Feature: As Bad as It Gets

By Dave Senf - dave.senf@state.mn.us
August 2009

As summer rolls by, the U.S. economy remains mired in the worst recession since the Great Depression, but the pace of contraction has slowed, and the bottom appears to be in sight. Most analysts expect economic growth to resume sometime during the third quarter. The recovery, however, is expected to be anemic by historical standards with job growth lackluster and unemployment drifting upward through at least the rest of 2009.

The prolonged recession, 18 months long as of June, has pushed Minnesota’s unemployment rate to a 26-year high of 8.4 percent in June. The state’s jobless rate has spiked 3.6 percentage points since the recession started back in December 2007 when Minnesota’s rate stood at 4.8 percent. This is the highest spike out of the five most recent recessions. Only the rate run-up of 3.3 percentage points of the 1981-82 recession comes close. Reliable monthly unemployment data, back to 1948, are available for the nation, but for Minnesota, only data back to 1976 are available.

Minnesota’s jobless rate soared right along with the national rate up until a few months ago when Minnesota’s rate slowed its climb relative to the U.S. rate. The national rate continued to skyrocket right through the spring reaching 9.5 percent in June. Since the recession began, the 4.5 percentage-point spike in the national unemployment rate nudges out the 4.2 percentage-point spike, endured during the 1973-75 recession, as the largest postwar jobless-rate spike.

Minnesota’s recession-related jobless-rate spikes are displayed in Figure 1 along with 33 years of monthly seasonally adjusted unemployment numbers. The spikes are two-year spikes calculated by comparing each month’s unemployment rate to two years earlier (the jobless-rate spikes discussed earlier compared unemployment increases over 18 months, the length of the current recession). The state’s highest unemployment rate, 9 percent, was recorded in November 1982 at the end of the 1981-82 recession, up 3.3 percentage points from November 1980.

Minnesota hasn’t topped its all-time unemployment rate yet during this recession like nine other states already have, but this recession’s sharp rise in unemployment has raised the bar a notch or two on just how rapidly job markets can deteriorate when economic downturns hit. June’s 8.5 percent jobless rate was 3.9 percentage points higher than two years ago indicating that Minnesota’s job market deteriorated more rapidly this time than during the 1981-82 recession.

While no region in the state has escaped untouched from this recession, some areas have weathered the deep downturn better than others. Clay and Stevens counties, with June jobless rates of 4.9 percent, were the beneficiaries of the state’s lowest unemployment rates. Four counties – Clearwater, Mille Lacs, Kanabec and Itasca – were on the wrong end of county unemployment rankings in June with all four having jobless rates above 12 percent. Figure 2 shows the range of county unemployment rates across Minnesota for June. [1] Unemployment rates are generally lower in farm-dependent counties along Minnesota’s border with South and North Dakota and get worse the farther one drives north and northwest of the Twin Cities metro area. This pattern, however, is not unique to this recession as even in good times unemployment rates tend to be lower in Minnesota’s western counties and higher in the northern counties. More pertinent are the areas of the state that have experienced the highest unemployment increase during this recession, and how these spikes differed, if at all, from the 1981-82 recession.

Figure 3 examines unemployment spikes during the current and 1981-82 recession at the EDR (Economic Development Region) level. Unemployment-rate increases are measured over two years starting with the quarter right before the recessions commenced. Quarterly unemployment is used since sub-state unemployment estimates are known to jump around from month to month.

The ongoing recession, just like the 1981-82 recession, has driven unemployment rates up all across the state. The hardest-hit areas of the state appear to be East Central (Chisago, Isanti, Kanabec, Mille Lacs and Pine counties), North Central (Cass, Crow Wing, Morrison, Todd and Wadena counties), the Arrowhead (Aitkin, Carlton, Cook, Itasca, Koochiching, Lake and Saint Louis counties) and Central (Benton, Sherburne, Stearns and Wright counties) where unemployment rates have jumped by more than 4 percentage points during the recession.

Unemployment has increased the least in the farm areas of the state — Northwest Minnesota, Southwest Minnesota, West Central Minnesota and the Upper Minnesota Valley — where the jump in unemployment over the last two years has been below 3 percentage points in each EDR.

The farm regions of the state appear to be weathering the current recession relatively better than they fared during the 1981-82 recession as the unemployment spike was greater in these regions during the earlier recession than in the current recession.

Mounting unemployment during recessions is nothing new for the Arrowhead region as its economy is heavily dependent on the timber, tourist and taconite industries, which are highly cyclical with the ups and downs of the national economy. But if your Arrowhead relatives brag that it’s bad up there job-wise but nothing compared to 27 years ago, they know what they’re talking about. The Arrowhead’s jump in unemployment this time, while damaging enough, looks relatively mild compared to the 11.9 percent jobless spike during the early 1980s. Unemployment rates in Duluth and the Iron Range skyrocketed above 20 percent in 1983 as major restructuring of the state’s taconite mining industry devastated the Arrowhead economy.

The Twin Cities region along with Southeast Minnesota, East Central Minnesota and the Headwaters are experiencing the opposite of the Arrowhead region as unemployment in these regions has spiked higher during the current recession than during the 1981-82 recession.

Comparing the regional jumps in unemployment this recession with the jobless spikes suffered during the 1981-82 recession doesn’t ease the current hardship of workers searching for jobs. But it does help put the current downturn and dismal job market in historical perspective. The state’s job picture through June is slightly worse than the job situation of the early 1980s, which had been the worst up until now. Eventually, though, the job market rebounded robustly after the 1981-82 recession.

The job market took a while to recover after the 1981-82 recession, but hiring picked up in the second half of 1983 and through 1984 sending unemployment rates downward (see Figure 1). While the current job picture is staggering, and even though the end of this recession may be right around the corner, nobody is expecting robust job recovery similar to the mid-1980s. Instead the recovery is expected to look a lot more like the jobless recoveries experienced after the 1990-91 and 2001 recessions.

 [1]This county unemployment map is updated each month on the Minnesota Department of Employment and Economic Development Web site at www.PositivelyMinnesota.com