some of the shoppers here view their purchases in no small way as economic self preservation.

Nate Judson says he's shopping for his girlfriend's birthday and not holding back. "Not everybody's going to do what I'm doing obviously, but if people keep spending their money, obviously then the economy's going to pick up. Just like anybody else, I have stocks, and things that I'm concerned about, and we need to keep the economy going," he says.

Consumer spending directly affects two major Minnesota retailers. Target Corporation says the week after the attacks, sales in stores open at least a year matched or beat forecasts. Best Buy, the nation's biggest consumer electronics retailer, has cut sales projections, but not expansion plans. Even so, a broad consumer pullback is expected. The National Retail Federation, for example, has nearly halved its forecast of 4th quarter sales growth from 4 percent to slightly more than 2 percent.

University of Minnesota economist Ann Markusen says the Twin Cities' high-tech economy will see varied effects depending on the industry. She doubts the area's big medical technology sector will suffer. "I really don't expect to see the demand for health care or drugs to decline noticeably in this period of time," she says.

The Narayan Family, left to right, Noopur, Ayushi, Nilabh, Easha. Nilabh was laid off in May from his job as chief technologist for Tennant Co., a Golden Valley-based maker of industrial cleaning equipment.

Markusen says a relatively small Twin Cities' defense sector will benefit somewhat, but the large computer services and financial services areas are more vulnerable. Ultimately she says the diversity between high-tech manufacturing and services will help the Twin Cities do a little better than the nation as a whole. "And a lot of other places in the Midwest are going to be on the down side, just because they're so concentrated in producer goods manufacturing and automobiles and sectors that are really vulnerable to changes in business and consumer spending."

Greater Minnesota is already down, hammered by low steel and farm prices, and manufacturing job losses. Jay Mousa, with the state Department of Economic Security, says outstate Minnesota has fewer than half of the state's manufacturing jobs. But over the year ending in July, areas outside the Twin Cites accounted for 90 percent of manufacturing jobs lost.

"Greater Minnesota, many towns have one or two companies, and when they lay off workers, it's very hard to get jobs in the same sector. What that does is really put greater Minnesota in a disadvantage during an economic slowdown," according to Mousa.

Mousa expects the state's unemployment rate to rise from its current rate of 3.6 percent in the next few months. He says the fallout from the Northwest layoffs could push it slightly above 4 percent. But Mousa says the economic stimulus of lower interest rates and tax cuts, plus the state's enduring tight labor market, should keep unemployment below it's average of 4. 8 percent since 1978.

For now, state economist Tom Stinson cautions that clarity is weeks away. "Frankly we don't know how the attacks are going to effect the Minnesota economy. It's just too soon to tell. What we know is is that it's not going to make things better," says Stinson.

Stinson compares the economy to a mural. Each new release of economic data fills in a few more brush strokes. The attacks, he says, left a big black swathe across the canvas and the new picture has yet to emerge.

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