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Minnesota’s GDP shrinks by 4% in the first quarter of 2020

Over time, more data measuring Covid-19’s impact on the American and Minnesotan economy is becoming available. First was the surge in Unemployment Insurance claims cataloged by Minnesota’s Department of Employment and Economic Development. Then came the actual unemployment numbers from the Bureau of Labor Statistics. This was followed by estimates for first quarter Gross Domestic Product (GDP) growth – or shrinkage – for the U.S. economy. Today, the Bureau of Economic Analysis gave us our first look at how Minnesota’s GDP has been affected.

From the 4th quarter of 2019 to the first quarter of 2020, Minnesota’s GDP shrunk at an annualized rate of 4.0%. This is hefty, but, surprisingly perhaps, it is far from the worst quarterly performance on record. As Figure 1 shows, the state’s economy has suffered greater quarterly declines on five occasions since the data began in 2005.

Figure 1: Minnesota’s real GDP, Percent change from preceding period (annualized)

Source: Bureau of Economic Analysis

Figure 2 shows us how this compares to other states and the U.S. generally. Minnesota has done better than the U.S. as a whole, whose economy shrank by 5.0% in the first quarter of 2020. We have done better, too, than our neighbors across the St. Croix in Wisconsin, whose economy also shrank by 5.0%. But we have done less well than our neighbors to the south and west. Iowa (-3.5%), North Dakota (-2.6%), and South Dakota (-2.2%) all saw their economies weather the storm of the first quarter of 2020 better than Minnesota.

Figure 2: Real GDP, Percent change from preceding period (annualized)

Source: Bureau of Economic Analysis

This is even more striking when we look at how these states have dealt with Covid-19. All three have lower rates of deaths per 100,000 people (Iowa 23, South Dakota 11, North Dakota 10) than Minnesota with 27.

This is only a hint of what is to come. The first quarter covers the first three months of the year and the full effects of the Covid-19 pandemic did not make themselves felt until the second quarter. Forecasts for second quarter GDP for the U.S. are correspondingly grim. Sadly, there is a good chance that the record quarterly decline, currently held by the fourth quarter of 2008, will be smashed.

John Phelan is an economist at the Center of the American Experiment. 

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