The EDA Center | at the University of Minnesota  
Commentaries on Greater Minnesota

Periodically we will present commentaries on topics of interest to community and economic developers across rural Minnesota. Below is a list of all commentaries with the most recent listed first.

 

Commentaries
This is Going to Take a While
May 2009
Jack M. Geller, Ph.D.
Download PDF
   

A quick look at the calendar earlier this year indicated that spring was here; but a glance out the window, with the ground still covered with snow clearly told me that spring was going to take a while to arrive. That's the way it is with economic indicators as well. Seldom do economic indicators tell you what shape the economy is in when you look out your window.

Instead, some indicators like the stock market are leading economic indicators; meaning that investors move these indicators based upon where they envision the economy will be several months from now. Other indicators such as the unemployment rate are trailing indicators and help us better understand where the economy has been. But trying to understand exactly where the economy is when we look out our window is still far more art than science.

With both the national and Minnesota unemployment rates topping 8 percent in February, the focus at both levels is jobs, jobs, jobs; and rightly so. But as noted above, the unemployment rate is a trailing economic indicator, meaning that the economy would have to turn around and expand for quite a while, before employers start feeling comfortable enough to start hiring again in significant numbers. Only then, will the unemployment rate slowly start inching downward.

Unemployment rates can be somewhat deceiving as the job situation can be quite different from state to state, county to county, and community to community. For example, in February the nation's unemployment rate was 8.1 percent; however, the unemployment rates for the 50 individual states ranged from a low 3.9 percent in Wyoming, to a rate 3 times higher (12%) in Michigan. And in the state of California, which recorded a February unemployment rate of 10.5 percent, we can find communities such as El Centro, which recorded the nation's highest unemployment rate of 24.5 percent. In the end you learn that the job situation is much like politics ... i.e. it's all local.

I made reference to this differential impact several months ago in a column titled "The Four Rural Minnesotas." In that column I suggested that as the recession deepens you will find that different rural regions across Minnesota will be impacted quite differently. Specifically, I noted that areas categorized as Declining Resource Dependent regions, where the job base is already lean, are much less likely to take the brunt of the job losses in rural Minnesota. Rather, look to our Amenity-Rich Regions, where commercial and service enterprises are more dependent upon patrons with discretionary income to take a much bigger hit.

And in fact, we see this type of differential impact already occurring right here in Minnesota. For example in February, when Minnesota's unemployment rate first topped 8 percent, we found the southwestern MN community of Marshall with an unemployment rate of 4.4 percent. Contrast that with the amenity-rich communities of Grand Rapids, Bemidji and Brainerd, where the February unemployment rate in those communities was 16.4%, 17.5% and 20.9% respectively.

So what does one discern and conclude from all of this? Well first of all it's important to recognize that because the unemployment rate is a trailing economic indicator, we can count on having a rather high unemployment rate for a while. We can't simply assume that economic conditions will turn around any time soon; and even when it does, it will not be immediately reflected in the unemployment statistics. It's important to remember that businesses shed jobs in an effort to remain economically-healthy companies. When sales and earnings are down, it is vital to reduce expenses and laying off employees is an effective way to do that. Equally important, once the economy bottoms out and begins to expand again, employers will need to see the demand for their products and services significantly increase before they will begin hiring employees back. So in a nutshell ... this is going to take a while.

Second, like the national unemployment rate, Minnesota's unemployment rate will not reflect local and regional economic conditions across rural Minnesota. I believe that it is quite safe to assume that some of our rural regions will still be dealing with both high unemployment, as well as high underemployment long after the state unemployment rate declines to levels that are generally thought of as more reasonable.

And lastly, we have to realize how these high levels of unemployment will impact projected tax revenues in states like Minnesota that are disproportionately dependent upon income taxes. As noted earlier, long after the economy begins to turn around, job growth will be slow to rebound; and so will the increased income tax revenues associated with such job growth. Legislators that would like to assume that simply delaying and shifting expenses into the next biennium in hopes that revenues will rebound by then are kidding themselves.

This is going to take a while.

Geller is professor & head of the Arts, Humanities & Social Sciences at the University of Minnesota, Crookston. He also serves as the director of the federally-funded EDA Center at UMC. He can be reached at gelle045@umn.edu

This document was prepared by the University of Minnesota, Crookston under award number 06-66-05709 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.

The University of Minnesota is an equal opportunity educator and employer.

 
?>