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Slow business spending, threat of war keeping economy weak
by Bill Catlin, Minnesota Public Radio
December 17, 2002

Minnesota has been shedding jobs at a rapid rate. (Source: Minnesota Department of Economic Security)

The latest economic data for Minnesota indicate the state's job market is stuck in neutral. Minnesota's unemployment rate for November came in at 3.9 percent. That's down slightly from October. A separate survey of businesses indicates Minnesota companies are reluctant to start hiring even though many expect sales to pick up.

St. Paul, Minn. — The state's November jobless rate dropped one notch from October's rate of 4 percent. The October number was revised upward from the original reading of 3.9 percent. Minnesota's jobless rate remains well below the national rate of 6 percent for November.

Minnesota Department of Economic Security Research Director Jay Mousa says the numbers suggest little has changed.

"The economy is in neutral territory. We are not seeing any significant improvement. The slight decline from a month ago is not statistically significant, and job growth remains flat," he said.

Minnesota employers added only 1,200 jobs to their payrolls. Government jobs grew the most, but the transportation, communications and public utilities sector also posted a gain of 0.6 percent. Manufacturing and trade saw the greatest job reductions.

A separate survey of businesses indicates most Minnesota companies don't expect to hire even though many expect sales to improve.

Wells Fargo economist Sung Won Sohn says the findings are based on the responses of more than 700 Minnesota firms. He says nearly half expect sales to be the same over the coming six months, and about one third expect them to grow. But Sohn says employers are more optimistic about sales than new jobs.

"An overwhelming majority, 89 percent, said, 'No, we are going to be keeping about the same; level employment, or even cut.' Even though they are expecting stronger demand, they don't plan to hire any more people; if anything they could be cutting employment they say. Well, this is not very good news, but you can see how pessimistic, uncertain businesses are," according to Sohn.

Sohn projects Minnesota's employment to grow 1 percent next year and personal income to grow at a 3-percent rate. Both are slightly slower than his forecast for the nation as a whole, but more optimistic than recent projections by the Federal Reserve Bank of Minneapolis.

Sohn says pessimism about employment is higher in the Twin Cities compared to greater Minnesota, and among manufacturers compared to construction and services businesses.

Sohn contends the key to economic growth in Minnesota is business confidence. He says businesses are shell-shocked by the combination of the 9/11 terrorist attacks, corporate scandals, the recession, the stock market's decline and the prospect of another war with Iraq.

"If I had to pick one single item which will affect business confidence most, it would be geopolitical uncertainty -- the possibility of a war against Iraq. If we can somehow wipe this issue off the table, I believe business confidence would improve significantly," he said.

Sohn points to another factor that will put a brake on growth. He says people moving to Minnesota outnumbered those leaving each year by the tens of thousands during the latter half of the 1990s. He says that helped fuel economic growth. But Sohn says the lack of jobs and soaring housing prices will help choke net immigration to zero next year.

"This is a very major source of economic growth. It's been in the past. And, for example, in the year 1999, we had a net immigration of 32,000 into the state. And this year it will be only 6,000, and this is another reason why economic growth will drag," said Sohn.

But Jay Mousa with the Minnesota Department of Economic Security says Minnesota's strong immigration reflected the state's economic strength and a shortage of workers. He says it's neither surprising nor lamentable that immigration has slowed since the recession.

"If you have more people moving to the state looking for jobs, the outcome will not be a stronger economy or a revived economy, but higher unemployment rate and more people looking for jobs," according to Mousa.

But Mousa agrees that the uncertainty created by the prospect of war with Iraq is holding back economic growth, as businesses adopt a wait-and-see stance.

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