Having written about Minnesota's per capita personal income Monday, I thought I'd look at gross state product, which is also available from the U.S. Bureau of Economic Analysis.
I was surprised at how much Minnesota bounces around in the rankings for economic growth. (Mouse over the chart to see the underlying data points.)
In 2007, for example, Minnesota's economy barely budged, growing a mere 0.2 percent, one ninth the nation's growth rate. Minnesota's economic growth ranked 42nd among the 50 states that year. But in 2008, the first full year of the great recession, and the hot zone of the financial crisis, Minnesota's economic growth accelerated, even as the nation's economy headed south. That year Minnesota went from 42nd to 7th among the states in economic growth.
Minnesota tanked with the nation in 2009, but then bounced back in 2010, with economic growth reaching 3.9 percent, enough to rank 16th.
What does it mean? Apparently economic growth at the state level can be quite uneven.
That's what the Federal Reserve Bank of Cleveland found when researchers examined state GDP growth from 2007 - 2011.
"The spread in growth rates from low to high is quite broad. The bottom five states had declines of 5 percent, while the top 5 states saw GDP expand by over 7 percent from 2007 to 2011," researchers Timothy Dunne and Kyle Fee wrote.
At least Minnesota is among the states that have seen an increase rather than a decline in the total value of goods and services produced in the state over that time.
Minnesota's per capita personal income, a broad measure of prosperity, rose 3.7 percent (not adjusted for inflation) from 2011 to 2012, according to data from the U.S. Bureau of Economic Analysis. That's a faster pace than the U.S. total, which rose 2.7 percent.
Minnesota's income per person of $46,227 is $3,534 more than the national tally of $42,693.
Minnesota retained its ranking of eleventh among the 50 states in 2012. Minnesota has ranked among the top 10 of states only one year since 2004. From 2000 through that year, Minnesota was among the top 10 every year, notching the best ranking, seventh, in 2004.
Source: U.S. Bureau of Economic Analysis(1 Comments)
Best Buy founder Dick Schulze and the company's board have carried on a very public sequence of negotiations over Schulze's proposal to buy the company and take it private.
Schulze says he is very confident he can line up the financing to pay between $24 and $26 per share for all of the company's stock.
If you've been following the story, you know that there's been a lot of discussion that Wall Street is skeptical.
So, how can one determine investor skepticism without talking directly to a lot of investors?
The ticker tells the tale.
Essentially, the stock price speaks volumes about what investors think.
When Schulze revealed his proposal - it wasn't detailed enough to call it a bona fide "offer" - the share price jumped, but landed well short of the proposed minimum of $24 a share. The stock closed that day, August 6, at $19.99. The gap between the proposal and the closing price was at least $4.01.
Compare that to another large recent buyout in the news. A week ago, the big health insurer, Aetna, announced an agreement to buy Coventry Health Care, a managed care company. The offer was valued at $42.08 per share. That day Coventry's share price closed at $42.04--a gap of just four cents.
Mind the Gap
Translated into percentages, on Day One Coventry's share price closed at 99.9 percent of the sale price.
Best Buy's share price on day 1 closed at about 83 percent of the proposal's bottom price.
Why the difference? Risk.
In the case of Aetna and Coventry, the companies announced a merger agreement with a firm price. Investors decided there was very little risk that the deal would fall apart. They had high confidence that if they bought a share today at, say $40, Aetna would soon pay them $42.08 for that same share.
In the case of Best Buy investors were showing considerable doubt that if they bought a share at, say $22, that Dick Schulze would pay at least $24 for that same share. The day 1 close at $19.99 suggests they were more comfortable betting that they might get around $20 for that share.
Setting the odds
You can calculate how skeptical investors are and attach a number to it, and that's where the depth of doubt about Dick Schulze's plans becomes apparent.
Let's refer back to Aetna and Coventry for comparison.
Last Monday, the merger announcement indicated Aetna would pay $7.14 more for a Coventry share than the stock was worth at the previous close. That $7.14 is the "premium" Aetna was willing to pay. On Monday Coventry's stock closed up $7.10. The shares rose almost the entire amount of the premium--99 percent. In essence, that 99 percent represents the odds investors are giving to the deal being completed.
Contrast that with the initial reception to Schulze's proposal. Schulze was offering a premium of at least $6.36 per share. But on that first day, the shares closed up only $2.35. That gain represents only 37 percent of the premium. In other words, investors thought Schulze's odds of delivering $24 a share were less than 40 percent.
Of course, that assessment has fluctuated over time, as Schulze has continued to press his case and the company's responses have shaped investor perceptions. But the pattern is one of growing doubt. Best Buy's share price has fallen back and is close to $17.64, where it was before Schulze issued his proposal. The perceived odds that he can pull off a deal are in the single digits.
You can see those changes in the chart below. The dwindling blue bars show the perceived odds of a deal being completed. The black and yellow figures represent the stock price. The yellow markers show each day's closing price and the black bar displays the price range during the day. The green box represents the price range of Schulze's proposal.
The clear message is this: investors have yet to give Schulze even a 50/50 chance of buying the company.
The odds calculation, shown in the blue bars, is based on the day's closing price.
Source: Bloomberg News
When I look at the Minnesota Business Conditions Index compiled by Ernie Goss, director of Creighton University's Economic Forecasting Group, I first look at the overall index number and then quickly check the employment number.
The July employment number reported Tuesday was something of a stunner.
As you can see in the chart below, the employment index had been rising nicely. (The green line is the three-month average, which provides a better sense of the trend.)
The three-month average had risen from "growth neutral" 50 in January to a healthy 60 in June.
Over the first half of the year, Minnesota had added 7,400 jobs. That's nothing to write home about, but state officials have been saying the payroll job counts appear to be understating the state's underlying strength.
But come July, the Minnesota employment index dropped back to growth neutral -- or just slightly above, at 50.1. To my eye, that's a scary drop.
Goss is blaming declining global and national economic conditions and the drought.
"The downturn in export orders weighed more heavily on the Minnesota economy for July than the drought. The global economic slowdown combined with the rising value of the dollar pulled the overall index below growth neutral for the month," said Goss. "I expect state growth to be flat to slightly negative in the next three to six months,"
Shortly after Goss' release hit the inbox, The Conference Board Help Wanted OnLine Data Series arrived offering a similar view of employment.
Minnesota saw an increase of only 300 online want ads from June to July. Over the past year, the number of job listings had grown by well more than 1,500 a month.
We find out the U.S. jobs and unemployment numbers on Friday August 3. We won't know the Minnesota employment situation until August 16. I'm not getting my hopes up.
The much-cited S&P/Case-Shiller Home Price Indices out Tuesday provided yet more confirmation of a firming housing market in Minnesota and nationally in the month of May.
(The Case Shiller numbers lag other housing metrics, no doubt because the methodology must require a lot of hunting. The index uses " data on properties that have sold at least twice, in order to capture the true appreciated value of each specific sales unit.")
According to the index, Twin Cities home prices rose 1.3 percent from April to May (that's on a seasonally adjusted basis), and almost 1 percent compared to May of 2011 (that's on a seasonally adjusted basis).
Those aren't necessarily big jumps, and prices remain far below their pre-recession highs.
Minnesota Public Radio's Jess Mador reports that S&P's Maureen Maitland is urging caution. "This may not be the recovery, but the last couple months of data have been more positive than negative, so there definitely is a glimmer of hope," Maitland said. "But you have to be patient and wait a few more months and see what the rest of 2012 is going to tell us."
Still, a positive trend is fairly evident, and the Twin Cities is improving faster and sooner than the composite index encompassing 20 major metropolitan regions.
The Twin Cities registered the lowest (seasonally adjusted) index reading in November of last year. The 20-City index bottomed in January.
Since hitting bottom, prices have risen 5 percent in the Twin Cities, 3 percent among the 20 composite cities.
The non-seasonally adjusted numbers show a similar pattern, when compared to the same month a year before.
The rate of annual decline in Twin Cities home prices started slowing in June of 2011, and prices notched gains starting in February of this year. The rate of increase has grown from 1 percent in February to 5 percent in May.
The Case/Shiller numbers are consistent with price data compiled by the Minneapolis Area Association of Realtors show.
MAAR reports the median sales price in the Twin Cities bottomed in February at $138,000, and rose to nearly $179,000 as of June.
So, while there's still a lot of hill to climb, the market appears to be gaining elevation after a long descent.
The home construction industry is seeing persuasive indications of a rebound in Minneapolis/St. Paul, according to numbers compiled for the Builders Association of the Twin Cities (BATC).
So far this year the number of residential construction permits, units permitted, and the dollar value of the permits are all running well ahead of levels in past years.
The cumulative permit value of $788 million from January through July is 46 percent greater than during the same period in 2011. The 3,953 units permitted from January through July is a whopping 72 percent above last year's level.
"The market continues to strengthen," said BATC president Curt Christensen. He pointed out that the latest S&P/Case-Shiller Home Price Index showed an increase of 1.3 percent nationally in April, the first reading in positive territory in seven months. "At the same time mortgage rates have dropped to an all-time low and locally, we've seen several months of positive sales reports from the Minneapolis Area Association of Realtors," Christensen said.
The BATC says two large projects, one in Ramsey (230 units) and another in St. Louis Park (122 units) boosted the total number of housing units permitted in the month of July, "however single-family activity continued strong, with an almost 60 percent increase this July over July 2011."
The construction industry posted some of the biggest employment declines of the great recession. But the rebound in home-building appears to be helping employment in the industry. In the first half of this year, construction employment is 4 percent or roughly 3,500 jobs above year-ago levels.
Posted at 10:40 AM on June 14, 2012
by Bill Catlin
Filed under: Jobs & unemployment
Minnesota's unemployment rate held steady at 5.6 percent in May, as employers cut a net 900 jobs.
The payroll employment loss in April was revised to a much smaller 900 jobs from the initial report of 3,100 positions lost.
However, state officials continue to question the reliability of the employment numbers produced by the U.S. Bureau of Labor Statistics.
"The chances are pretty great that these payroll survey numbers are understating our underlying strength," Steve Hine, the state's chief labor market analyst said Thursday.
The statistics indicate employment in government grew the most of all sectors with 1,200 jobs added. That sector has been a frequent job loser over the past year.
Hine says hiring at municipal swimming pools and golf courses seems to have ramped up earlier than usual. He says that probably boosted government payrolls last month.
"We just saw that surge there more in May this year than what we typically see in June," he said.
Construction was another surprising bright spot in the May report, adding 800 jobs. Hine says that pushed construction's annual growth rate to 4.5 percent.
"With that gain in construction jobs--I'd just like to report this--construction was again able to reclaim its position as the fastest growing sector over the past year. We're certainly outpacing the nation in that sector," Hine said.
Several other sectors saw gains as well:
Education and health services, 300
Trade, transportation and utilities, 200
Sectors that saw job losses include:
Professional and business services -1,600
Leisure and hospitality -700
Other services -500
Financial activities -400
Even though Minnesota's jobless rate of 5.6 percent is well below the U.S. average of 8.2 percent, Minnesota's official annual payroll employment growth rate of 0.8 percent as of May continues to lag the national rate of 1.4 percent.
There's a lot going on with these exports.
I generated the following table in response to the questions from StatsGeek.
(Click here for a readable pdf of the table.)
This includes exports and population data for Minnesota and the other 19 states that export more than Minnesota. In short, it shows that only two other states, Kentucky and Massachusetts had slower export growth rates than Minnesota from 2010 - 2011.
This is the punch line in the very interesting explanation from Thu-Mai Ho-Kim, senior research analyst at DEED.
"If we exclude Ireland from both MN and US ... MN export growth exceeds US growth for 4 years during the 2005-2011 period, rather than just in 2005, and for most years during the longer period of 1998-2011."
If you want the gory details, here are excerpted parts of her explanation.
One big change that comes to mind involves Ireland (much more important to MN than US) and our medical exports (highly concentrated in MN compared to US). • In the early 2000's our top and strongest growth markets included Ireland because of very strong medical exports. Ireland was our #2 market 2003-2007. • Starting in the mid-2000s and accentuated in the late 2000s, our overall growth rate was impacted as exports to Ireland plummeted/was erratic. These drops to Ireland primarily impacted exports of medical goods and some computer/electronics. Apparently (from other business article readings) the market/demand for the specific medical goods produced in/exported by MN (related to cardiac rhythm management ...) declined drastically over a period of time, perhaps partially due to the slew of recalls around the late 2000s. • Ireland has fallen 14th in 2011. (manufactured exports)
Between 1997 (oldest data available) and 2011, Ireland accounts for 0.6% to 1.0% of US exports, so a fairly small share and fairly stable share (although starts at about 0.7%, rises to 1% and then declines to 0.6%).
In 1997, Ireland accounts for about 1.9% of MN exports. This share gradually rises to a peak of 11.5% in 2003 (11.1% in 2004, 9.9% in 2005) and then as medical exports to Ireland sharply fall off, declines to 6.1% in 2009, 2.5% in 2010, and 1.8% in 2011. (For points of reference, in 2011, for mfg exports, our #2 partner China accounts for 11.5% of MN exports and our #3 partner Mexico accounts for 5.6% of MN exports.)
So ... Ireland contributed a large share of exports in the mid-2000s and hence had a strong impact on our growth trends.
Here's a chart that shows
1) Ireland as a share of MN exports (blue line),
2) % change in MN exports to Ireland (Green) and
3) % change in US exports to Ireland. (reddish)
If we exclude Ireland from both MN and US, the MN growth trends follow US more closely (though not in 2011), and MN export growth exceeds US growth for 4 years during the 2005-2011 period, rather than just in 2005), and for most years during the longer period of 1998-2011.
(Chart shows Growth rate from previous year. Red font indicates the MN growth rate exceeded the U.S. average.)
One final point from Thu-Mai Ho-Kim:
"Since the mid-2000s ... fortunately we've seen tremendous growth in exports to China, and other emerging markets, which really helped our state exports and offset declines to Ireland!"
Next time I get a chance, I'll try to figure out why exports to Ireland have fallen off.
Minnesota used to brag about the state's manufactured exports.
The following comes from the Minnesota Department of Employment and Economic Development's 2004 annual report on exports.
Although state exports grew slightly slower than the nation's 12.9 percent growth, Minnesota has long been outperforming national trends. Between 1998 and 2004, Minnesota manufactured export growth was 22.2 percent compared to U.S. export growth of 2.5 percent, adjusted for inflation.
Manufactured exports are things that are made, not grown, and exclude services such as travel.
And although they reached a record $18.4 billion last year, the growth rate of Minnesota exports has lagged the national average in five of the past six years. And in 2009, they beat the US average only by plunging a little less.
Why care? Here's what the 2011 report says:
Exports are critical to the state economy. Manufactured exports are responsible for an estimated 114,900 jobs in Minnesota, ranking 15th largest among all states, according to the International Trade Administration of the U.S. Department of Commerce (based on 2009 data). About 57,100 of these export-related jobs are in manufacturing, while another 57,800 export-related jobs are in other industries such as marketing and sales, transportation, and logistics - key sectors in delivering goods to export markets.
I've asked the folks at DEED if they have any theories on why the switch. I'll update once I get a reply.
So, how bad is this lagging trend? The answer changes a lot depending on how far back you look.
If Minnesota's export growth had matched the U.S. rate since 1999 the state's factories actually would be selling less stuff overseas than they are now--$1.4 billion less. That would mean fewer export related jobs.
On the other hand, if Minnesota's export growth had matched the U.S. rate since 2005, when Minnesota's pattern of outperforming the U.S. changed, the state's factories would have sold $3.5 billion more stuff abroad.
Bottom line? Nothin' more than the obvious: better to outperform the US average than to trail it.