Small gains in employment as state workers return; private sector adds jobs

Minnesota businesses continued to add jobs at a stronger rate than the national average in August.

Minnesota's unemployment rate remained unchanged at 7.2 percent, but employers added 5,800 jobs last month.

Economists say that news is encouraging. But they question whether those gains will continue given a weak national economy.

Technically, the state added more than 28,000 jobs last month, but that number largely reflects laid-off government workers going back to work following the state government shutdown in July.

"Looking beyond that, looking at the private sector gains, August continued to be a pretty good month," said Steve Hine, the state's head labor market analyst.

Hine notes that over the past four months, Minnesota employers have added an average of 10,000 jobs a month, which are healthy gains.

"Especially in light of the fact that nationally we added zip — you know, zero jobs at the national level," he said.

Although the state's unemployment rate appears stagnant, that's largely the result of the way the Bureau of Labor Statistics smoothens out the volatility in the numbers.

Hine said it would be more accurate to say that the jobless rate surged to 7.6 percent in July, due to the state government shutdown, and then dropped to 7 percent in August.

Meanwhile, the national unemployment rate last month held at 9.1 percent.

Despite weak demand for housing in Minnesota, some of the biggest job gains last month came from the beleaguered construction sector, which beefed up by 2,200 jobs.

That's just on a monthly basis. Hine said the sector also is showing improvement by another important measure — the change over the past year. For the specialty trades, the biggest component of construction, losses moderated to the slowest pace in a long time, with employment down only 1.3 percent for the year ending in August.

"To put that in context, that's the lowest rate of job decline in specialty trades since 2006, so we're getting close to being in positive territory there," he said.

Despite those highlights, it will be hard for Minnesota to keep up its pace of growth with the national economic recovery flagging, Hine said.

Scott Anderson, an economist at Wells Fargo, agreed.

"What we're seeing from the leading indicators in the U.S. economy is that things are going to slow down as we move into October and November," he said. "While we're creating jobs today, we're probably going to see weaker job growth ahead."

Toby Madden, an economist at Federal Reserve Bank of Minneapolis, said Minnesota has performed better than the Federal Reserve's forecasting models had predicted for this year.

But he also points to headwinds, which are coming from a lot of different directions. Some are even specific to Minnesota.

"For example, we had a strong harvest last year that flowed into transportation and food processing and warehousing," Madden said. "And it looks like our harvests will be down a bit this year."

Still, Madden notes that Minnesota does have some extra cushions to help it withstand further economic shocks, which might account for why the state's employment picture looks better than the national average.

"Of course we have the fundamentals, the basic blocking and tackling of a highly educated workforce, a healthy workforce," Madden said. "We have a higher proportion of our industries in natural resources, which has been doing well — and our location, close to bordering states that are doing well. North Dakota is booming."

Madden said the Minneapolis Federal Reserve Bank forecasts growth of 1.7 percent employment growth for the state the next year. He notes that there a chance that the nation could experience a second recession and pull Minnesota down along with it. But he said the higher probability is for continued sluggish growth.

Ultimately, a recession might not look that different from current conditions anyway, University of Minnesota economist V.V. Chari said.

"The vast majority of people continue to feel, correctly, that income growth is sluggish, and the economy is performing well below its potential," he said.