Budget forecast: economy clearly mending, but only modest job growth
The new state budget forecast says Minnesota's job market will grow modestly and employment could finally return to pre-recession levels this year.
The twice-yearly budget forecasts are among the most in-depth analyses of the state's economic outlook. The review out Thursday said the federal spending cuts taking effect today, known as the sequester, threaten relatively few jobs in Minnesota. But political uncertainty continues to be a damper on growth.
State economist Tom Stinson at the Minnesota Office of Management and Budget said he feels as though his economic forecasts require guesswork about political processes. And that's not something he relishes.
"Economists work with rational expectations and it's not exactly clear that expectations in the political process are rational," Stinson said.
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He specifically refers to political stalemates over fiscal issues. They include the spending cuts taking effect today, plus a potential federal government shutdown and another battle over raising the federal debt ceiling.
In the case of the debt ceiling, Stinson doubts politicians would fail to raise it.
As for the sequester or a federal government shutdown, Stinson notes that federal dollars are a much smaller portion of the economy in Minnesota than most other states.
"The sequester and government shutdown would be considerable inconvenience to people that are affected, but it's not going to bring the economy to its knees," Stinson said.
Stinson projects that even if the sequester continues through this year, it will cost the state no more than 5,000 jobs -- that's about a month's worth of job gains.
Still, budget stare-downs in Washington create uncertainty, the enemy of economic expansion.
The forecast portrays Minnesota's economy as closing in on recovery from the great recession. A variety of economic indicators ranging from claims for jobless benefits to job vacancies are at or within sight of pre-recession levels. Separately, the Department of Employment and Economic Development reported that job vacancies in the final three months of 2012 hit a seven-year high for a fourth quarter.
Even housing, once a drag on the economy, is now helping to boost it.
State economic forecasters believe the foreclosure problem in Minnesota has mostly passed. They note that as employers add workers and more Minnesotans look to buy homes, nearly all excess housing inventory in the market will clear this year.
Remodelers, also part of the housing industry, could get a boost.
"I think people have grown tired of sitting on the sidelines. Homeowners like to spend money on their homes," said Todd Bjerstedt, who does design work and project management for Macdonald Remodeling. "I think we've turned the corner emotionally."
Bjerstedt said business was up considerably in 2012, including expensive projects, like additions.
"Sometimes it can be a $30,000-$40,000 addition. And there are times where if you're doing two or three levels to a home, it could be well into the several hundred-thousand dollar addition," Bjerstedt said.
Even as housing takes off, it's not enough to fuel robust job growth across the state. Total employment in Minnesota is expected to grow modestly, but slower than was forecast last November. Still, payrolls in Minnesota could get back to their pre-recession peak by the end of 2013.
