The Recession Hits Home
By Dave Senf
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Minnesota is feeling the effects of the worst U.S. economic downturn in 25 years.
Minnesota, along with the rest of the nation and most of the world, is in the middle of what many are calling the worst economic downturn in a quarter century and perhaps the worst contraction since the Great Depression.
Consumers, staggered by the housing, credit and financial crises, have throttled back on spending, setting in motion a downward cycle of falling sales that have compelled businesses to cut payrolls, in turn scaring consumers into retrenching spending even further. Layoff announcements and job cutbacks continued to mount across most sectors and regions of the U.S. in the first and second quarters.
Minnesota hasn’t escaped the downturn. The statewide unemployment rate was a seasonally adjusted 8.1 percent in April, up 3.6 percentage points from 4.5 percent in January 2008. The state lost 90,200 jobs during the past year, including 9,580 pink slips in April.
The growing job losses and swelling unemployment rates are getting closer to the labor market conditions that existed during the double-dip recession years of 1980-1983. Unemployed workers topped 218,000 in January 1983 (when the pool of workers was smaller), while over-the-year unemployment spiked 3.3 percent in August 1982, climbing from 5.5 percent to 8.8 percent.
But the worst of the current recession isn’t over. Most economists are forecasting shrinking GDP nationally through the third quarter of 2009, followed by anemic growth in late 2009 or early 2010, even with the federal fiscal-stimulus package. Payroll numbers will tumble through the first half of 2009 before moderating later in the year, leading to job cuts in 2009 that are expected to exceed last year’s totals.
That translates into roughly 60,000 additional jobs eliminated in Minnesota in 2009, with unemployment rates above 8 percent for the first time since 1983, even as the labor force contracts as some job seekers desert the labor force because of scant job opportunities.
Some regions of Minnesota escaped shrinking payrolls last year, but all regions will experience job declines in 2009. As Figure 1 shows, 1982 was the last year when payroll numbers fell in all six regions simultaneously.1
Only two regions, Central Minnesota and the Twin Cities area, recorded job losses during the first half of 2008, but other regions seem certain to show job declines once the final 2008 numbers are tabulated. Central Minnesota dodged the 1990-91 and 2001 recessions, but it doesn’t look to be recession-proof this time around. The Twin Cities, after having fared better than most other parts of the state during the 1980s recessions, was hit the hardest during the two previous recessions. This pattern — the Twin Cities area suffering a steeper employment drop than the rest of the state — appears to be repeating itself with the 2008-09 recession.
No region, with the exception of Northeast Minnesota, has experienced more than three straight years of annual job declines. Northeast Minnesota’s job conditions over the 1980-1984 period were the nearest to depression-like conditions that any Minnesota region has experienced since the Great Depression. Payrolls fell for four consecutive years in the region, with half of the roughly 11 percent wage and salary employment decline occurring at the Iron Range mines.
Last year’s statewide job loss rate would have to be repeated five more years, through 2013, for the state to experience a comparable job climate to the one Northeast Minnesota endured during the early 1980s.
The 11 percent employment base loss in Northeast Minnesota sent the region’s unemployment rate towering to 21.9 percent in January 1983 (see Figure 2).2 Unemployment rates increased sharply in all regions during the 1981-82 recession and continued to rise even as the nation began to rebound in 1983. Unemployment rates generally tend to continue to climb during the first year of a recovery as businesses increase employee hours when orders pick up and then increase hiring as the recovery gains speed.
Spikes in monthly regional unemployment rates offer the timeliest indicator of where the current recession is hitting the hardest within Minnesota. Central Minnesota (up 2.1 percent from fourth quarter 2007 to fourth quarter 2008) and Northeast Minnesota (up 2 percent) experienced the sharpest increases as 2008 ended, followed by the Northwest (1.8 percent), Twin Cities (1.7 percent), Southwest (1.5 percent) and Southeast (1.4 percent).
The differences in regional unemployment spikes are not substantial, evidence that all areas of the state are feeling the repercussions of this recession.
1 Employment growth for 1978–2007 is based on annual average wage and salary employment from the Bureau of Economic Analysis (BEA), www.bea.gov/regional/spi/default.cfm?satable=SA27. 2008 employment growth was calculated using the first and second quarter wage and salary employment for 2007 and 2008 from the Quarterly Census of Employment and Wages (QCEW), www.deed.state.mn.us/lmi/tools/qcew/default.aspx.
2 Monthly unadjusted unemployment rates along with the 12-month moving average rate are shown in Figure 2. State and substate unemployment numbers for 1990–2008 are available at www.deed.state.mn.us/lmi/tools/laus/default.aspx.