Economic Outlook – still a mixed bag

​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

• Minneapolis says crime down year-over-year. Operation Endeavor launched in Sep, and a city report released Thursday showed “marked decreases in most metrics for measuring violent crime.”​
• St. Paul police chief calls on his newest officers to be ‘ambassadors’ for their profession.

• No “Fedspeak” this week, as we are in the official blackout period ahead of the Federal Open Market Committee (FOMC) mtg that runs Dec 13-14.
• Nursing strike would weaken Minnesota hospitals financially. The 3-day walkouts in September  cost hospital systems tens of millions of dollars; a prolonged winter strike would be far more expensive.

​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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• Visit Saint Paul’s Guide to the Holidays in Saint Paul!
• Please join us at St. Paul’s holiday party –  Holiday Chamber Connect: Tuesday, December 6, 5-7pm. Register here!
• ​Our Young Professionals network is having its end-of-the-year celebration at Can Can Wonderland: Wednesday, Dec. 14, 4-6pm. Register here!

• Mackay: learning how to network is an essential tool. Cultivating relationships with the people who can help you, and vice versa, is key.

• Twin Cities BIPOC business accelerator launches. CEI joins with private partners (Founders First CDC, NEOO Partners, JP Morgan Chase) on a $5M effort that will impact up to 60 minority-owned small businesses.
• U.S. Bancorp completes $8B acquisition of West Coast’s MUFG Union Bank. The purchase gives Minneapolis-based U.S. Bank a much bigger presence in CA, OR, and WA.
• University of Minnesota, DEED launch $34.5M Minnesota Venture Capital Programs: The University of Minnesota is partnering with the State of Minnesota to inject $34.5 million into Minnesota’s early-stage, venture-backed businesses — a key step toward maintaining Minnesota’s position as one of the best states nationally for growing new businesses. The University-operated programs officially launch today, focusing particularly on investments in life sciences, agriculture/food tech, climate tech, advanced manufacturing, software, and technology. Last month, University officials joined Governor Tim Walz and Minnesota Department of Employment and Economic Development (DEED) Commissioner Steve Grove to announce nearly $100 million in new funding to support small businesses thanks to the federal American Rescue Plan Act.  
• Capital Projects Fund: The U.S. Department of the Treasury approved broadband projects in six states under the American Rescue Plan's Capital Projects Fund in Florida, Georgia, Iowa, Minnesota, Missouri and Utah. Together, these states will use their funding to connect more than 180,000 homes and businesses to affordable, high-speed internet. A key priority of the Capital Projects Fund program is to make funding available for reliable, affordable broadband infrastructure.  

• Homebuilding permits down sharply in November. Residential construction continued to soften throughout the Twin Cities in November as buyers and developers held off on making big moves in an environment of rising construction costs and higher interest rates.
• Renovated historical building brings affordable rentals to Snelling and Larpenteur. This is the former Farmer’s Union Grain Terminal Association, once home to the Teaching Institute for Excellence in STEM. Now opening as Amber Union, with 135 units affordable at 50% of area’s median income (AMI).
• Maplewood Mall owner Brookwood Capital Advisors top put shopping center up for auction. The mall's current owner, Nashville-based Brookwood Capital Advisors, bought the shopping center in June for $27.5 million. Brookwood is looking for a new owner, preferably a local or regional buyer, that will take on the approximately 321,000-square-foot mall.
• Dakota County: Dakota County officials will hear feedback on a proposed mental health crisis and recovery center in West St. Paul at a community engagement meeting Thursday. The West St. Paul City Council will vote on the project on Dec. 12. Some residents have expressed concerns about transparency and neighborhood safety after learning more about the project in recent weeks. Owned by Dakota County and operated by mental health service provider Guild, the proposed facility would provide 16 beds for both intensive and short-term mental health care at the site of the current northeast parking lot of the Dakota County Northern Service Center. $3.4 million will come from state bonding, $2.5 million from Dakota County’s American Rescue Plan funding, $1.5 million in other state funding and $750,000 from partner contributions, according to the county’s website.