Wednesday, July 29, 2009

No signs of recovery up here 

The Ninth District economy contracted since the last report. Decreases in activity occurred in the retail spending, tourism, services, residential construction, agriculture, mining and manufacturing sectors. The commercial construction sector was stable at low levels, while the energy and residential real estate sectors saw moderate increases. Labor markets slackened since the last report, and wage increases were moderate. While a number of prices were lower than a year ago, prices have generally remained stable since the last report.
From the new Federal Reserve Beige Book released this PM. Further details on jobs and wages:
Labor markets slackened since the last report. The University of Minnesota recently announced plans to reduce the school's workforce by 1,200 positions over the next year, mostly through attrition, but 370 employees are expected to be laid off. Also in Minnesota, a trucking company with 200 employees recently announced it will close by the end of August, a Minnesota-based regional airline plans to furlough up to 110 pilots and a health insurance company will lay off 100 workers. ... A temporary staffing agency survey of Minneapolis-St. Paul businesses showed that 13 percent of respondents expect to hire workers during the third quarter, while 19 percent expect to reduce staff. A Minnesota staffing services company noted that the pace of business in early July was much slower than usual. However, another placement company noted an increase in demand for experienced information technology workers.

Wage increases were moderate. According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 24 percent expect to increase employee compensation over the next six months, down from 35 percent in last year's survey. A Minnesota bank branch cut pay by 5 percent for all salaried staff.
That's of course the survey I co-author; a copy can be found here. I keep being asked about where the bottom here is. If this a U-shaped recession, the bottom is like finding the bottom of your cereal bowl: you know you're near the bottom, but seldom know you're past it until you're several months out. And the shift in what we build here (read: manufacturing) compounds it, as Rich and I will discuss in the next Business Central. Ernie Goss says this is so for the state as a whole.

I find myself thinking a bit about Bryan Caplan's suggestions for what this wave of creative destruction means for St. Cloud and most of outstate Minnesota. There's a good amount of vacant commercial and office property here (as well as Minneapolis/St. Paul.) What's going to occupy that space? St. Cloud was long the home of Fingerhut which distributed mail-order products. That space is still here, and internet sales could be fulfilled from here. I wonder why we don't see more internet businesses use that space. Caplan also suggests that the retail that would grow would be "services and products with short shelf-lives and/or high weight to value ratios." I.e., the stuff the internet doesn't deliver well. What would those be? Who in St. Cloud would deliver those products?

I'm more sure what we are rotating away from (manufacturing) than what we're rotating towards. Can there be destruction without creation? Not if the price system works. So it will be something. But what? As Caplan says, if I knew, I would be doing it rather than writing this blog, or teaching.

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