Dr. Tom Stinson State Economist Dr. Tom Gillaspy State Demographer
Dr. Tom StinsonState Economist
Dr. Tom GillaspyState Demographer
Minnesota and the New Normal
Tom Stinson, State EconomistTom Gillaspy, State DemographerNovember 2010
Real GDP Is Growing Again
2006 2007 2008 2009 2010 2011 2012-8
-6
-4
-2
0
2
4
6
8
% ChangeSAAR
The Great Recession Is Over
• The recovery began in June 2009• We have had 5 quarters of real GDP
growth• The economy is not back to its pre-
recession levels• The risk of back-to-back recessions, as in
the early 1980s, is real
The Outlook Is for Slow Growth through 2011
• Real GDP growth rates of less than 2 percent for the remainder of 2010
• Real GDP growth of just over 2.2 percent in 2011
• Inflation is not a problem, 2011 CPI 1.5%• Interest rates remain low through 2011• Only slow improvement in labor market
The U.S. Economy Lost 8.4 Million Jobs in the Great Recession
2006 2007 2008 2009 2010 2011 2012 2013100
108
116
124
132
140
148
156
0
2
4
6
8
10
12
14
Jobs Unemp
Jobs, Millions Percent
Minnesota Jobs Down 4.3% Since Recession Began, U.S. Average 5.6%
Jan
08
Apr
Jul
Oct
Jan
09
Apr
Jul
Oct
Jan
10
Apr
July
90
92
94
96
98
100
102
MN US
IndexDec 2007 = 100
-8%
-4%
0%
4%
8%
12%
2007-2009 20011990-1991 1980-1982
Quarters After NBER Recession Call
This Recession Was More Severe Than Those of 1990-91 and 2001
Percent Change from Quarter Preceding Recession Call
3Q 2010
Why a Slower than Usual Recovery
• No decline in interest rates• Excess production capacity limits
need for new business equipment• Export demands unlikely to surge in
short term• Lost wealth and retirement concerns
will slow release of pent-up demand
Spending on Food and Food Away from Home Will Increase in 2011
2006 2007 2008 2009 2010 2011 2012 20130
2
4
6
8
Home Away
Percent
Interest Rates Will Increase, But Not Until 2012
F Fds 3 mo 6mo 1yr 2yr 5 yr 10 yr 30 yr 30 mtg0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.002005 2009Today 20112012
Percent
The Dollar Is Expected to Continue to Decline through 2013
2006 2007 2008 2009 2010 2011 2012 20130.00
0.20
0.40
0.60
0.80
1.00
1.20
Major Trading Partners
Other Important Trading Partners
Index 2005 = 1.00
Household Net Worth Fell by Nearly $17 Trillion Dollars
2006 2007 2008 2009 2010 2011 2012 20130
10,000
20,000
30,000
40,000
50,000
60,000
70,000$ Billions
$65.6 T
$48.8 T$53.5 T
The Age Distribution Has Changed
20-40 40-45 45-50 50-65 65+0
10
20
30
40
50 47.0
7.6 7.2
21.6
16.6
37.8
10.0 10.4
24.5
17.3
1980 2007
% of Population Over Age 20
What to Watch During the Next Six Months
• Payroll employment• Consumer spending• Savings rate• Credit markets / interest rates• Capacity utilization
National Mobility Has Fallen To Its Lowest Point Ever Recorded
Census Bureau, 2009 CPS and historical
Convergence In Population Growth Rates
Census ests, Exurban includes Isanti, Chisago, Sherburne, and Wright.
Minnesota Saw a 30 Percent Jump in Workers Turning Age 62 in 2008
0
10,000
20,000
30,000
40,000
50,000
60,000
7/05 to7/06
7/06 to7/07
7/07 to7/08
7/08 to7/09
7/09 to7/10
7/10 to7/11
7/11 to7/12
Year Turning Age 62
Wo
rke
d W
ith
in P
as
t 5
ye
ars
2005 ACS
From 2010 to 2020, Minnesota Will
See Large Increases Age 50s and 60s
20,15036,190
47,3305,050
-30,680-9,980
47,95061,920
-2,680-63,650
-42,31054,240
102,960112,540
91,37041,400
8,44016,500
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84
85+
Source: Minnesota State Demographic Center, rev 2007Numbers are rounded
More 65+ Than School Age by 2020
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1950 1960 1970 1980 1990 2000 2010 2020 2030
18-24
65+
5-17
Census counts & State Demographer projection, revised 2007
Health Care Spending Jumps After 55U.S. Health Care Spending By Age, 2004
$1,855$1,074 $1,445
$2,165$2,747
$3,496
$6,694
$9,017$9,914
$3,571
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Source: Agency for HealthCare Research and Quality, Medical Expenditure Panel Survey,data for per capita spending by age group in the Midwest. Excludes spending for long-term care institutions.
Labor Force Growth Is About To Slow Sharply
1.52%
1.12%
0.75%
0.43%
0.10% 0.13%
0.27%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1990-2000
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35
Ave
An
nu
al C
han
ge
Age Of Minnesota Agriculture Workers
2000 Census PUMS and 2008 ACS
20082000
World Labor Force Growth SlowingProjected Change In Working Age Population (15-64)
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Minnesota UnitedStates
Europe China Japan Rest ofAsia
SouthAmerica
Africa
Continent
An
nu
al
% C
ha
ng
e
2000-10
2010-20
U.S. Census Bureau
Percentage of Minnesota Agriculture Workers Foreign Born
2000 Census PUMS and 2008 ACS
The Old Normal+ The Great Recession
+ Long Run Demographic Changes= The New Normal
The “New Normal” Probably Means
• Higher interest rates• Slower economic growth• Increasing numbers of retirees• Less consumption; more saving• A more diverse population• More uncertainty in our personal & national futures• Creative destruction and disruptive innovation• A shift in balance between private and public sectors• Worries about how to pay for past promises• Inability to reach agreements in public policy
The Great Recession Has Been Blamed for Raising the Level of Social
Angst
But What Is Really Happening
Is That We Have Entered A
“New Normal”
Grieving For The “Old Normal”• Denial – “This is not happening.” “Just wait, things will
return to normal.”
• Anger -- “Who is to blame?” Rage and gridlock rule and anyone who symbolizes life, energy, progress, success, happiness, etc. is treated with resentment and mistrust.
• Bargaining – “I’ll change if this just goes away.” Somehow, we can get back to the old normal if we just return to good, ole fashioned (conservative/liberal) values.
• Depression (emotional, not economic) – “What’s the point in trying?” “We are all doomed anyway.” The certainty/finality of events is finally recognized.
• Acceptance – “It’s going to be okay.” Looking for opportunities begins.
But Why Fear The New Normal?It Plays To Our Strengths!
Future economic growth will depend increasingly on increasing productivity and less on labor force size
Education has been the key to Minnesota’s productivity and prosperity
Future productivity increases will depend on decisions and the investments we make now
Public Sector Productivity Growth Will Be Essential
“Making Things Better” May Offer the Greatest Potential
• Cost cutting efforts have focused on transactional jobs
• Largest future productivity gains are likely to come from investments that lead to better outcomesLower lifetime health care costs, reduced recidivism rates, improved graduation rates
• Adapting service delivery plans to meet the needs of the “New Normal”
Productivity Is Not Just Making Things Cheaper
• Productivity is also
Making things better—Quality
Making better things—Innovation
The pressure for disruptive innovation is increasing
Long term cost saving may require investments
which increase short term expenditures
Focusing Just On Expenditure Cuts May Be
Short Sighted
The New 3 R’s for Economic Success in the 21st Century
Retention
Recruitment
Retraining
The Fiscal Catch-22
If we don’t make the necessary public investments in human capital, research and infrastructure, then we won’t have the productivity gains needed to provide the resources to make those investments in the future and pay for the promises we have made.
“If something can't go on forever, it will stop.”
Herbert Stein, Chair President Nixon’sCouncil of Economic Advisors
“I skate to where the puck will be, not to where it has been.”Wayne GretzkyFamous Canadian Philosopher