Economic recovery process continues to be slow

Published 11:59 am Saturday, March 27, 2010

The light is at the end of the tunnel, but it’s just going to be a slow and difficult road reaching it.

While area economic development leaders say signs point to the Minnesota economy making modest improvements, it’ll take a few years before the economy really picks up, according to Commissioner Dan McElroy of the Minnesota Department of Economic Development.

That’s the message McElroy passes along to business leaders from Austin, Albert Lea and around the area at the Austin Country Club Friday afternoon. The luncheon and discussion was sponsored by the Austin Area Chamber of Commerce. McElroy and area legislators attended to discuss the state of Minnesota’s economy.

“Minnesota’s a great place,” McElroy said. “I’m a long-term optimist and a short-term realist in this difficult economic period. We’re going to get through this. I sincerely believe we have more competitive days ahead.”

The four area legislators all said the House and Senate are working hard to help nudge the economy in the right direction.

“I would certainly say job creation and rebuilding the state economy has been the number one priority of the Minnesota Senate,” said Sen. Dan Sparks.

McElroy described the current legislative session as “exciting in some ways,” as committees met early to discuss bills and issues facing the state.

“The process of the legislature is encouraging this year,” he said.

He said the jobs bill is important, especially since it wasn’t connected with a bill to increase taxes.

Sparks said there have been many good ideas in the Senate, but he concurred many have been attached to a large tax bill. He said he’s confident senators will work to correct the hurdles keeping such legislation from passing.

Some people attending were concerned about whether or not Minnesota can remain competitive with Iowa and Wisconsin in attracting businesses.

One such program potentially moving forward is the angel tax credit to help investors support emerging businesses, which is currently being discussed in the House and Senate.

Rep. Jeanne Poppe said tough decisions will need to be made as the state leaders must make difficult decisions to balance the budget, and she said legislators may make more enemies than friends in the coming months.

Poppe said it’s passed the point of legislators separating needs from wants, and it’s come to the point of choosing between needs.

“If we’re going to be serious about fixing the budget today, tomorrow, next year, three years from now, we’re going to have to reduce our spending,” she said.

While cuts will be made to balance this year’s budget, Rep. Robin Brown said more cuts can be expected in the future.

“This is just the beginning,” Brown said. “I see it as we’re coming back next year and making more cuts as well.”

Sen. Mike Parry said the state needs to learn to say no to funding certain programs. He also said legislators need to loosen the reins to let businesses create jobs.

Recession

DEED, which was became effective in 2003, is Minnesota’s chief agency promoting economic and business growth in Minnesota. McElroy said a key part of the agency is forming partnerships, as DEED works with community business organizations across the state to work toward economic prosperity.

According to McElroy, the recession ended early this year — from an economist’s viewpoint. However, people and businesses will continue to feel and react to the effects of the recession for some time.

The country has been in a recession since early 2007, and the recession has been the longest recession since World War II, but it’s not quite the deepest recession Minnesota has faced.

Minnesota’s unemployment peaked at 8.4 percent in Minnesota during the recession compared to 10.3 percent nationally. Minnesota’s current unemployment is 7.3, and the nation’s is 9.7 percent. While Minnesota’s unemployment rate is lower than the national average, McElroy said he’s not pleased with those numbers because Minnesota’s average unemployment rate was closer to 4 percent before the recession.

During the recession, Minnesota’s unemployment was higher than the national average for three months in late 2007 and early 2008. This was the first time that had happened since unemployment statistics have been recorded McElroy said.

The recession has been difficult, McElroy said, because it hasn’t been dispersed evenly across all demographics. Partially because the sectors hit by the recession — like manufacturing and construction — men were hit hardest by the economic down turn, McElroy said. In fact, he said 72 percent of the people laid off were men. He also said the recession affected people with less education and people of color.

A large economic problem was in late 2006 when single family construction fell off the table. In fact McElroy said the number of new single family projects fell from 45,000 in 2006 to 8,000 in 2008.

“It literally fell off the cliff,” he said.

Minnesota lost 26,000 jobs in single family construction in 2006, and McElroy said this had a ripple effect to other industries like mortgage lenders and lumber companies.

In Minnesota, about 220,000 people are receiving unemployment benefits this week, which is considerably higher than the seasonal average of 75,000 to 80,000 before the recession, McElroy said.

“There’s still too many people unemployed,” he said.

People are unemployed for an average of about 22 weeka, but many people have collected for more than 26 weeks, he said.

Promoting business

One way to get people back to work is to promote business growth, and the legislators discussed ways they can help speed up that process. All the legislators in attendance promoted speeding up the permitting process to help businesses come to Minnesota and expand here. However, Brown said the state needs to streamline the permitting process while still accomplishing the things permits are intended to accomplish.

Dan Dorman, executive director of the Albert Lea Economic Development Agency and former state representative, questioned what state leaders plan to do when the JOBZ program expires in 2015.

“There’s a lot of talk about jobs, jobs, jobs, but I’m not optimistic we’re going to see a lot of results,” Doman said.

If the JOBZ program expires, Dorman said it would become more difficult for Minnesota to compete with neighboring states for business development.

McElroy cautioned that state leaders have a few more years to renew the program. He said he prefers JOBZ over grants in other states because it awards performance, and doesn’t give businesses up front costs.

“You can make strong arguments against it, but it’s the most effective tool we’ve ever had,” McElroy said.

Light at the end of the tunnel?

DEED tracks online jobs postings, and McElroy said about 8,000 jobs were posted online last fall. That number increased to about 16,000 by the end of the year, and it increased to 31,000 by the end of February.

In the fourth quarter of 2009, McElroy said DEED statistics revealed about 400,000 people in Minnesota had gotten different jobs. However, that could account for people who were laid off being called back into work.

According to McElroy, there were 61,000 new entrepenuerships last year — the most in the state’s history. DEED encourages those companies to stay and grow in Minnesota.

“DEED or state government doesn’t create jobs by ourselves,” McElroy said. “We work with partners: cities, counties, regional economic development initiatives, companies that want to expand.”

While state forecasters don’t anticipate strong economic growth until 2011, they have estimated the recession ended in late 2009 or early 2010, according to McElroy.

“We are hopeful that we will see job creation prior to that,” he said.

Some indicators point to that happening, as the average work week has increased from below 31 hours to 33 — closer to the average of 35 seen before the recession, McElroy said. And, more temp workers are being hired, which McElroy said is “canary indicator” of the health of the economy.

Slow road

While there may be a tough road ahead, the legislators were confident the state will move past the current hardships to more positive days ahead.

“Government can work, and it works well when we all work together,” Sparks said.

Sparks used the example of the Hormel Institute’s recent expansion project as one project that worked, especially since future expansions are possible.

“We have some real reasons to be positive here in southern Minnesota,” Sparks said. “We need to work together … and try to make sure that we can move these things forward.”