Boosting the numbers

Why the state’s economic outlook isn’t as rosy as the Walz administration makes it seem.

It was Minnesotan Sinclair Lewis who popularized the word “Boosterism” in his 1922 novel Babbitt. A century later, the spirit of the novel’s protagonist George F. Babbitt is alive and well in our state, thanks in no small part to the Walz administration’s selective use of economic data to give a false boost to its “success.”

On October 9, Gov. Walz tweeted: “Our small businesses and working families are driving our state’s economic expansion.”

But the most recent data show that Minnesota’s economy isn’t expanding. According to the Bureau of Economic Analysis (BEA), in the second quarter of 2022 our state’s economy actually shrank, in real terms, at an annualized rate of 1.3 percent, faster than the overall rate for the United States (0.6 percent) and faster than 29 other states and the District of Columbia. For both our state and the nation, this was the second successive quarter in which the economy shrank in real terms — BEA estimates for the third quarter show real gross domestic product (GDP) of the United States increasing at an annual rate of 2.6 percent, driven almost entirely by lower imports and higher government spending.

Until recently, two quarters of declining GDP would have been called a recession, but not anymore. Those who deny that the United States — and Minnesota — were in recession in the first half of this year, point to the labor market.

On October 21, Walz tweeted: “Minnesota has the lowest unemployment rate in the nation and one of the highest labor participation rates in the country — that’s what our administration has done.”

But the unemployment rate is a statistic of limited importance on its own. It tells you what share of those in the labor force are unemployed and looking for work. If you give up looking, you are no longer counted as part of the labor force and cease to count towards the unemployment rate.

That is what has happened in Minnesota. Bureau of Labor Statistics numbers show that out of the 50 states and D.C., no jurisdiction has seen its number of unemployed fall more than Minnesota’s from February 2020 — the pre-pandemic peak for employment in the United States — to September 2022, with a decline of 49.8 percent. But our state is also one of 23 out of 51 jurisdictions that had fewer people employed in September 2022 than it did in February 2020, by 0.8 percent. Where have all those unemployed people gone? Out of the labor force. The number of Minnesotans not in the labor force was 10.2 percent higher in September 2022 than it was in February 2020, a rise of 133,000, the seventh largest increase in the United States. In short, Minnesota’s low unemployment rate is not driven by more Minnesotans being gainfully employed, it’s driven by people leaving the workforce altogether.

So while Lt. Gov. Flanagan is correct when she tweets that “Minnesota has hit *12 straight months* of job growth,” that is not the same as saying that the number of people employed has grown. Indeed, Minnesota is one of 27 out of the 51 jurisdictions where the number of people employed fell from June to September 2022, by

18,500 — a performance worse in percentage terms than in 45 other states. That is why our participation rate fell from 67.3 percent in June to 66.7 percent in September. Fewer Minnesotans are working but are taking more jobs to make ends meet.

This is why so many of them are galled to read arguments like those of DFL Chair Ken Martin, who tweeted on October 20: “Americans at every income level are wealthier today…The average wage & salary income rose from $68,943 to $73,988 — an increase of $5,045/person, or 7.3%” from January 2021 to August 2022.

These numbers take no account for inflation which was 14.3 percent over this period so, Americans’ average wage and salary income actually fell in real terms by $3,572.

BEA data for Personal Income illustrate how inflation is hitting Minnesota wallets. In the second quarter of 2022, the most recent quarter for which we have data, Personal Income in Minnesota rose by 5.4 percent at an annualized rate, lower than in 28 other states. Adjusting that for inflation and population, however, shows that Personal Income in Minnesota actually fell for a fifth successive quarter. Indeed, if we strip out income from transfers to look just at sustainable incomes — that were derived from wages and capital — we see that per capita

Personal Income began falling in real terms in the U.S. in the fourth quarter of 2021, but in the second quarter of 2021 in Minnesota. While sustainable per capita Personal Income for the United States is now 0.4 percent lower in real terms than it was in the fourth quarter of 2019, in Minnesota it is now 1.8 percent lower. Inflation is ravaging living standards across the country, but Minnesotans are being hit especially hard.

The economy is the number one issue for Minnesotans right now because they are living with the grim reality of falling incomes. The boosterism of Walz, Flanagan, and Martin isn’t fooling them and pretending the state’s situation is different than it is won’t solve any problems. The people of our state deserve straight talk and serious solutions, not “Babbitry.”