2. Minnesota and the New
Normal
Tom Stinson, State Economist
Tom Gillaspy, State Demographer
November 2010
3. Real GDP Is Growing Again
-8
-6
-4
-2
0
2
4
6
2006 2007 2008 2009 2010 2011 2012
% Change
4. The Great Recession Is Over
• The recovery began in June 2009
• We have had 5 quarters of real GDP
growth
• The economy is not back to its pre-
recession levels
• The risk of back-to-back recessions, as in
the early 1980s, is real
5. The Outlook Is for Slow Growth
through 2011
• Real GDP growth rates of less than 2
percent for the remainder of 2010
• Real GDP growth of just over 2.2 percent
in 2011
• Inflation is not a problem, 2011 CPI 1.5%
• Interest rates remain low through 2011
• Only slow improvement in labor market
6. The U.S. Economy Lost 8.4 Million
Jobs in the Great Recession
0
2
4
6
8
10
12
14
100
108
116
124
132
140
148
156
2006 2007 2008 2009 2010 2011 2012 2013
Jobs Unemp
Jobs, Millions Percent
7. Minnesota Jobs Down 4.3% Since
Recession Began, U.S. Average 5.6%
90
92
94
96
98
100
102
Jan 08 Apr Jul Oct Jan 09 Apr Jul Oct Jan 10 Apr July
MN US
Index
Dec 2007 = 100
8. -8%
-4%
0%
4%
8%
12%
-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Quarters After NBER Recession Call
2007-2009 2001
1990-1991 1980-1982
This Recession Was More Severe
Than Those of 1990-91 and 2001
Percent Change from Quarter
Preceding Recession Call
3Q 2010
9. Why a Slower than Usual Recovery
• No decline in interest rates
• Excess production capacity limits
need for new business equipment
• Export demands unlikely to surge in
short term
• Lost wealth and retirement concerns
will slow release of pent-up demand
10. Spending on Food and Food Away
from Home Will Increase in 2011
0
2
4
6
8
2006 2007 2008 2009 2010 2011 2012 2013
Home Away
Percent
11. Interest Rates Will Increase,
But Not Until 2012
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
F Fds 3 mo 6mo 1yr 2yr 5 yr 10 yr 30 yr 30 mtg
2005 2009 Today
2011 2012
Percent
12. The Dollar Is Expected to Continue
to Decline through 2013
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2006 2007 2008 2009 2010 2011 2012 2013
Major Trading Partners
Other Important Trading Partners
Index 2005 = 1.00
13. Household Net Worth Fell by Nearly
$17 Trillion Dollars
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2006 2007 2008 2009 2010 2011 2012 2013
$ Billions
$65.6 T
$48.8 T
$53.5 T
14. The Age Distribution Has Changed
47.0
7.6 7.2
21.6
16.6
37.8
10.0 10.4
24.5
17.3
0
10
20
30
40
50
20-40 40-45 45-50 50-65 65+
1980 2007
% of Population
Over Age 20
15. What to Watch During the Next
Six Months
• Payroll employment
• Consumer spending
• Savings rate
• Credit markets / interest rates
• Capacity utilization
16. National Mobility Has Fallen To Its
Lowest Point Ever Recorded
Census Bureau, 2009 CPS and historical
17. Convergence In Population Growth
Rates
Census ests, Exurban includes Isanti, Chisago, Sherburne, and Wright.
18. Minnesota Saw a 30 Percent Jump in
Workers Turning Age 62 in 2008
0
10,000
20,000
30,000
40,000
50,000
60,000
7/05 to
7/06
7/06 to
7/07
7/07 to
7/08
7/08 to
7/09
7/09 to
7/10
7/10 to
7/11
7/11 to
7/12
Year Turning Age 62
WorkedWithinPast5years
2005 ACS
19. From 2010 to 2020, Minnesota Will
See Large Increases Age 50s and 60s
20,150
36,190
47,330
5,050
-30,680
-9,980
47,950
61,920
-2,680
-63,650
-42,310
54,240
102,960
112,540
91,370
41,400
8,440
16,500
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85+
Source: Minnesota State Demographic Center, rev 2007
Numbers are rounded
20. More 65+ Than School Age by 2020
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1950 1960 1970 1980 1990 2000 2010 2020 2030
18-24
65+
5-17
Census counts & State Demographer projection, revised 2007
21. Health Care Spending Jumps After 55
U.S. Health Care Spending By Age, 2004
$1,855
$1,074 $1,445
$2,165
$2,747
$3,496
$6,694
$9,017
$9,914
$3,571
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
<5
5-14
15-24
25-34
35-44
45-54
55-64
65-74
75+
Average
Source: Agency for HealthCare Research and Quality, Medical Expenditure Panel Survey,
data for per capita spending by age group in the Midwest. Excludes spending for long-term care institutions.
22. Labor Force Growth Is About To
Slow Sharply
1.52%
1.12%
0.75%
0.43%
0.10% 0.13%
0.27%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1990-
2000
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35
AveAnnualChange
23. Age Of Minnesota Agriculture
Workers
2000 Census PUMS and 2008 ACS
24. World Labor Force Growth Slowing
Projected Change In Working Age Population (15-64)
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Minnesota United
States
Europe China Japan Rest of
Asia
South
America
Africa
Continent
Annual%Change
2000-10
2010-20
U.S. Census Bureau
27. The Old Normal
+ The Great Recession
+ Long Run Demographic Changes
= The New Normal
28. The “New Normal” Probably
Means
• Higher interest rates
• Slower economic growth
• Increasing numbers of retirees
• Less consumption; more saving
• A more diverse population
• More uncertainty in our personal & national futures
• Creative destruction and disruptive innovation
• A shift in balance between private and public sectors
• Worries about how to pay for past promises
• Inability to reach agreements in public policy
29. The Great Recession Has Been
Blamed for Raising the Level of Social
Angst
But What Is Really Happening
Is That We Have Entered A
“New Normal”
30. Grieving For The “Old Normal”
• Denial – “This is not happening.” “Just wait, things will
return to normal.”
• Anger -- “Who is to blame?” Rage and gridlock rule and
anyone who symbolizes life, energy, progress, success,
happiness, etc. is treated with resentment and mistrust.
• Bargaining – “I’ll change if this just goes away.” Somehow,
we can get back to the old normal if we just return to good, ole
fashioned (conservative/liberal) values.
• Depression (emotional, not economic) – “What’s
the point in trying?” “We are all doomed anyway.” The
certainty/finality of events is finally recognized.
• Acceptance – “It’s going to be okay.” Looking for
opportunities begins.
31. But Why Fear The New Normal?
It Plays To Our Strengths!
Future economic growth will depend
increasingly on increasing productivity and
less on labor force size
Education has been the key to Minnesota’s
productivity and prosperity
Future productivity increases will depend on
decisions and the investments we make now
Public Sector Productivity Growth Will Be
Essential
32. “Making Things Better” May
Offer the Greatest Potential
• Cost cutting efforts have focused on
transactional jobs
• Largest future productivity gains are
likely to come from investments that
lead to better outcomes
Lower lifetime health care costs, reduced
recidivism rates, improved graduation rates
• Adapting service delivery plans to meet
the needs of the “New Normal”
33. Productivity Is Not Just
Making Things Cheaper
• Productivity is also
Making things better—Quality
Making better things—Innovation
The pressure for disruptive innovation is
increasing
34. Long term cost saving
may require investments
which increase short term
expenditures
Focusing Just On
Expenditure Cuts May Be
Short Sighted
35.
36. The New 3 R’s for Economic Success in
the 21st Century
Retention
Recruitment
Retraining
37. The Fiscal Catch-22
If we don’t make the necessary public
investments in human capital, research
and infrastructure, then we won’t have the
productivity gains needed to provide the
resources to make those investments in
the future and pay for the promises we
have made.
38. “If something can't go on forever,
it will stop.”
Herbert Stein, Chair President Nixon’s
Council of Economic Advisors
39. “I skate to where the puck will be,
not to where it has been.”
Wayne Gretzky
Famous Canadian Philosopher
Notas do Editor
The age groups that will grow the fastest during the next decade are those with the highest average health care costs.Health care costs in Minnesota have been increasing by 8.5 percent per year. The aging of Minnesota will increase that rate of growth.By 2020 Minnesota’s average health care costs are projected to more than double