(AP) - The economic downturn in the Upper Midwest will continue through 2009, with the unemployment rate predicted to hit 14 percent in part of Michigan by the end of the year, according to the latest forecast from the Federal Reserve Bank of Minneapolis.
Employment by year-end is expected to be down from last year's levels and unemployment rates are expected to rise above historic averages throughout the area. The forecast doesn't consider the stimulus package now being debated in Washington.
"Even though the employment forecast is disappointing, some good news is forecast for personal income which is forecast to increase modestly, and for housing units authorized, which are expected to increase after reaching historically low levels in fourth quarter 2008," said Toby Madden, regional economist at the Minneapolis Fed, in a prepared statement.
The forecast covers the bank's 9th District, which includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.
First, the bad news.
Nonfarm employment is expected to fall throughout the district, with the exception of North Dakota where it's predicted to rise 1.1 percent. The largest drop (6 percent) is expected in the Upper Peninsula, followed by Wisconsin (3.2 percent), South Dakota (2.6 percent), Minnesota (2.3 percent) and Montana (0.5 percent).
As employment drops, the unemployment rate is forecast to climb by the end of 2009 to 14 percent in the Upper Peninsula. Minnesota will have the next highest rate at 7.8 percent followed by Wisconsin (6.9 percent), Montana (5.8 percent), North Dakota (4.4 percent) and South Dakota (4.2 percent).
Madden said the Upper Peninsula has been in the doldrums for years. Its lumber industry has been hit by the slowdown in the housing market and many of its small manufacturers supply the struggling domestic auto industry.
Michigan's statewide unemployment rate stood at 10.6 percent in December, according to the U.S. Bureau of Labor Statistics.
The silver lining in Wednesday's forecast is housing starts.
Personal income is expected to rise only modestly, but more than it did during 2008. Madden said personal income is a broad measure, so it can increase even as more of an aging population gets Social Security checks.
The income trend is forecast to hold in all the states except North Dakota, where a drop of 15.4 percent is expected. Madden attributed that to the volatility of the energy and agriculture sectors.
The number of housing starts is expected to increase in each part of the Fed district, with Minnesota leading the way with a 103 percent increase to a seasonally adjusted 17,700 units in the fourth quarter of 2009. That's up from 8,700 units in the fourth quarter of 2008.
The Fed cautions that the big percentage increase is partly a function of the very slow home construction market in late 2008. For comparison, during the fourth quarter of 2003 there were 41,500 housing units authorized.
Other predicted increases in housing starts: Montana (18.1 percent), Wisconsin (10 percent), North Dakota (4.4 percent) and South Dakota (4.1 percent).