Twin Cities Metro Region Continues to Add Jobs, Economic Growth Continues Despite Housing Slowdown

• Metro area job market still growing, but at a much slower pace than recent years; the forecast for 2008 shows continued weakening in employment numbers
• Major employers investing in their future in Twin Cities
• Business groups curb state’s urge to splurge on taxes 

Right in tune with Federal Reserve Bank Chairman Ben Bernanke’s announcement that the economy was again picking up steam, Minnesota’s employment markets regained a little upward momentum in June.  The state added 36,424 jobs in June 2007, a 1.3% rate of growth compared with June 2006. Job growth was strongest among the business, technical and financial, healthcare, government and education, and entertainment and media sectors. However, the impact of the residential construction slowdown continues to weigh heavily on the state’s job numbers.

Despite the net gain in jobs state-wide in May and June, the state’s unemployment rate climbed to 4.5% in June 2007 from 3.8% in June 2006. The June U.S. unemployment rate was 4.5%.

The job market in the Twin Cities metropolitan area hummed along at a better-than-average clip in May, however. According to the state’s non-seasonally adjusted numbers (only non-seasonally adjusted numbers were available for specific regions within the state), the Twin Cities metropolitan area boasted 4% unemployment, lower than both the comparable 4.2% state average and the national 4.3% rate. Overall, 1.76 million people were employed in the Twin Cities in May out of a total labor force of 1.84 million people.

Housing starts were down 40% in Minnesota in May 2007 compared with May 2006. Construction industry employment declined by 1,700 jobs in a year-over-year comparison (May 2006 to May 2007), according to the State of Minnesota.

State Economic Growth Slowed By Housing Downturn

Minnesota’s economy continues to grow, albeit at a slower pace, according to the Minneapolis Federal Reserve Bank. The state followed the same pattern as the nation in terms of a slower first-half economy, although in Minnesota the rate of the slowdown was somewhat more pronounced.  Housing industry setbacks may have trimmed as much as 1% from the nation’s economic growth rate from the first half, according to some economists.

The overall forecast for the state is for continued slowing growth over the next 12-18 months, according to Toby Madden, senior economist with the Minneapolis Fed. Unemployment is expected to edge upward in the state and exceed the national average in 2008, according to the Minneapolis Fed’s Mid-Year Economic Prediction for Minnesota and the Upper Midwest.

Minnesota was particularly vulnerable to the housing slowdown, according to the Fed’s figures. Although not quite in the same league as Florida, Texas, Arizona and Ohio in terms of overall decline, Minnesota’s home building industry has seen a dramatic reversal of fortune during the past year. The Fed estimates that Minnesota will record a 3.7% decline in the number of housing permits issued in 2007 versus 2006. 2008 looks somewhat better, with only a 1.7% decline in housing permits in the Fed’s forecast. By contrast, housing permits will grow by 2% in the U.S. in 2007 and by 4.3% in 2008 based on the Fed survey.

Governor Holds the Line on State Business Tax Increases

Minnesota’s 2007 state legislative session opened with the news that the state enjoyed a $2.2 billion revenue surplus—and Republican Gov. Tim Pawlenty’s pledge to support a 9.8% increase in spending over the next two years. Several new bills with a wide array of new and increased taxes and fees on business and state income taxpayers were proposed, many of which specifically targeted business, including hikes in commercial-industrial property taxes. Had all such legislation passed, it would have resulted in the most substantial increase in taxes in Minnesota history.

Legislators held to the Governor’s proposed limit on general fund spending of $34.4 billion over the 2007-2008 biennium. The session ended on a positive note for Minnesota’s commercial real estate industry, with no new taxes approved and no new tax increases, according to the Minnesota Chapter of the National Association of Industrial and Office Properties (MN NAIOP).

Twin Cities Corporate Leaders Expanding Presence Locally

Led by companies such as UnitedHealth Group, Best Buy, Target, Travelers and 3M, the Twin Cities is the headquarters for 20 of the corporations on the 2007 Fortune 500 list. The City of Minneapolis itself is home to eight such companies¹, including 2007 list newcomer Ameriprise Financial, based in the Minneapolis Central Business District.

Many of these companies are among the area’s largest employers, and several of them are signaling long-term commitments to the Twin Cities via an expansion of their corporate campuses. These expansions do not necessarily mean imminent job growth for the area, but for many it’s a consolidation of current employees from leased facilities into a campus that can accommodate future growth.

Locally-based companies with significant new corporate real estate expansions underway include UnitedHealth Group, St. Jude Medical, Medtronic, Supervalu and Target. Germany-based Allianz Life Insurance Company also recently completed a major expansion to its U.S. headquarters campus in the Twin Cities. Other foreign-based companies with a significant and growing presence in the Twin Cities include Siemens, AG of Germany and U.K.-based BAE Systems.

In addition, Twin Cities-based Northwest Airlines’ recent emergence from bankruptcy should bode well for the Twin Cities economy. The impact of the airline’s improving performance and how their remaining employees benefit from it will be worth monitoring.