The Upper Midwest economy remains strong despite lingering shortages of workers and workforce housing, according to a recent regional economics conference hosted by the Federal Reserve Bank of Minneapolis.
The Jan. 12 conference included a panel discussion involving Amy Watson, state economist for the Montana Department of Labor and Industry; David Flynn, an economics and finance professor for the University of North Dakota in Grand Forks; and Joseph Santos, director of the Ness School of Management and Economics at South Dakota State University.
Santos noted that nominal GDP growth in South Dakota has been strong as the state has experienced strong population growth and an exceptionally high employment rate. Since the pandemic, South Dakota has also experienced extensive employment growth in construction and professional and business services. Still, Santos said the keys to increasing long-term productivity in South Dakota are innovation, education and attracting more employees to the state.
Flynn said economic prospects also remain strong in North Dakota, despite ongoing labor challenges and the risk of growth falling potential. He attributed the state’s continued growth to recent energy booms and favorable tax policy. Flynn said one challenge the state faces is the minimal slack in the state’s labor market, which is impacting most industries and parts of the state.
Employment in Montana has grown since the pandemic, Watson noted. The state’s population grew by nearly 5 percent from 2020-23, the fourth-fastest rate in the country. Montana’s northwest corner has especially seen an influx of residents, and home prices have risen to accommodate the population increase.
While Montana’s unemployment rate has consistently been under 3 percent in recent months, Watson said the associated tightness in the labor market has made it challenging for businesses to find the workers they need to continue growing. The state’s licensed child care capacity met less than half of estimated demand last year.
Some Minnesota-based employers are purchasing homes to house employees, said Angelina Nguyen, research director for the state’s labor market information office. Others have instituted unlimited paid time off policies or offered employees veterinary insurance.
Strong economic growth was reported as Midwest states reported fewer employees than before COVID-19 after more older workers retired early during the pandemic. As of November, the unemployment rates in Wisconsin and Minnesota were 3.3 percent and 3.1 percent, respectively.
It is becoming increasingly likely that the Federal Reserve will achieve a soft landing, said Minneapolis Fed Chief Operating Officer Ron Feldman during a Jan. 11 Wisconsin Bankers Association economics conference. The labor market remains strong, and GDP continues to rise, even after the Federal Open Market Committee raised its target federal funds rate to 5.25 to 5.50 percent from near-zero at the start of 2022.
Year-over-year CPI inflation increased to 3.4 percent in December from 3.1 percent in November. Inflation is expected to fall to slightly more than 2 percent through 2026, Feldman noted, even while unemployment only rises to little more than 4 percent from its current mark of 3.7 percent.
The construction outlook is essentially unchanged from last year, said Minneapolis Fed Regional Outreach Director Ron Wirtz during the Jan. 12 Minneapolis Fed conference. Residential construction had fallen 23 percent on a year-to-date basis through November 2023, Wirtz noted, with non-residential construction down 2 percent.
Though high interest rates have slowed construction, the renewable energy construction market remains strong and employment is stable, said David Mortenson, chair of Golden Valley, Minn.-based institutional and corporate construction company Mortenson Construction Co. Mortenson said inflation in the construction industry has fallen considerably since 2021. Construction wages are still rising, with unionized wages averaging 3.5 to 4 percent annual increases over two-four years.