Minnesota Economic Indicators Highlights
By Dave Senf
The Minnesota Index climbed for the 15th consecutive month in August climbing 0.6% to 144.5, as the state’s economy continues to rebound from the deep pandemic decline. The strength of the rebound slowed to 0.3% monthly increase in June but has accelerated since as the monthly increase was 0.6% in both July and August. The index is a proxy for monthly GDP or economic activity that peaked at 142.0 in December 2019 before plunging to 111.5 in May 2020. The 144.5 reading in August suggest that the state’s GDP is now 1.8% higher than pre pandemic peak. The BEA’s (Bureau of Economic Analysis) estimate of Minnesota real GDP during the first quarter of 2021 was $342.3 billion just slightly below the all-time real GDP of $343.4 billion recorded during the fourth quarter of 2019. The U.S. Index increased 0.3% in August as it appears the delta variant spike slowed the U.S. economy more than the Minnesota economy.
The Minnesota Index, a coincident index, combines four state-level indicators to summarize current economic conditions in a single statistic which provides a proxy for monthly GDP. The four state-level variables in the coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index. The Minnesota Index, along with similar indexes for all 50 states, is produced by the Philadelphia Federal Reserve Bank.
Adjusted Wage and Salary Employment continued to recover in August as Minnesota employers added 40,500 workers, topping the 34,600 added in July. In percentage terms, jobs in Minnesota increased 1.5% while nationally the increase was 1.0% in August. The state has recovered 45% of the 387,800 jobs lost in March and April since job growth resumed in May while the U.S. has recovered 48%. Minnesota lost 13.0% of its wage and salary employment during March and April compared to 14.5% for the U.S.
The August readings were above February 2020 reading in half of the states. Minnesota, with a 1.9% gain, ranked 8th highest when comparing August 2021 to February 2020 readings. Utah (5.1%) and Idaho (4.0%) had the highest GDP growth over the period. Hawaii (-8.0%) and Connecticut (-7.6%) had the largest GDP drop off compared to last February. August’s readings for neighboring states were higher in South Dakota (2.9%) and Wisconsin (0.3%) than last February but lower in Iowa (-1.6%) and North Dakota (-2.4%).
August’s index advance was powered by increasing wage and salary employment and rising real wage and salary disbursements as well as the state’s unemployment rate inching down to 3.8% from 3.9%. Employers continue to experience difficulties in finding workers to fill their vast number of job openings as the state’s labor force remains significantly below pre-pandemic (2.7% below February 2020 level or 86,000 workers). The unemployment rate in August was 3.8% compared to 3.3% in February 2020 with 11,400 more unemployed in August compared to February 2020. The spike in COVID cases related to the Delta variant hasn’t seemed to slowed Minnesota’s economic growth at least through August.
Adjusted Wage and Salary Employment increased 0.2% in August following a revised 0.6% gain in July. The state has added jobs in every month this year with the average monthly increase being 0.6%. Minnesota’s job growth matched U.S. job growth in August. Minnesota seasonally adjusted employment has grown 4.9% since December 2020 compared to the 3.3% gain nationwide. Minnesota’s employers have added 133,100 jobs during the first eight months of 2021 despite struggling to fill their swelled job vacancies. As of August, the state has recovered roughly 66% of the 416,000 jobs lost during the pandemic. Nationally 76% of the 22.4 million jobs lost across the nation last March and April have been recovered as of July.
Minnesota’s private sector employers added 6,200 positions while the public sector cut 1,900 leaving the state with a net gain of 4,300 more jobs in August. The private sector has added 122,300 jobs (5.3% growth) so far in 2021 while public sectors jobs are up 10,800 (or 2.7%). Public sector job loss was spread across all levels of government; federal, state, and local. Most private sector jobs were in Manufacturing, Leisure and Hospitality, Trade, Transportation and Utilities or Financial Activities. Education and Health Service along with Information cut the most jobs.
Manufacturers added 3,500 jobs in July and 2,300 in August for a two-month increase of 5,800. That was the highest two-month job increase in 30 years topping the previous high of 4,600 in December 1994. Construction is the only sector where August unemployment is higher than the February 2020 level. The 127,900 construction jobs in August were 3.1 percent below the all-time monthly high of 132,000 set in February 2006.
July’s unadjusted over the year change was 4.0% which was slightly below the 4.4% national growth. Seasonally adjusted unemployment in Minnesota dropped to 3.8% while the U.S. rate declined to 5.2% in August.
Minnesota’s 4.0% over the year increase in unadjusted employment was the 24th highest among the states. Hawaii (10.0%) and Nevada (8.7%) had the highest annual increases while Kansas (1.9%) and Oklahoma (2.0%) had the lowest annual increases. North Dakota (3.1%), South Dakota (3.1%), Iowa (2.7%), and Wisconsin (2.4%) all experienced slower over the year job growth than Minnesota.
Online Help-Wanted Ads tailed off in August, the first monthly decline since February, dropping to 173,400. August’s 3.0% decline was slightly smaller than the U.S. dip of -4.9. Online help-wanted ads in Minnesota were 71% higher while nationally job postings were up 66% compared to a year ago. The demand for workers by Minnesota employers continues at an extremely robust level as the state rebound from the pandemic. The state’s share of U.S. online job postings rose to 2.3% in August continuing to be slightly higher than the state’s 2.0% share of U.S. wage and salary employment.
Minnesota’s Purchasing Managers’ Index (PMI) dipped to a five-month low in August slipping to 71.1. The reading is still significantly above the monthly historical average signaling that manufactures remain very confident about a healthy pace of expansion over the next six months despite supply chain bottlenecks and labor shortage headwinds. Manufacturing hiring in the state over the last two months has been very strong which is another positive indicator that Minnesota’s manufacturing sector is continuing to recovery from the pandemic contraction.
The national ISM Manufacturing Index inched up to 59.9 in August while the Mid-America Business Index (nine states including Minnesota) dropped to 68.9. As has been the case over the last few months Minnesota manufacturers are more optimistic about manufacturing growth over the rest of the year relative to current level than their counterparts in most other states.
Average weekly Manufacturing Hours decreased for the third time over the last four months fading to 40.0, the shortest factory workweek since September 2020. Declining hours is inconsistent with the strong PMI reading as well as the recent uptick in manufacturing hiring. Manufacturing employment in the state is now roughly 2.5% or 8,000 below February 2020.
Seasonally adjusted average weekly Manufacturing Earnings, adjusted for inflation, fell to $1,003.89 which was the lowest monthly factory paycheck since March. Factory paychecks have bounced back from the pandemic recession plunge but have been relatively flat over the last few months despite Minnesota manufactures having a hard time finding workers to fill their vacancy. Seasonally adjusted real factory paychecks were 0.2% below last August marking the first year over year dip since last October.
Adjusted Residential Building Permits, an early indicator of future home building activity, reversed directions in August rocketing up to 3,253. That was the second highest monthly total for the year. Home building permits through August are up 27.7% compared to last year. Permits have average just above 3,000 a month which hasn’t occurred since the boom year of 2005. Median home prices continue to set record highs each month as home-builders scramble to meet demand despite labor shortages and supply chain problems.
The construction sector is the first sector to regain all the jobs lost during the pandemic recession. Minnesota accounted for 2.4% of home building permits issued nationwide in August which tops the state’s 1.7% share of U.S. population. Minnesota accounted for 1.7% of single-family permits and 3.4% of multiple-unit permits.
Adjusted Initial Claims for Unemployment Benefits (UB) inched up in August to 31,310. This was the first uptick in monthly claims since March and was most likely related to the spike in delta variant cases. Unadjusted jobless claims were 50.3% lower than a year ago but remain persistently above the pre-pandemic levels. August’s claim level was roughly 83% higher than the 2015 – 2019 July seasonally adjusted initial jobless claims average of 17,100.
Note: All data except for Minnesota's PMI have been seasonally adjusted. See the feature article in the Minnesota Employment Review, June 2010, for more information on the Minnesota Index.
The Philadelphia Federal Reserve Bank, which produces the Minnesota Leading Index, has temporary suspended generation of state leading indices. For more information see (www.philadelphiafed.org/research-and-data/regional-economy/indexes/leading).