Highlights from the state budget forecast
Today, the state released its latest budget forecast. Below are some highlights from that forecast.
JOBS
The number of major Minnesota employers cutting workers from payrolls has grown at an alarming rate in recent months.
Minnesota's labor market is rapidly losing jobs, while at the same time job creation is practically non-existent.
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Job destruction is evident in nearly every sector of the economy, with only education and health care services experiencing over-the-year job gains.
The state's unemployment rate could plausibly grow to over 9 percent by this time next year, despite the impact of the economic stimulus package.
Minnesota's share of the stimulus package could save or create approximately 45,000 jobs by the end of 2010.
The state will lose 123,000 jobs peak-to-trough between the first quarter 2008 and the first quarter of 2010.
Recent job destruction is so extensive that MMB economists estimate that it will take until the end of 2012 before Minnesota payroll employment regains the 2.770 million high reached last winter.
HOMES
Minnesota conventional home values need to fall an additional 15 to 18 percent. This suggests [market] balance may not be fully restored until the summer of 2010.
As long as credit and financial markets continue to function abnormally, there is growing risk that Minnesota home prices will overshoot their implied market balance on the downside. This could extend the state's housing market correction well into late 2010 or 2011.
It is unclear whether the Homeowner Affordability and Stability Plan enacted in February will reduce the number of foreclosures enough to stabilize the housing market.
WAGES
Annual wage and salary income will decline 1.4 percent in 2009. To gain perspective, Minnesota wage and salary disbursements have not declined on an annual basis since the 1930s.
CONSUMER SPENDING
If consumers are turning to increased saving at the expense of spending, the economy's contraction could be extended.
CREDIT MARKETS
Credit markets currently do not appear able to adequately support a strong economic recovery.
The first TARP [Troubled Asset Relief Program] has yet to demonstrate a noteworthy impact, except to possibly prevent an even steeper drop than the economic plunge now underway.
WHAT TO WATCH:
Housing continues to remain critical to the Minnesota outlook. If the housing downturn continues to deepen later into 2010 and 2011, however, it is unlikely that Minnesota's economy will perform as expected in the February forecast.