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District economy expected to slow through 1997

Ninth District Economic Forecast

Published January 1, 1997  |  January 1997 issue

For the second consecutive year, district employment growth has slowed, and according to the Minneapolis Fed's regional forecasting models, that slowing is expected to continue through 1997.

District employment growth is foreseen dropping to 1.2 percent between fourth quarters 1996 and 1997—the trend rate is 2.5 percent—with growth decelerating across the region. As the accompanying chart indicates, employment growth rates in the Ninth District have not been above the trend rate since 1994.

Chart: Nonfarm Employment Growth

The chart also indicates a slackening in the employment growth of the national economy, and reveals that the district's fall-off has been somewhat greater than the nation's. One explanation for the district's steeper employment decline is that labor availability is restraining hiring more in the district than in the nation. Going back to third quarter 1995, the district had a 3.8 percent unemployment rate, well below the nation's 5.6 percent rate. This spread continued to hold through the third quarter of last year. In all district states except Montana, third quarter unemployment rates were well below the nation's.

As for the future, the bank's forecasting models foresee continuing employment growth deceleration in all district states. North Dakota had been the only state in the district to experience employment growth near its historical average in 1996, but that state's employment growth is expected to fall off sharply in 1997.

The models offer some optimism for 1998: Accelerated job growth in Minnesota, Montana, South Dakota and Wisconsin is expected to increase the district's employment growth rate from 1.2 percent through fourth quarter 1997 to 1.9 percent by fourth quarter 1998—although that is still below the district's 2.5 percent average.

Minnesota

Between third quarters 1995 and 1996, Minnesota's nonfarm employment grew 1.9 percent, below its 2.8 percent historical average. Growth is expected to slow further to 1.6 percent in 1997 and then jump to 2.3 percent in 1998. Growth in construction and in the various service sectors accounted for much of the state's recent employment gains. Minnesota's unemployment rate rose slightly, from 3.7 percent in third quarter 1995 to 3.9 percent in third quarter 1996, 1.2 percentage points below average.

Montana

Montana's nonfarm employment grew 1.8 percent between third quarters 1995 and 1996, down from its 2.3 percent historical average. The state's growth rate is foreseen decelerating to 0.7 percent in 1997 and then rising to 1 percent in 1998. While Montana recently has racked up large employment gains in the services, declines in construction and mining jobs and sluggish growth in other sectors have held down overall growth. Montana's unemployment rate, however, was 5.5 percent in third quarter 1996, down from 6 percent a year earlier and 0.9 of a percentage point below average.

North Dakota

North Dakota's nonfarm employment rose 2.3 percent between third quarters 1995 and 1996, only 0.2 of a percentage point below its historical growth rate. The state's growth rate is predicted to drop to 1.1 percent in 1997 and remain there in 1998. Large gains in the construction and services sectors in the past 12 months more than offset the decline in government jobs. North Dakota's unemployment rate fell slightly from 3.2 percent in third quarter 1995 to 3 percent in third quarter 1996, 1.5 percentage points below average.

South Dakota

South Dakota's nonfarm employment grew 2.1 percent between third quarters 1995 and 1996, below its historical average of 2.7 percent. The state's employment growth is forecast to drop to 1.2 percent in 1997 and then jump to 1.9 percent in 1998. While the state had big gains in services, finance and manufacturing, declines in government and mining jobs held down its overall employment growth. In third quarter 1996 South Dakota had a 3 percent unemployment rate, which essentially matched its year-earlier rate and was 0.8 of a percentage point below average.

Wisconsin

Wisconsin's nonfarm employment grew 1.1 percent between third quarters 1995 and 1996, 1.2 percentage points below its historical average. Over the forecast period, it is expected to slow further to 0.8 percent in 1997 and then increase to 1.8 percent in 1998. A reduction in manufacturing jobs pushed the state's employment growth down, even though the state had a big increase in construction jobs. Wisconsin's unemployment rate fell from 3.7 percent in third quarter 1995 to 3.5 percent in third quarter 1996, 2.2 percentage points below average.

Upper Peninsula

The Upper Peninsula's nonfarm employment grew 1.2 percent between third quarters 1995 and 1996. Growth is forecast to continue at 1.2 percent in 1997 and then decline slightly to 1 percent in 1998.

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