It all started back in March when Federal Reserve Chairman Ben Bernanke uttered that hopeful phrase — green shoots — and sent everyone grasping for any miniscule sign of economic recovery they could find.
While things have begun to appear less bleak, experts warn not to get too comfortable and point to job creation as the true indicator of an upswing.
“We’re seeing the beginnings of it,” Alfred Marcus , a professor in the Carlson School of Management, said. “The end of it would be if unemployment started going down because jobs were created.”
State economist Tom Stinson was less optimistic, and said he wouldn’t yet call the economy “improving.”
“While the deterioration isn’t as rapid as it has been before, the best that you can say is that we’re probably establishing a bottom,” he said, “but we’re probably not quite there yet.”
Economists use several indicators to measure economic health, as there is no silver bullet that provides a clear picture of where things are headed.
In August, Minnesota’s payroll employment, the number of payroll jobs at established companies, was down 4.3 percent — about 120,000 jobs — from a year earlier.
“By any measure, that’s a significant decrease,” Rob Grunewald , associate economist for the Federal Reserve Bank of Minneapolis , said.
Currently at 7.6 percent, the state’s unemployment rate is almost 2 percent lower than the U.S. rate, although experts warn both numbers are likely to spike before things get better.
Minnesota’s unemployment rate will likely pass 8 percent, and the U.S. rate will likely hit 10 percent, Grunewald said.
“But when the economy does turn around, more individuals will join the labor force and start looking for work who are currently unemployed,” he said.
While some industries are beginning to look up, experts say the state’s economic recovery will be held back by a lagging job market.
Labor market conditions are often the last thing to improve, because business owners don’t rehire until they start seeing real changes in the economy, said Carlson professor John Boyd .
“The tragedy — very high unemployment — is going to continue on for awhile,” he said, “even under the best of all possible cases.”
The nation’s gross domestic product, the total output of all goods and services, is expected to increase in the recently-completed third quarter of 2009, Stinson said. But when it comes to more important things like payroll employment and unemployment, he said, “those are continuing to deteriorate; it’s just that they’re not declining as fast as they were.”
Stock market trends and housing prices are showing positive signs, although that could be a natural result of the federal stimulus dollars trickling in, Marcus said.
“We’re into a more positive momentum right now,” he said. “Everything else being equal, that should continue.”
A tangled web
The economy is a complicated machine, impacted by a multitude of factors, and its standing can alter at the slightest glitch.
“We don’t want a negative shock to unnerve the whole system again,” Marcus said, “and there’s things out there that could cause that.”
Foreign economies, China in particular, seem to be turning around, which means good things for the U.S. economy with the impact of globalization, Boyd said.
“That’s all important, because the economies are very interconnected,” he said.
Although stimulus dollars and low interest rates prompt Americans to spend more, it’s often on imported goods rather than domestic goods. Ultimately, this has a positive effect on the U.S because other nations feel secure enough to buy U.S. bonds and loan the U.S. money they wouldn’t have before, Marcus said.
“And if they didn’t do that, we’d be in a lot worse shape,” he said.
Brighter days ahead?
The unstable employment conditions have University students wondering, ‘will this be over when I graduate?’
Only 19.7 percent of 2009 college graduates who had applied for a job have one, according to a survey by the National Association of Colleges and Employers . In comparison, the survey of 2007 grads found that 51 percent had jobs once they graduated. In 2008, that number was already down to 26 percent.
College career centers around the University use their career fairs to judge the job market for students.
Sara Nagel Newberg , director of the St. Paul Campus Career Center , said after seeing dramatically less jobs being offered at their spring career fair, the one held two weeks ago was far more promising.
“It looked promising that more employers were actively hiring for full-time,” she said.
Mark Sorenson-Wagner , director of the Career Center for Science and Engineering , said at their most recent career fair, every employer had positions open, a dramatic shift from last year’s fall fair, when many employers were still cutting jobs.
Even for those who will be job-searching as soon as July 2010, things will be better, Marcus said.
“If we’re into a normal recovery, and maybe a slow recovery, the likelihood is that things will be slightly better when people graduate,” he said.
Even if the labor market looks better by June, it’s not going to reach the employment levels people would like to see, Boyd said.
“This has been the worst recession in a long, long time,” he said, “and it’s going to take quite a while to recover from it.”
Gettin’ by with a little help from the Feds
Without the federal stimulus dollars, the country would have lost an additional 2.5 million jobs on top of the 7.5 million it will already lose, the unemployment rate would have hit 11 percent and the recession would’ve lasted another year, Stinson said.
But that money must be applied in ways that ensure long-term economic health for coming generations, Marcus said.
“Is it going to be invested wisely?” he said. “Otherwise, we’re in a pickle.”
During the post-9/11 economic collapse, the government injected money into the economy similarly — but it was not spent productively, having gone into housing and large automobiles like SUVs, he said.
Given the bulk of stimulus funds going to those hardest hit by the recession by extending unemployment benefits and increasing food stamp funding, Stinson said he’s happy with the “mixture of activity” the money has provided. The fact that it’s being doled out in increments helps reduce the risk of a “double dip” recession, he said.
Following the leader
If there’s one thing experts agree on, it’s that wherever the U.S. and global economies go, Minnesota will follow.
In terms of unemployment rates, Minnesota has historically trailed the U.S. average by one percent to two percent, and will likely continue to do so, Stinson said.
“We’ll just get sucked along by the rest of the global economy,” Marcus said, adding the caveat that to get ahead, Minnesota would need to distinguish itself.
“We stand out less and less,” he said. “We’ve just become more and more like everybody else.”
To do this, Marcus said the state should play off of its strengths, which historically have included such sectors as health insurance and medical products, brought to the forefront by Minnesota-based companies like Medtronic , UnitedHealth Group and retail giants such as Best Buy and Target Corp.
“The question is, what’s the next step?” he said. “Where’s the next Best Buy?”
Renewed hope may come in the form of smaller companies, like EcoLab , he said.
“There’s always a kind of spirit of quiet, slow, incremental innovation,” he said, “truly the kind of innovation that made us stand out in some of these areas.”
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