Minnesota’s economy is still growing, but lags the U.S. as a whole

Minnesota’s economy continued to grow in mid-2023, though more slowly than at the beginning of the year and lagging the nation as a whole.

The state’s real gross domestic product, or the total value of goods and services produced here, rose 0.7% on an annualized basis in the second quarter — April-June — according to data the U.S. Bureau of Economic Analysis (BEA) released Tuesday. Nationally, GDP increased 2.1% during that period, the data showed.

“At the U.S. level, growth has been maybe stronger than expected so far this year, and considerably slower in Minnesota,” said Sean O’Neil, director of economic development and research at the Minnesota Chamber of Commerce. “That follows a longer trend that we’ve been experiencing through the business cycle, really, since prior to the pandemic, where Minnesota has been growing at a considerably slower rate than the U.S. economy.”

Minnesota’s economic output slowed at the end of 2022 but accelerated in the first quarter of 2023, with a 2.2% bump driven by agriculture, retail and construction.

In the second quarter, Minnesota’s inflation-adjusted goods and services totaled $381 billion a year. Utilities, durable goods manufacturing and transportation and warehousing saw the biggest quarter-over-quarter gains.

Nationally, Tuesday’s GDP report is “a story of who has oil and natural gas,” said Louis Johnston, an economics professor at the College of St. Benedict and St. John’s University. Standout second-quarter growth included states such as Wyoming, Kansas, Texas and Alaska.

In the Midwest, Nebraska and North Dakota led the pack.

“If you take out oil and gas, basically, North Dakota, South Dakota, Minnesota, Iowa are all roughly doing the same,” Johnston said.

While the second quarter numbers do not reflect the conflict in the Middle East, the ramifications of the Israel-Hamas war will likely show up in data for the latter part of 2023, he said.

An overall economic slowdown is to be expected as the Fed’s interest rate hikes — an effort to rein in inflation — take effect, tamping down on consumer spending and softening the labor market.

Still, Minnesota hit a record number of workers in October, topping 3 million. Though the state unemployment rate rose to 3.2% month-over-month, it was still lower than the 3.9% national rate.

Between the first and second quarters of 2023, personal income rose in nearly every state, including a 3.9% bump in Minnesota, according to data the BEA released in September that showed a $239.7 billion increase nationwide.

Minnesota’s local service industries, such as restaurants and retail, have added jobs and made up for losses in more outward-facing sectors such as manufacturing and wholesale trade, O’Neil said. That is in part a reflection of consumer spending, which has exceeded expectations nationally and, in turn, is tied to a healthy labor market, he said.

Low unemployment in Minnesota “speaks to something closer to a soft landing,” O’Neil said.

“But at the same time, I think that there’s concern that we’ll see some cooling in the broader economy in coming quarters. So it’s hard to know what that means for Minnesota,” he said. “From the data that we have, we haven’t seen a significant rise in layoffs and unemployment that would warrant concerns about an immediate recession. But certainly there are some of those headwinds that raise concerns for us as well.”

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