Minnesota’s economy has below average growth

Last Friday, we released our latest report, The State of Minnesota’s Economy: 2019. The economic turmoil generated by the coronavirus shows just how important a strong economy is. It provides us with the resources to tackle threats like this and provides a cushion to our well-being so that we do not feel the economic impacts too severely.

The key finding of our report is that Minnesota is not as well off as it could be and that misguided state government policy holds our economy back. One of the most obvious places we see this is in figures for Gross Domestic Product (GDP). This is a measure of the total value of goods produced and services provided in a jurisdiction during a given period, and is a standard measure of economic activity.

Minnesota’s economic growth has lagged the national rate since 2000

Figure 1 shows how GDP changed in the US and for Minnesota specifically between 2000 and 2018, the most recent year for which the Bureau of Economic Analysis has data. We go back to 2000 for two reasons. First, it gives us a good span of time to look at longer term trends and changes in Minnesota’s economy. Second, it means that our analysis covers two periods of economic downturn and recovery, as dated by the National Bureau of Economic Research.

We see in Figure 1 that Minnesota’s economy has grown more slowly overall than that of the US since 2000. Growth rates more or less matched between 2000 and 2005, but then our state’s economic growth slowed quite sharply. The recession impacted Minnesota more than the US generally. And, since the trough in 2009, our state’s economy has made back none of the lost ground.

In sum, in real inflation adjusted terms, the US economy grew by 41.9% between 2000 and 2018, and in Minnesota that number was 35.7%. If our state had matched the growth rate of the US economy, its GDP would have been 4.6% higher in 2018 than it actually was.*

Figure 1: Gross Domestic Product Growth in the U.S. and Minnesota, 2000-2018 (2000=100)

Source: Bureau of Economic Analysis and Center of the American Experiment 

Indeed, if we look at a shorter, more recent period, we see the same story. Figure 2 shows the same numbers as Figure 1 except that it starts in 2010. From 2010 to 2014, Minnesota’s economic growth tracked that of the US generally. Then, our growth took a hit relative to the US which has left a persistent lag in our growth figures. In sum, between 2010 and 2018, the US economy grew by 19.5% and in Minnesota that figure was 17.2%.

Figure 2: Gross Domestic Product Growth in the U.S. and Minnesota, 2010-2018 (2010=100)

Source: Bureau of Economic Analysis and Center of the American Experiment 

Over a longer or a shorter period, we see that Minnesota’s economy is growing at a slower rate than the US generally. Given the importance of a strong economy, this is cause for concern.

*Some of these numbers differ slightly from those in our report owing to BEA data revisions since it was complied.

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