Looking Ahead at the Job Outlook

Minnesota's Short-Term Forecast

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

U.S. Economic Outlook

The Great Recession technically ended in June 2009, but the recovery, which started rather modestly, has lost momentum over the last six months as the boost from inventory rebuilding and the fiscal stimulus faded. The threat of a double-dip recession has diminished from earlier in the year, but the economy is unlikely to pick up much in the near term. Most recoveries are aided by home-building upswings, but this time around persistent housing-market woes are a major drag on the economy.

Nationally, economic growth averaged 3.4 percent during the first nine months of the recovery but has slowed since, crawling below 2 percent over the last six months. The lackluster strength of the rebound has left the U.S. economy 0.8 percent smaller than before the recession with higher productivity and longer work hours fueling output growth rather than expanded employment. The nation has regained only 600,000 of the 8.4 million payroll jobs lost during the recession. Private payrolls have inched up for nine straight months, but state and local government payrolls are now being cut as governments across the country attempt to balance their budgets.

The modest uptick in employment since the beginning of the year left the nation with 0.2 percent more payroll employment in the third quarter than a year ago (see Figure 1). This was the first year-over-year increase in 10 quarters. The anemic pace of job growth has kept unemployment high, inching down just a few notches to 9.6 percent from the 10.1 percent recession high reached in October 2009.

The growth of the gross domestic product (GDP) is likely to continue to be about 2 percent for the rest of the year before gradually inching up during the first half of 2011. Job growth will improve in 2011, but the 0.9 percent year-over-year expected pace will not be strong enough to move unemployment down below 9 percent in 2011.

Minnesota Job Outlook

Minnesota’s economy experienced hints of the Great Recession before most of the nation as job growth in the state trailed nationwide job growth in 2007. Job loss, however, during the recession was slightly lower in Minnesota than the nation, with the state losing 5.8 percent of pre-recession payroll jobs compared to the national decline of 6.1 percent. The U.S. lost jobs on a seasonally adjusted basis for 22 straight months while Minnesota’s string of consecutive monthly job loss was fortunately shorter, stretching only 16 months. Job growth has been bumpy in Minnesota since turning the corner in October 2009 but has managed to be significantly stronger than the U.S. during 2010.

Minnesota employers added nearly 30,000 jobs between the third quarters of 2009 and 2010. The 1.1 percent year-over-year increase is the largest annual gain since the first half of 2006 and more than five times stronger than the 0.2 percent gain nationwide. Most of the hiring uptick has occurred in:

• Professional and business services
• Education and health services
• Leisure and hospitality
• Manufacturing

Minnesota’s stronger job growth over the last 12 months is reflected in the state’s unemployment rate, which, after rising right along with the national rate in 2008 and through early 2009, peaked at 8.4 percent in June 2009 while the national rate continued to climb until peaking later in the year. Minnesota’s jobless rate gradually improved between mid-2009 and mid-2010 before flattening out over the last few months, leaving Minnesota with a seasonally adjusted unemployment rate of 7 percent in September while the nation’s rate remained stuck at 9.6 percent.

Minnesota’s job rebound will continue over the next 12 months adding jobs at about the same rate as the last 12 months. The expected 1.1 percent jump in payrolls will add roughly 28,000 jobs between the third quarters of 2010 and 2011. The number of online help-wanted ads for Minnesota jobs rose over the last four months, while Minnesota’s Purchasing Managers’ Index (PMI) declined over the last few months. Minnesota’s PMI, a leading index similar to the national PMI, still points, however, to an expanding manufacturing sector. A new leading indicator for the state’s economy produced by the Philadelphia Federal Reserve Bank is also signaling continued economic expansion for the state over the next six months.

Next year’s job growth will help push the unemployment rate down, but the improvement will be excruciatingly slow. A year from now the state will have regained 65,000 to 70,000 of the 162,000 jobs lost during the Great Recession.

Industry Outlook

Employment growth in Minnesota is expected to spill into more sectors next year as the job market continues a gradual improvement. As the job market improves, household income will inch up leading to modest gains in consumer spending. Job loss is expected to occur in only five of the 23 sectors, with construction employment declining the most (see Figure 2).
 

Unemployment for construction workers will continue to remain at near record highs since the home building and commercial/industrial construction markets will remain mired in deep slumps through at least the first half of 2011. Public sector employment is expected to shrink throughout the year as state and local government budget cutbacks occur. The federal government workforce in the state is also anticipated to contract next year as the last of the Census workers are let go and the U.S. Postal Service continues to downsize.

Employment growth will be concentrated in:

• Administrative and support services
• Health care and social assistance
• Food service and drinking places
• Professional, scientific and technical services
• Manufacturing

Temporary-help hiring will create many of the administrative and support services jobs. The new temporary-help jobs will be spread across a variety of occupations. Manufacturing employment will continue to climb, but the pace will be slower than 2010.

Occupational Outlook

Even without employment growth there would still be plenty of churning among occupations as employers realign their occupational mix, hiring new workers to fill certain occupational needs while at the same time letting go other employees in other occupations. Added to the occupational churning arising from shifts in occupational staffing patterns is the concentration of occupations in either expanding industries or shrinking industries. The construction industry will still be shedding jobs next year, so the number of carpenters and electricians employed will drop again next year. Other occupations, like personal and home care aides and home health aides, will see their numbers grow since these occupations are concentrated in the expanding health care and social assistance sector.

All occupational groups except for the construction and extraction group will add jobs next year (see Figure 3). Roughly 70 percent of Minnesota’s 783 occupations are expected to experience an increase in jobs over the next 12 months. Most of the increasing occupations, roughly 470, will see employment climb by fewer than 100 jobs. Job gain in other occupations will be significant with the following occupations expected to add the most workers:

• Personal and home care aides
• Combined food preparation and service workers
• Home health aides
• Registered nurses

Approximately 10 percent of occupations are expected to see little change in employment over the next year. Job losses in these occupations arising from shrinking industries will be offset by job gains in expanding industries. Approximately 20 percent of the state’s occupations will have fewer workers employed during the third quarter of 2011 than are currently employed. The combined employment loss in the shrinking occupations will be around 4,400 jobs. The combined employment gain of expanding occupations is roughly 32,600. The net job addition will be around 28,000 new positions.

The fastest-growing occupations will grow three to seven times faster than overall job growth. The top 15 fastest-growing occupations (see Table 1) will add around 3,500 new positions over the next year, which works out to be roughly 11 percent of all jobs expected to be added during the year.

Only four of the fastest growing occupations are also ranked high when it comes to occupations adding the most jobs. Employment opportunities should be high in these occupations:

• Personal and home care aides
• Combined food preparation and service workers
• Home health aides
• Security guards

Most of the occupations that are expected to add large numbers of workers next year are familiar, having already been identified as occupations that will add the most jobs in long-term projections. Occupations that are expected to add the most jobs are spread across the economy as a number of sectors, which had been cutting workforces until recently, start to hire again. Roughly one-third of all new jobs created between the third quarter of 2010 and third quarter of 2011 will be in one of the 15 occupations listed in Table 1 as occupations adding the most jobs.

Job openings related to employment growth, while an important component of the job market, account for a fairly small slice of all job openings available to job seekers. Most job openings are created by employee turnover, which occurs for a variety of reasons. A computer software engineer working at Software Company XYZ job hops over to Software Company ABC for better pay. A carpenter switches careers, becoming a middle school industrial arts teacher. Or a 20-something counter attendant leaves her job at a fast food restaurant for an accounting position after completing her business degree.

While data limitations preclude reliable estimates of job openings arising from workers switching employers but still working in the same occupation, census data on occupational changes by workers can be used to estimate “replacement” openings. Replacement openings occur as workers leave occupations, not just change employers. Some workers switch occupations, other workers retire, return to school, or quit a job for health reasons or to assume household responsibilities.

While individuals already in the workforce will fill many of the replacement openings, some job openings will remain vacant since some workers leave the workforce. The openings not filled by workers already in the workforce are “net replacement openings.” New workforce entrants and individuals reentering the workforce are more likely to land jobs in occupations where employment is growing or with high net-replacement needs.

An estimated 62,000 job openings will be generated by net replacement needs over the next 12 months. Total job openings will top 93,000 when job openings from replacement needs are added to job openings arising from employment growth. Almost all occupations will have some job openings from replacement needs, including occupations expected to decline over the year. For example, the number of workers employed as cashiers in Minnesota is expected to shrink by 145 between the third quarters of 2010 and 2011. But 3,685 net replacement cashier openings are anticipated next year (see Table 1). Occupations that are expected to have the highest total job openings over the next year tend to be occupations that already employ a large number of workers and have high turnover rates.

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