The Fed may cut interest rates Wednesday. Gov. Tim Walz might become Kamala Harris’ running mate. Let’s discuss Minnesota’s economy. Minnesota has more jobs and higher wages than the nation. But its economic growth is slower. It might have faced a recession in the year’s first half.
We think Minnesota would benefit from a rate cut now. Waiting for the Fed’s next meeting might not help as much. The Federal Reserve Bank of Minneapolis reported weakening in its region. This includes northern Michigan to Montana. Labor demand is lower, consumer spending is mixed, real estate is flat, and construction is slightly up.
Louis Johnston, a regional economist, said cautious bankers drag the state’s economy.
“Bankers and lenders are more careful with their lending quality,” he said.
Erik Hansen, Minneapolis’ economic development director, said projects are gaining momentum. Lower interest rates and ending legal challenges to the city’s 2040 Plan will help.
“We are excited to see more development,” he said.
Minnesota’s population growth affects everything. Each year, we get data points in spring and summer. This year, both showed fewer people are moving to Minnesota.
Housing and Household Growth Surpass Population Increase
From summer 2022 to summer 2023, Minnesota’s population grew by 0.4%. The U.S. grew by 0.49%. If this continues, Minnesota’s population will grow about 4% this decade. This would break the record for the slowest growth in a decade, which was 6.8% in the 1940s.
The Twin Cities are growing faster than the state. The Met Council said the region’s population grew 1.9% from 2020 to 2023. If this pace continues, the Twin Cities will grow by 6% to 7% in the 2020s. This compares to 11% growth in the 2010s.
Housing units and households are growing almost twice as fast as the population. Despite urbanization talks, the metro region is becoming less dense. Minnesota still loses more people to other states. In 2022, the state lost nearly 14,000 taxpayers. Wisconsin and Florida were the top destinations.
Minnesota and the Midwest saw economic decline in early 2024. Farm income fell due to lower prices and average crop yields. Durable goods manufacturing also saw lower receipts, leading to a 0.8% GDP drop. The U.S. GDP grew by 1.4% in the same period.
Last week, the first reading on second-quarter GDP for the nation showed a 2.8% jump. We’ll know Minnesota’s second-quarter GDP at the end of September. If it falls again, it means recession.
Minnesota Sees Wage Growth Outpacing Inflation
For the last decade, Minnesota had tighter labor conditions than the nation. Minnesota often had the highest percentage of people working. Now, it is sixth in labor force participation.
Minnesota’s unemployment rate rose to 2.9% in June. The U.S. rate was 4.1%. Wage growth in Minnesota was 5.7% higher in June than a year earlier. The U.S. saw wages increase by 4.7%. Both rates are above the inflation rate, around 3% nationally and lower in Minnesota.
Minnesota’s state government got more revenue due to higher wages and corporate profits. The state closed the fiscal year with $30.2 billion in revenue. That’s $421 million more than expected.
If Walz joins the national stage, he can say Minnesota’s budget stayed in the black. This is after the biggest state spending increase since the 1970s. The effects of his paid family and medical leave policy won’t be known until 2026 and 2027. While we don’t agree with all his policies, I give him credit for boldness and his willingness to discuss them.
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