Minnesota’s economy isn’t doing well

In July, the Mankato Free Press ran an op-ed titled ‘Minnesota economy doing well.’ It was, in this writer’s view, the sort of fact-free boosterism that too often passes for comment on our state’s economy. We submitted the following op-ed as a reply. We have received no response, so we’ll share it here.

In the second quarter of 2022, Minnesota’s economy shrank, in real terms, at an annualized rate of 1.3%. The economy of the United States generally also shrank, but at a slower rate, 0.6%, and Minnesota’s decline was faster than 29 other states and the District of Columbia. For both our state and the United States generally, this was the second successive quarter in which the economy shrank in real terms.

Since Minnesota’s Gross Domestic Product hit its COVID-19 low point in the second quarter of 2020, our state’s economy has grown by 12.6% in real terms, which might sound impressive until you note that this is below the national growth rate – 14.5% – and that of 31 other states. Relatively speaking, Minnesota’s economic rebound from COVID-19 hasn’t been all that impressive.

When I read the Free Press’ recent editorial – Minnesota economy doing well – I was surprised to find no mention of these numbers whatsoever. Indeed, the only data cited as the basis for this glowing review of our state’s economy related to the labor market.

We were told, for instance, that “Minnesota’s labor market is extremely tight with only a 2% unemployment rate [now 1.9%], second lowest in the nation.” But the unemployment rate is a statistic of limited importance on its own. It tells you what share of the people in the labor force are unemployed and looking for work. If you give up looking for employment, you are no longer counted as being part of the labor force and you cease to count towards the unemployment rate.

That is what has happened in Minnesota’s labor market. No state has seen its number of unemployed fall by more from February 2020 – the pre-pandemic peak for employment in the United States – to August 2022 than Minnesota, a decline of 52.6%. But our state is also one of 23 out of 50 states and the District of Columbia which had fewer people employed in August 2022 than it did in February 2020, a fall of 0.6%. Where have all those unemployed people gone? Out of the labor force. The number of Minnesotans not in the labor force was 9.7% higher in August 2022 than it was in February 2020, the eighth largest increase in the United States. Minnesota’s low unemployment rate is driven by people leaving the workforce.

And these numbers take no account of what these workers are earning. In the second quarter of 2022, Personal Income in Minnesota rose by 5.4% at an annualized rate, which was lower than in 28 other states. If you adjust that for inflation and population, however, 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 derived from wages and capital – we see that per capita Personal Income began falling in real terms in the United States 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% lower, in real terms, than it was in the fourth quarter of 2019, in Minnesota it is now 1.8% lower. Inflation is ravaging living standards across the United States, but Minnesotans are being his especially hard.

The economy is the number one issue for Minnesotans and that isn’t because they feel it is ‘doing well’.