Minneapolis Fed forecasts gradual recovery, lingering unemployment for Upper Midwest in 2010

Minneapolis Fed sees gradual recovery in 2010

MINNEAPOLIS — The Upper Midwest should see a gradual economic recovery next year, although high unemployment rates aren’t predicted to change much, the Federal Reserve Bank of Minneapolis said Monday.

“We’re slowly on the mend,” regional economist Toby Madden said at a news conference. “It appears the recession is over.”

A strong agriculture economy, flat prices for consumers, slight wage increases and employment gains in the western half of the district — which stretches from Montana to Michigan’s Upper Peninsula — are the bright spots in the bank’s forecast.

On the down side, manufacturing is expected to remain flat while the home building industry continues to slide.

Unemployment rates are high throughout the district, and aren’t expected to fall. “It’s still a job market that’s going to be more difficult for the employee than the employer,” said associate economist Bob Grunewald.

Unemployment rates are forecast to remain highest in the district’s eastern states in 2010, including 8 percent in Minnesota, 7.5 percent in Wisconsin and 13.2 percent in the Upper Peninsula. Minnesota is forecast to lose another 11,000 jobs, the most in the district.

The district’s western states have fared better in the recession. That should continue with unemployment rates of 4.6 percent in North Dakota, 4.8 percent in South Dakota and 7.2 percent in Montana in 2010, according to the forecast.

In fact, the total number of people working is forecast to increase in Montana and the Dakotas while staying about flat in Wisconsin and continuing to fall in the Upper Peninsula and Minnesota. Total employment can increase without changing the unemployment rate when people who had given up trying to find a job start looking again.

Grunewald said the western states benefit from a focus in agriculture, mining and oil drilling. Minnesota and Wisconsin generally track the national economy, he said, while Michigan follows the auto and tourism industries.

The Federal Reserve’s economists used surveys of hundred of business leaders throughout the district and their own statistical models to come up with their forecast.

Business leaders remain pessimistic about next year, but were slightly less downbeat than they were going into 2009, according to the forecast. Fifty-eight percent were pessimistic about 2010, down from 70 percent going into 2009.

Those in the Minneapolis-St. Paul metro area and in northwestern Wisconsin were the most pessimistic, while more than half in North Dakota were optimistic about the coming year.

When asked why some business leaders seemed so dour when economic indicators showed signs of a recovery, Madden said, “It’s hard to be optimistic after you’ve had a bad year.”

Madden cautioned that economic models, including those used by the Federal Reserve, are less accurate during economic turning points, so the 2010 predictions “may be overly pessimistic.”

It turned out that last year’s predictions weren’t pessimistic enough. Nonfarm employment fell much faster than predicted as employers shed jobs in nearly every sector in the district, with manufacturing and construction leading the way. Only education and health care added jobs in 2009.

Madden said economists at the Minneapolis bank didn’t compare their 2010 forecast to Fed forecasts for other parts of the country.

On the Net:

Federal Reserve Bank of Minneapolis: www.minneapolisfed.org/