The messages of uncertainty continue. Housing market forecasts indicate a slowing (and maybe even price reductions) into 2023, business leaders are expressing nervousness. Contrarily, per the Wall Street Journal, “comforted by recent data, more investors are betting that the U.S. can avoid a deep and prolonged downturn.” And Steve Grove, DEED commissioner, said this past week that Minnesota's leaders should not be defensive of an economy that is humming along. "I mean 13 months of job growth. We added over 17,000 jobs last month. Lowest unemployment rate in the country," Grove said. "There's a reason for Minnesotans to be optimistic." Grove eyed the second quarter of 2023 for when Minnesota will fully return to pre-pandemic job levels. It needs about 35,000 more people working to reach that level. Minnesota does possess historically low unemployment rates, with Mankato leading the nation with a 1.3% rate this fall.
 
All of this in a context defined by a “silver tsunami” now upon us; birth rates that continue to decline since 2007; and today’s workforce that can live anywhere they like.
 
Whether we’re talking government, business, or personal budgets, what I know for sure is that we’ve got challenges ahead. The state has announced an historic $17.6B budget surplus going into the FY 2024-25 biennium, which requires real work to hammer out how to invest thoughtfully. Cities like St. Paul and Minneapolis are increasing their levies, putting renewed pressure on family budgets. This dynamic of local tax increases and statewide abundance sets us for a very interesting legislative session in 2023, indeed!
 
Governor Walz recently was interviewed by the Star Tribune and hinted in this article that “circumstances may necessitate grabbing tools – including tax cuts and direct incentives to businesses – that area rarely used by Minnesota democrats.” Now definitely is the time to use these tools. I agree with Doug Loon’s comments here: “the state’s massive budget surplus is an opportunity to update the state’s tax code to make Minnesota more attractive to businesses.” I also am looking forward to Governor Walz recommending significant one-time infrastructure investments using the one-time surplus money.
 
We’ll keep you posted.
 
See you in the trenches.
B​

​Because I so appreciate the Citizen League: I wanted to make sure you saw that Citizens League just released a new report.  This report explores why people run, decline to run, remain serving, or step down from office, and the impact on local government. See more in the email below and read the full report here.
 
Federal

• Government funding: Congress faces a Friday deadline to avoid a partial government shutdown. What we're watching: Lawmakers entered the weekend at a multibillion dollar impasse, and House Appropriations Committee Chair Rosa DeLauro (D-Conn.) said the House is not drafting a short-term stopgap measure to buy more time. If leaders can't come to an agreement on an omnibus appropriations package, she and other leaders — Democratic and Republican alike — have indicated the likely outcome will be a one-year continuing resolution, much to the chagrin of the defense community. 
• Can immigration avoid a cold winter in Congress? That’s the question immigrants and their advocates are asking as time runs out on the current Congress. The fate of Afghan evacuees, Dreamers, farmworkers and others hinges in the short term on whether crucial legislation can be passed before the new Congress takes over in January, with a split House and Senate making progress even more difficult. Several major immigration proposals are currently being debated in the final weeks of the year. This includes the Afghan Adjustment Act, protections for so-called “documented Dreamers,” and the possibility of a bipartisan compromise that would protect undocumented youth while cracking down at the border.

 
State

• Recounts confirm 2 state House Democrats unseated in northeastern Minnesota. This in heavily contested District 3A (Ely/International Falls) and 3B (Island Lake).

 
Regional

• Twin Cities property taxes jump, cutting deep into family budgets. Earlier article on St. Paul hosting a hearing on the proposed 15% tax hike – and how to apply for a refund.
• Saint Paul: After months of deliberation and community engagement, the Saint Paul City Council voted to adopt the city’s $781.5 million budget for 2023.  Highlights of the budget the council approved were the Reduction of Office of Neighborhood Safety services of $350,000, leaving a remaining ONS budget of $150,000 in addition to $4 million in American Rescue Plan allotment.  

Local 

• ​At least three St. Paul City Council seats will be open in 2023: Council President Amy Brendmoen and Council Member Jane Prince will not seek re-election, paving the way for a big shakeup in city leadership starting in 2024. The announcements, which follow former Council Member Dai Thao's resignation in August, mean there will be open races for at least three of St. Paul's seven council seats, all of which will be up for election in November. Read more.

 
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​In my conversations with you, right now we’re talking a lot about economic projections. I track earnings reports of individual companies and sectors. I follow various leading indicators. And I ask you about your businesses.  Across all those inputs, I am hearing very mixed results and expectations. Still. They tend to be sector-specific and tied to supply chain challenges and interest rate moves. The economy’s fundamentals are still strong, so I wonder – as I’m hearing about companies “preparing,” making leadership decisions in anticipation of stagflation or worse, I wonder if such decisions might not actually be TAKING us there to some degree. I’ve been asking you and here’s what you’re telling me:

• Right now, a significant challenge seems to be uncertainty. Nobody really knows the likelihood of a recession ahead, but the largest companies seem to be preparing – just in case. 
• Supply chain challenges are still hugely significant across all facets of the manufacturing sector. Companies battling supply chain shortages and price instability continue to be very seriously interrupted. And this is creating economic shifts, currents that our largest companies are really battling.
• The financial and real estate sectors are still trying to manage the impacts of changes in interest rates. Absolutely nothing is certain across these sectors. And appraisers? Forget about it; in a changing market, they really are challenged to get it right.
• Manufacturing and construction are investing heavily in automation. Not to avoid hiring people, but to adapt to a future of fewer workers.
• Healthcare organizations’ job openings are at a critical level, and they continue to lose millions of dollars across the last 3 years.

 
Leading indicators I watch:

• The Federal Reserve’s economic research/”FEDS Notes”: In a recent speech at the Brookings Institution, Federal Reserve Chair Jerome Powell said that while the central bank may slow its interest rate hikes, it may keep rates higher for longer than expected amid continuing tightness in the labor market. Powell said that there are signs that inflation is easing and that the Fed may begin to dial back rate increases as early as the December Federal Open Markets Committee meeting (Dec 13-14). (The Washington Post)
• Fitch Ratings: US corporate earnings trends, historically a leading indicator of recessions, will continue to weaken through 2023.
• Manufacturing PMI is now at 49%. This is a key one for me. The manufacturing sector typically is about a 6-month leading indicator of economic changes.  And the metric I track is the Purchasing Managers Index (PMI).  When the PMI is above 50%, the economy is in growth mode. When it falls below 50%, it indicates retraction.  For the first time since mid-2020, the PMI fell below 50% for November. The contract manufacturers in Minnesota are bracing for retraction in the second half of 2023.
• The jobless rate in November remained at 3.7%, a historically low level that is pushing up wages. Low unemployment and wage gains are helping fuel consumer spending—and contributing to inflation that’s close to a four-decade high. The jobs report keeps the Fed on track to raise interest rates by a half percentage point in mid-December. Meanwhile, prices for gas and food commodities are dropping (though you’ll still likely feel the pinch at the supermarket checkout).
• OECD's composite leading indicator for the United States. This leading indicator is a summary index of consumer confidence, business confidence, production and labor market indicators, and financial variables. The probability of a recession over the next four quarters from this estimated model is is quite low as of March 2022, at about 5 percent. But the value has continued to decline gently every month since then.

 
On a lighter and more seasonal note, St. Paul Winter Carnival has released its 2023 buttons! Designer this year, for the first time in the carnival’s 137-year history, is a person of color, Nigerian-born local muralist Geno Okok, known for the joyful energy in his art.
 
See you in the trenches.
B

​State

• State House recounts scheduled to begin Monday, Dec 5. These are for two extremely close state House races in NE MN: House District 3A and 3B (Cook, Itasca, and St. Louis counties) – each within 50 votes.
• Gov Walz says child care access will be ‘fundamental priority’ in legislative session. The governor said the state's multibillion-dollar budget surplus presents an opportunity to address the child care shortage. 

 
Regional

•   St. Paul property tax: Why the increase, how to get a refund.

 
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