Minnesota's Economy: "Y'all be Careful Out There, Y'hear!"

Back a couple of decades an American president thought it was either good politics or a novel way to deregulate the airline industry and started firing air traffic controllers. Legend has it that an overworked controller at Atlanta’s busy airport couldn’t handle the stress and walked off the job. His last message to the circling pilots was:

“Y’all be careful up there, y’hear!”

It’s time to issue a similar warning to Minnesotans who are trying to find jobs, build something, provide timely and proper public service or hustle up some business of almost any sort. “You all be careful out there.” Or, in a word, “Uff-dah!”

This past week the U.S. Department of Labor and the Minnesota Department of Employment and Economic Development issued their July unemployment figures nationally and for the state. Another 17,000 Minnesotans are without jobs and Minnesota’s unemployment rate climbed above the U.S. average by a tenth of a percent, to 5.8 percent.

In his typically thorough fashion, Minnesota Public Radio’s Martin Moylan described the state figures this way: “The unemployment picture right now is especially dismal in government, construction, manufacturing and the leisure and hospitality industry. In Minnesota, those sectors lost about 8,000 jobs (among) them in July.”

Things should be picking up later this month as delegates, journalists, hangers-on, and ambassadors of special interests come to the Twin Cities for the Republican National Convention. But that infusion of fresh cash isn’t likely to offset losses in the other especially stressed sectors.

The housing industry has not recovered from its plunge, thus manufacturing in Minnesota’s forest products industries, for instance, is not close to seeing a rebound. Duluth and a few other cities have announced plans to cut government employment as their budgets run dry. School districts facing budget deficits for the new school year are cutting jobs as well.

The same day July unemployment data were released, government reports showed consumer prices rose at an annual rate of 5 percent in July – the highest such gain since 1991. “Core inflation,” which is the term used to measure upwards price movements for most things that aren’t commodities such as food and energy, rose 0.7 percent in the month. That reveals that higher raw material and fuel costs are being pushed through the supply chain and are reaching consumers at the cash registers.

But not all of these higher commodity prices have yet hit consumers. Quirks in the dairy and livestock cycles have postponed retail price increases that are certain to follow and should be a major concern to consumers and people involved with hunger, nutrition, and poverty and unemployment issues.

The delayed reaction to price increases in the meat and protein markets is made in a comprehensive report, “What’s Driving Food Prices?” It was prepared by Purdue University economists Philip Abbott, Chris Hurt and Wallace Tyner and released in July by the Farm Foundation in Chicago. It can be found at www.farmfoundation.org.

Among points the three economists make is that the weakness or strength of the U.S. dollar greatly impacts the actual cost of food and energy for Americans who use the dollar for all commerce, and Third World countries that also use the dollar for international trade. Also, Abbott, Hurt and Tyner show that the poor are disproportionately impacted by high commodity prices because the poor pay greater portions of disposable incomes on such necessities of life.

That report simply traces food and consumer price inflation from February 2007 to February this year. It has climbed since then, both at home and abroad, and has harmed the most vulnerable among us even more.

The impact of using the U.S. dollar in periods of weak U.S. currency exchange rates is made evident in the above graphic. Yes, understanding the impact of exchange rates is complicated. But it has a profound impact on the poor and jobless among us, and it goes a long way in explaining why Minnesota and American industries are at a disadvantage in global markets when paying for raw materials, energy and transportation.

Commodity prices have moderated to some extent over the past three weeks. Improved weather has raised expectations for greater agricultural harvests in the breadbasket states of the Midwest. And spillover weakness of the U.S. economy on Europe and other trading partners has actually strengthened the dollar slightly, thus bringing down global crude oil prices.

Nothing, however, suggests we’ve turned the proverbial corner on the U.S. and Minnesota’s economic crises. On Tuesday, the U.S. Bureau of Labor Statistics released the Producer Price Index (PPI) for July, showing that wholesale inflation moved up 1.2 percent in the month after galloping at a 1.8 percent clip in June. The bulk of these increases are jet to infiltrate consumer prices.

This nod to what’s to come makes perhaps the best economic public policy action of the summer so painful.

On June 30, Gov. Tim Pawlenty authorized Minnesota to participate in the federal Emergency Unemployment Compensation (EUC) program. It allows Minnesotans whose unemployment benefits were exhausted on April 30 and still seeking jobs on July 6 to qualify for an additional 13 weeks of unemployment benefits.

That was recognition that the economy is in the tank. Lawmakers, civic leaders and nonprofit groups should be exploring what additional public policy actions may be necessary for Minnesota and its citizens to weather the storm before there is a genuine economic upturn.