Dec. 7—Minnesota's projected $7.7 billion state budget surplus is a sign that "the state's economy is emerging at a good pace," state Management and Budget Commissioner Jim Schowalter said Tuesday during a news conference on a new financial forecast.
Minnesota's economy is growing because the U.S. economy is recovering from the recession triggered by the COVID-19 pandemic last year, and the state's economy reflects national trends, State Economist Laura Kalambokidis said during the briefing.
HIS Markit, the state's macroeconomic consultant, forecast the national economy will grow 5.5 percent this year, decelerate to 4.3 percent in 2022 and average 2.7 percent growth in the following three years.
Minnesota's economic growth is "consistent with what we're seeing in other states," Kalambokidis said, although the state's tax system, relying heavily on income, sales and corporate taxes, is better devised than most to capture revenue from "extraordinary growth."
"An improved U.S. outlook for consumer spending, wage and salary growth, total employment and personal income drives our expectation that Minnesota's job and wage losses of 2020 will be followed by positive employment and wage growth through our forecast period, despite many Minnesotans remaining out of the labor force in the near term," the forecast reads.
Minnesota's unemployment rate fell to 3.5 percent last month, 1.1 percentage points below the U.S. rate of 4.6 percent, the report said. The unemployment rate does not capture Minnesotans who have left the labor force, including retirements or those who opted to stay home to care for children.
The state's labor force has fallen by 84,000 since March 2020. As of October, Minnesota's labor force participation rate was 67.8 percent, 2.4 percentage points lower than in February 2020, but it remains 6.2 percentage points above the U.S. rate and is fifth highest among the states.
The forecast predicts Minnesotans' total wage income will increase 8.5 percent this year, the highest year-over-year boost in income since 1998. "We expect strong wage growth to continue at a rate of 7.3 percent in 2022, 5.9 percent in 2023 and 5.1 and 4.9 percent in 2024 and 2025, respectively," it said. A tight labor market is expected to continue pushing up wages and salaries.
It forecasts U.S. corporate profits will grow 19 percent this year, nearly four times the rate predicted at the start of the year.
The report projects the cost of living will increase 4.5 percent this year and 3.3 percent in 2022, but it said resolution of supply-chain issues and rising U.S. labor force participation are expected to slow inflation by late next year.