Minn. economy improves, but not greatly

The outlook for Minnesota's economy remains positive but not great.

That's the upshot of the state budget forecast, one of the most in-depth analyses of the state's economy. State economist Tom Stinson prepares the forecast and finds not much has changed from the prediction he gave six months ago.

Stinson expects a slight uptick in the state's economic activity, good enough to increase tax revenue by $93 million for the 2012-2013 fiscal years. That's a lot of money, but less than a half-percent increase from his prior prediction.

Although the state continues to outperform the nation overall economically, "it's still not back to where we like it to be be," Stinson said.

But the economy is improving inline with his prior forecast.

"In general, we expect the Minnesota economy to do just a little better than the U.S. average," he said. The recent drop in the state's unemployment rate seems to be genuine, Stinson said. The state's unemployment rate was 5.7 percent in December, compared to the national rate of 8.5 percent.

Stison said it appears Minnesota employers added about 44,000 jobs from late 2010 to late 2011. That is more than current numbers, which are being revised, suggest.

Minnesotans' wages and salaries rose an estimated 4.4 percent last year. And personal income is projected to log a nearly 6 percent increase.

Leading job indicators, such as average hours worked and job vacancies, are returning to levels not seen since before the recession. Still, Stinson expects it will take until late next year for Minnesota employment to return to peak pre-recession levels.

However, Stinson warns many things could derail the national and state economies.

"The big unknown we have is federal fiscal policy," he said. "There are big spending cuts and big tax increases already built into federal law. Those spending cuts and tax increases would definitely slow the economy if they're left in place."

There is also the European debt crisis. Nearly a quarter of Minnesota's manufactured exports are bound for Europe. Slower economic growth in there portends slower demand for Minnesota exports. And there is instability in the Middle East.

"Overall, it looks like the fundamentals for Minnesota are kicking in and we're continuing to have economic gains," said Toby Madden, regional economist at the Federal Reserve Bank of Minneapolis.

Madden said recent interviews with key business leaders and economists in Minnesota found they are seeing growth in most parts of the state economy.

"The economy in Minnesota is growing for most sectors, except for the tourism sector, which got hit pretty hard because of the lack of snow we've had over the past couple of months," Madden said.

Some economists think there is a good chance the state and national economies will take a turn for the worse. Augburg College economist Ed Lotterman is in that camp.

"The possibility of something negative happening in Europe is still fairly high. I think the fiscal problem is still fairly intractable," Lotterman said. "And there's the probability of some sort of political, military occurrence in the Mideast and the Persian Gulf that would make oil prices spike."

Stinson also offered a lukewarm forecast on the state's housing market. He said there are some encouraging signs but a major revival of the housing market is not imminent.

Foreclosures will likely pick up this year, Stinson said, increasing the number of homes on the market that sellers are willing to unload cheaply. That can force down home prices overall.

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