Employment in 2010, The Year in Review

by Jerry Brown
April 2011

As expected, Minnesota’s employment market showed gradual improvement during 2010. Table 1 compares annual average employment in 2010 to annual average employment in 2009 and shows that total nonfarm employment was down 0.7 percent for the year. This represented a marked improvement over the loss of 3.9 percent for 2009. While at first blush this seems quite positive, in reality it reflects a rather subdued rebound from the bottom of the recession.

Figure 1 shows total employment on a seasonally adjusted basis for Minnesota and the U.S. This provides a clear picture of a slow and gradual recovery as compared to the rather sharp rate of employment loss as the recession progressed to its trough in late 2009. The recovery would have been delayed even more without the addition of temporary census workers, which provided a boost in employment early in 2010. Seasonally adjusted data showed that the state recovered only a small part of the recessionary losses by the end of 2010. The prerecession peak employment was 2,779,600 in February 2008 with employment hitting a low point at 2,621,300 in September 2009 for a peak-to-trough loss of 158,300. By December 2010 employment had risen to 2,640,600 putting employment at -139,000 compared to the peak level. Still it is clear the state is experiencing only marginal growth rather than the more desired V-shaped recovery usually associated with recoveries from very deep job loss. Seasonally adjusted data showed the average change in 2009 was -8,000 with heavier losses earlier in the year. By 2010 job growth was already occurring, but gains were well below the pace of loss, with the average monthly change in 2010 equal to a gain of 900. Even if average monthly growth doubles, at the 2010 rate it would take more than six years to regain our prerecession peak employment. 

The U.S., as a whole, produced results that were similar to Minnesota’s with a loss of 0.8 percent for the year. Table 2 shows that most supersectors showed similar results for Minnesota and the U.S. The supersector showing the greatest difference was mining and logging where the state showed an increase of 15.7 percent as iron mines returned to more nearly normal production after experiencing a series of temporary shutdowns in 2009 to reduce stockpiles and production of taconite. Professional and business services employment also grew substantially more in Minnesota than for the U.S., and the rate of loss was lower in Minnesota in information, financial activities, and construction. Minnesota underperformed compared to the U.S. in leisure and hospitality, educational and health services, and other services.

The improvement in Minnesota employment came along with positive results in the broader U.S. economy. Gross domestic product (GDP) was somewhat inconsistent coming in at 3.7 percent annualized growth for the first quarter of 2010, 1.7 percent for the second quarter, 2.6 percent for the third, and 3.1 percent for the fourth quarter. For the year as a whole, GDP increased 2.9 percent. As measured by the U.S. Department of Labor, annual productivity growth for the year was estimated at 3.9 percent. With productivity growth outstripping GDP growth there is little chance for robust job growth to take hold. Further, GDP growth coming out of the recession has underperformed compared to average. GDP finally regained prerecession output levels in the fourth quarter of 2010, a full three years since the prerecession peak quarter. By comparison, in previous recessions growth averaged 9.4 percent over the prerecession peak after three years, reflecting both the severity of the recession and the weak recovery under way.[1]

The rate of unemployment improved in both Minnesota and the U.S. during 2010. In Minnesota the seasonally adjusted unemployment rate fell from 7.8 percent in January 2010 to 6.9 percent in December. The drop reflected a reduction in unemployment and an increase in jobs but also a one-tenth of a percentage point reduction in the rate of labor force participation, i.e., a portion of the labor force either stopped working or stopped looking for work. The U.S. experienced a similar pattern with unemployment dropping from 9.7 percent in January to 9.4 percent in December. The withdrawal of individuals from participation in the labor market was larger for the U.S., as the participation rate fell from 64.7 percent in January 2010 to 64.3 percent in December. Without such a decline, the unemployment rate would have shown no improvement for the U.S. The decline in unemployment rate for Minnesota was tied with Michigan for the top decline, with the average unemployment rate for the year dropping 0.8 percentage point. Fifteen states experienced unemployment in excess of 10 percent with the highest rates being Nevada at 14.9 percent, Michigan at 12.5 percent, and California at 12.4 percent. The lowest rates were posted in North Dakota, Nebraska, and South Dakota at 3.9, 4.7, and 4.8 percent respectively. Minnesota had the 10th lowest rate of unemployment. 

Claims for unemployment insurance were down substantially in Minnesota for the year. There was a 20.6 percent decline in initial claims compared to 2009 and a decline of 22.4 percent in initial claims for layoffs that were considered permanent. By year’s end the number of seasonally adjusted monthly initial claims had dropped below 25,000, a figure associated with sustained nonfarm job growth in previous years. Weekly initial claims for the U.S. also showed improvement for the year. For the first week of 2010 the four-week average for the number of seasonally adjusted weekly initial claims was 467,000. By the final week of 2010, it had dropped to 414,000 initial claims. While this was a significant improvement, it is still very high. In the past, robust job growth has been associated with a four-week initial claims figure of around 325,000 claims.

Minnesota once again posted job growth that was in the middle of the pack compared to other states. Table 3 presents a listing of states in rank order in terms of the percent change in employment in 2010. Minnesota, along with Iowa and Utah, showed an annual loss of 0.7 percent to tie for 26th place in terms of job growth. All but 11 of 51 states, including the District of Columbia, showed losses for the year. Four states showed no measurable change when rounded to the nearest 10th of a percent, and seven states posted an annual employment gain. The fastest rate of growth was in North Dakota with a gain of 2.4 percent. Only two other areas had growth in excess of 1 percent: the District of Columbia at 1.3 percent and Alaska at 1.1 percent.

Turning to supersector results, Table 2 indicates that only three supersectors posted employment growth in 2010:

• Professional and business services
• Educational and health services
• Mining and logging

Although only this handful of supersectors grew, nearly all supersectors outperformed 2009 as can be seen in Table 1. Further, Table 4 presents the rate of over-the-year growth by quarter for the supersectors. Most of the industries show consistent improvement across quarters with most of the industry groupings showing positive change in fourth quarter 2010 compared to the previous year. There are some notable exceptions including financial activities, leisure and hospitality, and government. The pattern in mining and logging clearly shows the effect of the major temporary closures that occurred at the beginning of the second quarter 2009, which inflated the over-the-year rate of growth for the supersector. Strong, consistent improvement was particularly notable in durable-goods manufacturing, in transportation, warehousing, and utilities, and in professional and business services.

Goods-producing industries as a group showed an annual loss of 3.5 percent as manufacturing and construction industries continued to shed jobs. Both supersectors, however, were much improved compared to 2009. Manufacturing posted the most important turnaround. In 2009 manufacturing experienced a loss of 10.6 percent. In 2010 the losses continued with a decline of 2.6 percent posted. This was the fifth consecutive loss in manufacturing with average employment dropping to a new low of 292,043. Manufacturing accounted for only 11.1 percent of total employment compared to 16 percent in 1990. Table 4 shows, however, that rather dramatic improvement occurred over the course of the year with the first quarter showing an over-the-year loss of 8.7 percent, which by the fourth quarter had become a gain of 1 percent. The improvement was particularly notable in durable-goods manufacturing where employment was down 10.3 percent in the first quarter but showed a gain of 1.4 percent in the fourth quarter. Figure 2 presents seasonally adjusted manufacturing employment. It clearly shows the improvement beginning in midyear. Nonetheless, nearly every detailed industry in durable-goods manufacturing showed a loss for the year with only medical equipment manufacturing showing a substantial job gain. Fabricated metal products and machinery manufacturing both made major turnarounds going from losses of around 10 percent in the first quarter to gains in the third and fourth quarters of 3.9 and 2.3 percent respectively. Nondurable-goods manufacturing showed a smaller loss for the year, down 2.2 percent. Food manufacturing showed a small gain, but printing and related support activities showed a loss of more than 2,500 although the industry group improved dramatically during the year.

A large part of the improved picture in manufacturing, particularly durable-goods manufacturing, was the solid growth in exports of manufactured goods. Compared to 2009, exports increased 17.3 percent for the year to $17.2 billion reflecting strong growth in all four quarters.[2] Growth in exporting of computers and electronics, machinery, and transportation equipment was particularly helpful in improving durable-goods employment. Perhaps the best indicator of manufacturing employment growth is the leading purchasing managers’ index. This index is presented in Figure 2 along with seasonally adjusted manufacturing employment. The index, as expected, rose above the break-even 50 level a few months prior to improvements in manufacturing employment. This index saw some weakening in mid-2010, but the year-end level, 58.5, is indicative of employment growth through the initial months of 2011.

Construction industries showed some improvement during 2010, but frankly, as deep in the weeds as the supersector has been in recent years, it would be hard not to show some improvement at least in the form of a reduced rate of employment loss. That, in fact, is what occurred in 2010. The supersector showed a loss of 7.4 percent for 2010 down from -15.5 percent in 2009. Specialty trade contractors showed a loss of 8.6 percent, and construction of buildings was down 5.4 percent. There is little evidence construction employment has reached a bottom as seasonally adjusted data showed employment declines even at the end of the year. It appears the bottom will be reached in 2011. One reason for this statement is that construction of new housing units actually improved slightly in 2010 compared to 2009, up from 9,425 units to 9,656 units in 2010 according to the Census Bureau estimates. Unfortunately, permits for single family structures actually fell by 520, but this was more than offset by strong permit activity for structures with five or more units, where 2,644 permits were issued in 2010 compared to 1,870 in 2009. Multiunit housing has experienced an improving vacancy rate, which fell to 4.2 percent in the fourth quarter. Rents have stabilized and are expected to tick up slightly in 2011, and luring renters through the use of concessions should abate.² Despite these improvements the massive volume of foreclosures continued, making any significant improvement in new housing construction, particularly single family dwellings, untenable. Similar to housing construction, commercial real estate seems to be at its bottom. Northmarq Realty’s January 2011 “Compass” report on commercial real estate in the Minneapolis-St. Paul metro region stated that “in all probability commercial real estate has likely bottomed out in the second half of 2010 with the bottom representing the worst commercial real estate market in about 20 years.” The overall vacancy rate for the combined office, industrial, and retail markets increased slightly, up 0.5 percentage point after increasing 3 percent in 2009. The office, retail, and medical office subsectors showed improved results late in 2010 with positive absorption of vacant space in the second half of the year. The industrial retail market saw vacant square footage increase through the end of the year. 

The major improvement in mining and logging was caused by a rebound in taconite production. The annual employment increase was 15.7 percent. This largely reflects the impact of temporary closures in iron ore mining that took place during most of 2010. The closures peaked in the third quarter before firms began to call back those previously laid off. According to the U.S. geological survey, production of iron ore in the U.S., essentially all in Minnesota and Michigan, dropped from 53.6 million metric tons to 26.7 million metric tons from 2008 to 2009. Production increased to 49 million metric tons in 2010 as pig iron production rebounded substantially but remained well below pre-recession levels.

Service-providing industries also improved substantially with a loss of 0.2 percent posted in 2010, equal to -3,786. Private services accounted for 3,186 of the decline. This was a substantial improvement compared to the losses of 2.3 percent in service-providing industries and 2.8 percent in private services posted in 2009. The most important area of improvement was in business services where employment showed an increase of 1.9 percent for the year after falling 6.4 percent in 2009. The locus of this turnaround is obvious. Table 1 shows that employment services increased 20.3 percent in 2010 after falling 18.6 percent in 2009. The increase of 8,531 produced nearly all of the growth for the professional and business services supersector, although management of companies contributed growth of 548 as well. Professional, scientific, and technical services showed a much smaller loss in 2010, down 2,453 compared to -7,349 in 2009. Accounting, tax preparation, bookkeeping, and related, and architectural, engineering, and related services both still showed weak results down 5 and 4.8 percent for the year respectively.

Figure 3 plots the seasonally adjusted employment by month for the three sectors making up professional and business services. The figure clearly shows the strong growth in administrative and support services, including employment services, beginning in the fourth quarter of 2009 through 2010. Professional, scientific, and technical services stopped its downward trend but showed no sign of consistent job growth by the end of 2010. Management of companies trended up for most of the year but faltered somewhat late in the year. There has been some discussion about the implications of the strong growth in employment services but only marginal growth in other industries. To some this is an indication of a generally poorer quality of new jobs being produced thus far in the recovery. Jobs with more tenuous expectations for longevity, fewer benefits, and perhaps lower pay would generally be less likely to produce the kind of financial well-being and confidence needed to push consumer spending back up to levels needed to produce and sustain strong, long-term economic growth.

The only other service-providing supersector to show an annual gain was educational and health services, which added 5,001 jobs. Educational services accounted for 2,732 of this increase as private colleges and universities saw a gain of 1,804 for the year. Private college enrollment increased in 2010 at the major private colleges according to reports from the Minnesota Private Colleges Council. Among the 17 member institutions, enrollment increased 1.1 percent overall including increases of 0.5 percent in undergraduate and 2.6 percent in graduate programs. There were relatively fewer full-time students as full-time equivalent enrollment increased 1.5 percent overall, 0.8 percent in undergraduate programs and 3.8 percent for graduate students. Smaller gains were present in the other education industries including 365 in private elementary and secondary schools.

The pace of job growth in health care and social assistance fell precipitously in 2010, up only 0.6 percent compared to 2.4 percent in 2009. To put the change in better perspective – from 2000 to 2009, annual growth averaged 3.8 percent, so the weakness in 2010 represents a major change to the trend of long-term growth. The employment market was much weaker across most of these industries. Ambulatory health care services went from adding 2,283 jobs in 2009 to a loss of 188 in 2010. Social assistance added only 991 jobs after increasing 3,504 in 2009, and the size of the increase in nursing and residential care facilities was much smaller at 1,595. Growth in nursing and residential care was affected by the reclassification of some home health care workers as independent contractors and thus not included in employment criteria used by the Current Employment Statistics programs. This change took place at midyear and will also tend to reduce annual growth for 2011.

Employment in trade, transportation, and utilities experienced a loss of 1.3 percent as employment was down in each of the three major component industry groupings. As the largest of the three major components, retail trade produced the largest decline, down 3,094 jobs. There were no bright stories in retail trade as nearly all the detailed industries estimated showed losses. The most positive result was 147 additional jobs in miscellaneous store retailers. There was improvement in retail trade particularly in the second half of the year. Figure 4 graphs monthly change in seasonally adjusted employment. This shows that U.S. retail sales were generally on an upward trajectory since the second quarter of 2009. This rise in business at retailers stopped the downward employment trend, and beginning with second quarter 2010 retail trade employment posted some small monthly gains before falling back in November and December. Given the steady increases in sales, the limited and sporadic improvements in employment are a bit disappointing. The weakest performance was in grocery stores where there was a loss of 4.7 percent. Grocery stores also showed very little improvement over the course of the year. The main reason for the improvements in retail trade was the performance of general merchandise stores where annual employment change improved from -4.4 percent in the first quarter to 1.3 percent in the fourth quarter.

The annual loss in wholesale trade was 2,693 with durable-goods wholesaling employment declining 2.5 percent and job levels in nondurable goods down 2.3 percent. Figure 5 shows a pattern similar to that seen in retailing, with sales in wholesale trade industries showing steady monthly growth beginning in the second quarter of 2009 and improvements in Minnesota’s wholesale trade employment lagging some months behind. From the second quarter of 2010 forward, wholesale trade employment has trended upward along with sales. The improvement in wholesaling is more clearly established than in retail trade. A fairly strong rebound in transportation, warehouse, and utilities employment in the final quarter of the year limited its annual loss to 422.

Financial activities employment was down 1.2 percent, an improvement over a decline of 2.2 percent in 2009. At the supersector level there was little improvement over the course of the year with an over-the-year change of -1.6 percent in the first quarter compared to -1.4 percent in the fourth quarter. This reflected a broad mix of results in the component industries. A number of the more detailed industries posted substantial improvement over the course of the year. Among these were depository credit institutions, insurance carriers, and securities, commodity contracts, and other related. Counterbalancing improvements in these industries, several industries showed weaker results in the second half of the year. The most important of these was real estate and rental and leasing where employment was substantially weaker by year end largely because of its real estate component. Following the end of the federal homebuyer tax program, sales of existing homes dropped substantially in 2010. Data from the National Association of Realtors showed sales of single-family, apartment, condo, and co-ops fell from 107,400 to 89,700 units, a decline of 16.5 percent.

The long decline in traditional print media continued in 2010 and was a contributing factor in the loss of 986 jobs experienced by the information supersector. Newspaper, periodical, book, and directory publication fell by 1,104 jobs to account for a majority of losses. However, wired telecommunications carriers' employment was off by more than 500 jobs as well. The job market in wired telecommunications carriers for 2011 is uncertain as the largest provider in Minnesota, Qwest Telecommunications, recently merged with CenturyLink. Thus far there are no clear reports on the potential impact on employment for the new combined company.

There was substantial improvement over the course of the year in the other services supersector as each of its three component industries showed much better job growth in the fourth quarter as compared to the first. The net annual change was -0.6 percent, but by the fourth quarter the supersector showed an annual gain of 1 percent. The bright spot for the supersector was religious, grantmaking, civic, professional, and similar organizations, which posted a gain of 0.8 percent for the year.

Leisure and hospitality produced disappointing results in 2010. The net change for the supersector was a loss of 1.6 percent. While this was an improvement compared to the drop of 3.2 percent in 2009, the year did not end on a strong note as some component industries weakened in the final quarter. Of particular note is the decline in arts, entertainment, and recreation. Figure 6 shows the generally weak trend in arts, entertainment, and recreation the past two years with the substantial weakening at the end of 2010. Clearly these industries, which depend on discretionary spending, have not seen any real recovery to this point. The story in accommodation and food services is a bit more complicated. There has been some rebound in the hotel industry as accommodation showed strong growth in the second half of 2010 and helped to sustain employment in accommodation and food services. There were only modest improvements in food services and drinking places, as full-service restaurants experienced a weak fourth quarter. Census Bureau estimates showed that sales for the U.S. food services and drinking places industry subsector increased by 2.9 percent for the year. This growth is as yet insufficient to produce sustained employment growth for these industries.

Average employment in the public sector fell by 600 jobs in 2010. This decline comes despite the increase in federal government employment caused by hiring of temporary census workers. Census hiring helped erase a loss of 879 in federal post offices to produce a net increase of 1,215 jobs in federal government. The locus of job loss was in local government where employment fell by 2,216. The majority of losses were in local government education, down 1,301. State government education added 462 jobs and was partly offset by losses in non-education state government units for a net gain of 401 in state government.

[1]Bivens, Josh.  Economic Policy Institute.  “Fourth Quarter Growth Data Sends Mixed Message About Economy’s Health”.  January 28, 2011.
[2]NorthMarq Real Estate Services.  “The Compass: Minneapolis-St. Paul Edition”.  January 2011.  Pg. 7.  See www.northmarqcompass.com    

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