Economy to ‘gradually mend,’ Fed says
The 2010 economic outlook for the Upper Midwest is “that we expect the economy to gradually mend,” said Toby Madden, regional economist with the Federal Reserve Bank of Minneapolis. Madden and Rob Grunewald, associate economist, presented an economic update this morning in a press event at the Federal Reserve Bank building in downtown Minneapolis. Here is the press release issued by the Federal Reserve, and here is the coverage from the Minneapolis Star Tribune.
“Employment levels are expected to recover in the western part of the district, but continue lackluster performance in the east, while unemployment rates are predicted to level off at relatively high rates throughout the district,” Madden said. “Wage and price pressures are expected to be moderate. The outlook for agriculture is relatively optimistic, while manufacturing activity is expected to be flat. Despite improvements in residential real estate markets, home building has been in the doldrums and recovery may be more than a year away.”
The commercial real estate market was hammered in 2009, and it appears as if it will be awhile before there is meaningful improvement in that area. “The housing sector meltdown is spilling over into commercial real estate and construction markets. Vacancy rates for office space in the Minneapolis St. Paul area rose to 18.1 percent, third quarter 2009, from 14.9 percent in third quarter 2008. At the same time, the percentage of available space in industrial building increased in 2009 to 11.4 percent, from 9.0 percent. Increases in vacancy rates reduce pressure on rental prices and dampen future construction,” Madden explained.
Home building is way off, he said, with recovery likely more than a year away. “During first 10 months of 2009, housing units authorized did not decrease as fast as in 2008, but still showed a 26 percent drop. In 2004, there were about 40,000 housing units authorized annually in Minnesota. Now it is down to about 8,000 units. In Minnesota and Wisconsin, housing units have not only dropped off sharply, although they are below levels served over 30 years ago.”
Grunewald said business owners running into tougher standards for credit. “Lending standards have risen, and quality of credit applicants has fallen,” Grunewald said. “A year ago, respondents to three District surveys of chambers of commerce members, manufacturers, and business leaders revealed that between 20 and 30 percent had seen their access to credit worsen in the previous three months. This year, we asked the same question of similar respondents and found that between 25 and 43 percent noted credit availability worsened. This suggests that credit conditions remain tight, and into 2010 will continue to have an impact on hiring and on investment decisions.”
In a broad survey of business leaders across the upper Midwest, 58 percent said they are pessimistic about the economic outlook for their communities. The good news, Madden and Grunewald said, is that is a lower percentage of business leaders who had a pessimistic outlook a year ago.
