State of the City and State – and the Economy

Things are weird right now.
 
Last week St. Paul’s Mayor Carter gave his State of the City and Governor Walz his State of the State. Mayor Carter celebrated the work underway intended to drive a vibrant, sustainable, and innovative St Paul, while the Governor outlined plans for a second “Minnesota Miracle.” At the federal level, President Biden positions himself for reelection, advancing big government – and bigger spending. Meanwhile, Minnesota experienced a net migration out of the state in 2022. The state’s unemployment rate fell again to 2.8% in March, even as the private sector lost 6100 jobs. Nationally, we have strong labor market data, and yet 75% of Americans are worried about widespread job losses. And we are wrestling over increasing the national debt ceiling. Again (the national debt recently topped $31T for the first time in U.S. history, just 8 months after it crossed $30T).
 
I’m just not sure business is picking up what the politicians are laying down. Do you feel me?
 
Regarding the City:  The Star Tribune listed 6 takeaways; worth reviewing. Mayor Carter’s top priority right now is the proposed St. Paul's 1% local sales tax proposal, which would collect nearly $1 billion for street and park maintenance over 20 years. To pass, the tax would need to be approved by the Legislature and St. Paul voters — neither of which are done deals. As you know, the Chamber has testified in opposition to the proposal, which currently is not included in the House’s tax plan unveiled last week.  Also ahead this year is a shake-up at the City Council, with all 7 members on the ballot this fall and just 3 members seeking reelection.
 
Regarding the State: like many of you I’m sure, I follow Blois Olson. I appreciate his thoughtful analysis of any number of policy issues. He offered his takeaways that I thought were particularly interesting. I responded specifically to his comments: “the Governor definitely made a decision to double down on a very progressive agenda….There’s a sense among many that the bets on paying for childcare, a 5th tax tier, spending the surplus, are risky. If they work, it’s a ‘miracle’ for our economy.” That said, “we’ve had net migration out of the state…we are in a state of transition….a lot of people don’t know if it will work.” Ultimately, the Governor wants to out-spend the surplus and increase the state’s budget by 30% to a total of $71B in the next biennium, including spending that will come with financials “tails.”
 
I don’t have any answers today. I’m looking at economic indicators and responding to trends (reactions?) I’m seeing from within the business community. And, again, things are weird. When policy issues or the economy are in “transition,” when business is uncertain of what’s ahead, so many – under the “abundance of caution” approach – retract. Retreat. Hunker down. I’m seeing that response now. Economic indicators are stable, business activity actually surged in March, the PMI is over 53 now…yet many businesses are “ducking.” To avoid what, I’m not yet sure.
 
See you in the trenches,
B