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Tom Stinson, State Economist, Presentation for the Minnesota Agri-Growth Council Annual Meeting 2009.
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The Short and Mid-Range Economic Outlook
Thomas F. StinsonUniversity of MinnesotaNovember, 2009
Real GDP Is Growing Again
We Have Been in a Great Recession
The Recession is (Almost Certainly) Over
• The recession’s end usually is set at when real GDP begins to grow again
• The stimulus package, slower declines in inventories and modest growth in consumer spending will produce a positive Q3
• But, improvements in the labor market are unlikely before summer
The U.S. Economy Is Expected to Lose More than 7 Million Jobs
Job Losses in Minnesota Have Tracked the U.S. Average Since the
Recession Began
Real GDP Will Not Reach Pre-Recession Levels Until 2011
This Recession Was More Severe Than Those in 1990-91 and 2001
Minnesota Employment Is Projected to Recover Slowly
Why a Slower than Usual Recovery
• Interest rates will increase, not decrease
• Excess production capacity limits need for new business equipment
• Export demands unlikely to surge in short term
• Lost wealth and retirement concerns will slow pent-up demand
The Age Distribution Is Different Than in the 1980s
Spending on Food and Food Away from Home Will Increase in 2010
Oil Prices Now Expected to Trend Toward $85 Per Barrel in 2012
0
20
40
60
80
100
120
140
2005 2006 2007 2008 2009 2010 2011 2012
$ per Barrel (WTI)
Interest Rates Will Go Up, But Not Until 2011 and 2012
The Dollar Is Expected to Continue to Decline through 2012
The Housing Slump Has Been More Severe in Minnesota
0
20
40
60
80
100
120
04avg
2005 2006 2007 2008 2009 2010 2011 2012
Index 2004 = 100
US MN
What to Watch During the Next Six Months
• Consumer spending
• Savings rate
• Payroll employment (smaller declines)
• Credit markets / interest rates
• Capacity utilization
The Great Recession Has Raised the The Great Recession Has Raised the Level of Social AngstLevel of Social Angst
But
Four Mega-Forces Will Shape the Outlook for Longer Term Growth
Globalization
Technology
Energy prices
Demography
Minnesota Saw a 30 Percent Jump in Workers Turning Age 62 in 2008
0
10,000
20,000
30,000
40,000
50,000
60,000
7/05 to7/06
7/06 to7/07
7/07 to7/08
7/08 to7/09
7/09 to7/10
7/10 to7/11
7/11 to7/12
Year Turning Age 62
Wo
rke
d W
ith
in P
as
t 5
ye
ars
2005 ACS
From 2010 to 2020, Minnesota Will
See Large Increases Age 50s and 60s
20,15036,190
47,3305,050
-30,680-9,980
47,95061,920
-2,680-63,650
-42,31054,240
102,960112,540
91,37041,400
8,44016,500
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84
85+
Source: Minnesota State Demographic Center, rev 2007Numbers are rounded
Competition For The Future Workforce Will Increase
6.8%
4.5%
-1.6%-2.2%
13.0%
-1.2%
-3.5% -3.0%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2000-05 2005-10 2010-15 2015-20
Perc
en
t C
han
ge 1
8-2
4
US
Mn
Census Bureau US Proj, Mn State Demographer revised 2007
Labor Force Growth Is About To Slow Sharply
1.52%
1.12%
0.75%
0.43%
0.10% 0.13%
0.27%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1990-2000
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35
Ave
An
nu
al C
han
ge
For Many Occupations, Replacements Will Outnumber New Job Growth
Projected Openings In Minnesota Occupations 2006-16
0%5%
10%15%20%25%30%35%40%45%50%
To
tal,
All
Oc
cu
pa
tio
ns
Ed
uc
ati
on
,tr
ain
ing
,L
ibra
ry
Co
mp
ute
r a
nd
Ma
the
ma
tic
al
Oc
cu
pa
tio
ns
Co
mm
un
ity
an
d S
oc
ial
Se
rvic
es
Oc
cu
pa
tio
ns
Pro
tec
tiv
eS
erv
ice
Oc
cu
pa
tio
ns
Arc
hit
ec
ture
an
dE
ng
ine
eri
ng
Oc
cu
pa
tio
ns
He
alt
hc
are
Pra
cti
tio
ne
rsa
nd
Te
ch
nic
al
Oc
cu
pa
tio
ns
Tra
ns
po
rta
tio
na
nd
Ma
teri
al
Mo
vin
gO
cc
up
ati
on
s
Replacement
Growth
DEED projections. Percent of 2006 level
Migration Will Be Increasingly Important for Labor Force Growth
-100,000
0
100,000
200,000
300,000
400,000
500,000
2000-10 2010-20 2020-30
Total Natural Part Rate Migration
Net Labor Force Growth
State Demographer projection revised 2007
Workforce Development Will Be Crucial To Minnesota’s Economic
Future
• Number of workers
• Quality of workers
Economic Fact of Life #1
Standard of Living depends on output per resident
Output = Output per Hour * Hours Worked
Productivity Is Not Just Producing at a Lower Cost
Increasing the Value of Products Produced Also Increases
Productivity
Economic Fact of Life #2
• Productivity depends on – The private capital stock– The stock of human capital
• Education• Health status
– The stock of infrastructure– Advancements in technology
The New 3 R’s for Economic Success
• Retention
• Recruitment
• Retraining
Academic Research Is a Key Factor in State Economic Growth
• “the lags between R&D and economic outcomes are quite long (at least years, and more likely decades)
• “The state … may do well for a while by drawing upon its existing stock of knowledge capital
• “How the state of Minnesota will fare in the future … will crucially depend on its recent and future investment in R&D
*Long Gone Lake Wobegone, Pardey, Dehmer and Beddow, 2007
R&D Spending Slowed in the Early 90sWe Are No Longer Above Average
Rank 1972 Rank 2004
Total Academic R&D 19 26
Academic R&D per capita
20 40
Academic R&D per dollar of GSP
20 43
Health Care Spending Jumps After 55U.S. Health Care Spending By Age, 2004
$1,855$1,074 $1,445
$2,165$2,747
$3,496
$6,694
$9,017$9,914
$3,571
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
<55-
14
15-2
4
25-3
4
35-4
4
45-5
4
55-6
4
65-7
475
+
Avera
ge
Source: Agency for HealthCare Research and Quality, Medical Expenditure Panel Survey,data for per capita spending by age group in the Midwest. Excludes spending for long-term care institutions.
From 2010 to 2020, Minnesota Will
See Large Increases Age 50s and 60s
20,15036,190
47,3305,050
-30,680-9,980
47,95061,920
-2,680-63,650
-42,31054,240
102,960112,540
91,37041,400
8,44016,500
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84
85+
Source: Minnesota State Demographic Center, rev 2007Numbers are rounded
Education Is The Key To Productivity
Minnesota High School Graduation Ratio
57%
85%
60% 62%
89%85%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
AmericanIndian
Asian Hispanic Black White Total
2 Y
r A
ve R
ate
2004-05 through 2005-06 graduates. Based on 10th grade enrollment three years earlier.