Minnesota's economy poised for recovery: Economist
Dee DePass
Star Tribune
Published Dec 20 2001
Minnesota's economy is poised for recovery thanks to
continued construction activity, steady health care companies
and low oil prices, Wells Fargo & Co. chief economist Sung
Won Sohn said in announcing his forecast for 2002.
"This should be a fairly mild recession, clearly not for every
industry" but for most, Sohn said Wednesday. The economy
should improve some in late 2002 and much more in 2003, he
said.
"If the war on terrorism goes well ... we believe this will be the
third-mildest recession," after the recessions of 1960 and 1970,
he said.
Sohn also said he sees a lower budget deficit for the state than is
now foreseen. The deficit should fall from the $1.95 billion
projected now to $1.73 billion as sales taxes and income tax
revenue rise, he said.
Minnesota's construction, housing and health care sectors are
seen as leading stabilizers for employment and productivity
gains in the state. Health services added 4,900 jobs to
Minnesota this year, and nurses, technicians and marketers are
still needed.
Construction, aided by low interest rates and warm weather,
added 17,000 jobs to Minnesota's economy this year. In
addition, low mortgage rates and the Federal Reserve's rate
cuts have spurred home purchases and home equity loans.
"It's the consumers who are keeping the ship afloat," Sohn said.
Unlike some of its neighbors, Minnesota continues to attract
people from other states. About 5,000 newcomers will spend
money getting settled here this year.
In other industries, insurance and agriculture should see
improvements next year, Sohn said. If Congress passes a farm
bill, farmers should be able to contribute toward a recovery
next year.
Sohn even had good news for manufacturers, which he
admitted "have taken a beating."
Manufacturers' inventories are so low that any rise in demand
should force production increases, which should reverse the
flow of layoffs in the sector, he said.
Sohn said his rosy projections could bow to two variables: the
war on terrorism and oil prices.
If the war becomes protracted, then the recession could
"lengthen and deepen," although wars can also spur production
and growth, as in World War II.
Regarding oil prices, Sohn noted that OPEC is determined to
cut back production in an attempt to raise prices. Still, he
expects crude prices to remain near $18 to $20 a barrel for
some time.
Oil at that level adds "$100 billion to $150 billion to the
economy's purchasing power," he said.
-- Dee DePass is at ddepass@startribune.com .
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