Minnesota Economic Indicators

by Dave Senf - david.senf@state.mn.us
April 2010

Note: Except for the Minnesota Labor Market Index, the U.S. Labor Market Index, and the PMI, all over-the-year data are seasonally unadjusted. The most recent data available are for February 2010.

The Minnesota Labor Market Index slipped in February for the first time in four months. February’s 0.7 percent drop was driven by declines in seasonally adjusted wage and salary employment and adjusted manufacturing hours and by an uptick in adjusted initial claims for unemployment benefits. The U.S. index also retreated 0.7 percent in February ending a five-month string of increases.

Minnesota’s index, despite February’s decline, recorded its first over-the-year advance in two years. The increase implies that Minnesota’s economy has improved from a year ago, but as of February the pace of recovery remains lackluster as evidenced by the lack of any sustained job growth. Minnesota’s economy appears to be rebounding ahead of the national economy as the U.S. index was down from a year ago for the 27th straight month in February.

The key building block in Minnesota’s rebound, sustained job growth, disappeared in February as seasonally adjusted Wage and Salary Employment fell by 1,600 jobs after jumping by 17,200 jobs in January. Service-providing payrolls increased for two consecutive months for the first time in nearly two years, but goods-producing job cuts dragged employment down. Payrolls were down in construction, government, leisure and hospitality, and financial activities. The budget problems of local government units are starting to show up in public sector payroll numbers with local government employment down 1,900 in February. Construction employment reached its lowest level since December 1995.

Payrolls expanded in five sectors with the largest increases occurring in trade, transportation, and utilities and in manufacturing. Manufacturing employment rose again for the second straight month, which is promising, since factory payrolls haven’t expanded over two consecutive months in four years. The three straight months of over-the-year gains in temporary-help payrolls is also a promising sign. Minnesota’s employment was 2.2 percent below a year ago on an unadjusted basis.

Adjusted Business Incorporations rose for the second straight month in February, but the increase, like January’s bump, was small. Business incorporations continue to run far below normal levels. Unadjusted business incorporations were down 30.6 percent from last February. The more popular form of business startups, limited liability companies, was also down from a year ago but the 31.4 percent drop was an improvement over January’s over-the-year decline.

After two months of decline Minnesota’s Purchasing Managers’ Index (PMI) roared back in February jumping to its highest level since June 2006. February’s 62.3 reading indicates that the state’s manufacturing rebound is gaining traction. Manufacturers have added jobs the last two months, and this positive development is likely to continue as the employment component of the PMI has been above 50 signaling continuing factory hiring over the next three to six months.

Seasonally adjusted Residential Building Permits jumped 23.2 percent in February — its highest total in a year. There is some guarded optimism that the home-building market is finally beginning to turn a corner. The end of the federal home-buying tax credit in April and rising mortgage rates later in the year may, however, short circuit the mild home-building recovery.

The positive manufacturing signals from the PMI are not showing up in adjusted weekly Manufacturing Hours. The factory workweek declined for the second month in a row in February slipping to 39.6 hours. The pickup in manufacturing hiring is surprising given stagnant hours. The likely reason for the mixed message is that while some Minnesota manufacturers are ramping up production as sales rebound, other manufacturers are still faced with weak sales.

Adjusted weekly Manufacturing Earnings inched up to $749.47. Weekly factory paychecks, adjusted for inflation, were up a hefty 9.2 percent from a year ago.

Adjusted newspaper Help-Wanted Ads lost ground in February tailing off 9.8 percent. The volume of help-wanted ads in newspapers continues to remain near record lows as recruiting via help-wanted ads has migrated from newspapers to online job board sites. Print help-wanted ads were reliable indicators of changing labor demand for many years but have become less useful in the age of the Internet. Adjusted online help-wanted ads, compiled by the Conference Board, Inc., were up for the third straight month in Minnesota. Minnesota’s online help-wanted ads climbed 3.8 percent in February while declining 1.7 percent nationally. The uptick in online help-wanted ads by Minnesota employers suggests that demand for workers is gradually increasing.

Adjusted Initial Claims for Unemployment Benefits ticked up in February climbing to 6,960 as Minnesota’s labor market continues to lag behind other improving economic indicators. The rate of layoffs has slowed considerably from a year ago as evidenced by the 25.5 percent drop in unadjusted initial claims since last February, but it remains above pre-recession levels. Initial claims will likely resume a downward trend as the state’s recovery gains speed.

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