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The economy in 2017: What to expect, what to watch in the year ahead

Boat watchers fill north pier of the Duluth Shipping Canal as the Cason J. Callaway passes by during a June afternoon in Duluth. (2016 file / News Tribune)

Cautiously optimistic: That’s the consensus for the area’s economy this year from a range of experts.

There’s no crystal ball, but without some sort of benchmark there’s no measure for success or failure, either.

The economy likely won’t be headed for failure in 2017, though it probably won’t be a runaway success either due to a variety of local factors like migration, national factors like new laws and regulations and global factors like steel prices.

Still, the optimism remains.

“I am very optimistic about Duluth’s continued positive development momentum not only as a greater Minnesota city, but also as a vibrant, diverse and respectable regional hub of economic activity,” said Heather Rand, executive director of Duluth Economic Development Authority.

Job market

The big questions most people have about the economy are thus: Where am I going to work, and how much will I get paid?

This year could see a continued tight labor market and low unemployment as the “Silver Tsunami” of retiring workers leaves employers short on applicants.

“Recent trends suggest that there will be an above-average number of job vacancies again next

year,” said Cameron Macht, a regional analysis and outreach manager for the Department of Employment and Economic Development. “Projections for St. Louis County show a projected decline (in the labor force) over the next decade primarily due to the aging of the population.”

Even as less workers are available — pending an unexpected migration of working-age residents — jobs are set to grow in health care, social services, professional and technical services and education. The best wages will largely come from jobs that require some sort of post-high school education, though some high-paying trade careers will be in demand.

For employers, it might be tougher to find the perfect fit for a job in the coming year, while for job-seekers it might be easier — and better-paying, as employers raise wages to compete for applicants. Still, wage growth has been lower in the region compared to the country overall.

The biggest trend to watch and prepare for is the continued decline in the labor market.

“The region has lower labor force participation rates than the state in every age group except teenagers, and the gaps are especially notable for people in the oldest age groups,” Macht said. ”As the population ages, the labor force will continue to decline.”

Patrick Radzak of Duluth holds a sign supporting mining in the Lake Superior Ballroom at the DECC. (2014 file / News Tribune)

Mining

A University of Minnesota Duluth study showed that up to 30 percent of the region’s economy is dependent on taconite — so what happens in the mines should be on local minds.

The downturn started to swing up last year, and with a recovery in steel prices that could mean more of the thousand miners still laid off going back to work.

“Some mines still idling could come back online — if that price holds,” said Kelsey Johnson, president of the Iron Mining Association of Minnesota. “There are still quite a few folks who’d love to come back to work.”

The price of steel ended the year up, and taconite exports to China and Japan were fueling increased shipments this fall. Further, Johnson said with oil prices likely rising due to lower OPEC output, the demand for equipment to open new domestic production could increase, driving demand for steel and, in turn, taconite.

The movement of the global economy will, as ever, continue to have local effects.

But more locally, Johnson said: “Given what we’ve seen with Magnetation and Essar Steel, I’m cautiously optimistic.”

Joe Kleiman, owner of Kleiman Realty, enjoys a scenic view from one of the apartments under construction in Duluth.

Development

Brian Hanson was told local business development would be either flat or growing in the upcoming year.

“The good news: No one said our indicators are downturn,” said Hanson, the CEO of business recruitment firm APEX. “While I wouldn’t say it’s a rampant, wild amount of optimism at APEX, we believe there will be an uptick in activity in the region.”

He said now that uncertainty caused by the election is fading, everyone from small business to heavy industry is feeling more positive.

The local aviation cluster is poised to have a strong year, Hanson said, and transportation issues will likely be in the spotlight as well. As for the area’s largest employers — health care and education — it’s going to be wait-and-see from the federal level.

At the city level, DEDA executive director Heather Rand said there are plenty of initiatives to stay busy with this year. Among them are support for the industry and small business; waterfront and brownfield redevelopment; the city’s comprehensive plan, Imagine Duluth 2035; downtown and West Duluth revitalization, including the former Cozy’s bar and the demolished church at 5907 Grand Ave.; and support for arts and culture, which will get a boost from the reopening of the NorShor Theatre in December.

Endi and Kenwood Village will open early this year and other mixed-use projects may be on the horizon as Duluth looks to meet a housing shortage.

“We now have a reputation as a city willing to embrace new approaches to development,” Rand said. “As a result, we have found some strong new development partners and that enables us to have a larger appetite for taking some calculated risks in our development strategies.”

Housing

The region’s housing market is projected to be strong again this year, “although not quite as intense as 2016,” said Maranda DeSanto, CEO of the Duluth Area Association of Realtors. “An increase in mortgage rates and continuing low inventory coupled with increasing home prices will add additional hurdles to prospective home buyers.”

Area home price increases aren’t expected to pass 3 percent, which is about the gain expected nationally as well, according to the National Association of Realtors.

The big story to watch in Duluth will be the availability of housing units to meet demand, DeSanto said — especially those in the $150,000 to $225,000 range, “which would require an influx in new construction units.”

It will also be worthwhile to keep an eye on how higher interest rates affect the market and whether new buyers take advantage of a stronger economy. The National Association of Realtors’ chief economist, Lawrence Yun, said mortgage rates could hit an average of 4.6 to 4.8 percent, and growth in first-time buyers is expected.

“Every economic indicator … should imply first-time buyers should be coming into the market,” Yun said.

Port

There are dozens of factors that will affect the success of the Port of Duluth-Superior this year.

“We’re a natural resources port; we kind of ebb and flow with commodities,” said Vanta E. Coda II, executive director of the Duluth Seaway Port Authority. “If we rely on Wall Street as our barometer it tells us we should be pretty busy. I’m not sure exactly how that will translate.”

But Coda remains optimistic, especially as Duluth Cargo Connect heads into its next phase in 2017 and the port’s new docks open for business.

“What I tell people in our organization is we’re going to focus on growth,” he said. “We can’t predict what the market will be, we can’t be down on the market, but we’ll take what the market provides and try to grow in that area.”

Labor

Even in the face of new adversity, the labor community is keeping its head up heading into 2017.

“The labor movement in Northeastern Minnesota will have a challenging year,” said Alan Netland, president of the North East Area Labor council. “With the Legislature in full Republican control we expect to see many attacks on workers rights. Fortunately we have a great supporter in Gov. Mark Dayton and will be rallying support for his stands on our behalf.”

Netland said he expects “significant” union organizing efforts this year and said labor intends to push back on economic disparities and get workers, many of whom are now reaching out to unions, to assert their rights.

“We are determined and focused on our work and not discouraged in the least by the national situation,” Netland said. “The pendulum will swing back our way.”

Tortoise & Hare Footwear recently moved to 4002 Grand Avenue in West Duluth.

West Duluth

Lots of work is going into West Duluth’s business corridor — which, after the Miller Hill Mall area, is the city’s second-largest sales tax base.

After a few moves in 2016, 2017 looks to be a breakthrough year for West Duluth.

“We foresee a lot of the empty storefronts will be open and busy again and we’re going to continue that momentum of development and bring in new businesses to complement what we have,” said Susan Coen, president of the West Duluth Business Club. “There will be a lot of development similar to Lincoln Park, namely of buildings that have been vacant and dilapidated.”

More lights will be on along Central Avenue, Coen predicts, as businesses reopen and properties get new owners — including a theater and potentially more retail outlets.
One of the biggest boosts for West Duluth comes from the attention it’s getting from City Hall, which is expected to continue next year.

“We are encouraged that they recognize we’re here,” Coen said.

Manufacturing

In a sector on the edge of a comeback, good vibes are in the air.

“I am very optimistic about the coming year,” said Jeremy Lehman, president of the Arrowhead Manufacturers & Fabricators Association. “A lot of AMFA members have been busy, and there seems to be some hiring going on.”

This year will be the 20th for the industry group, and it will come with fundraising goals to add to the $105,000 it has given to area schools to support training for the trades.

“We’re generally seeing more optimism overall,” Lehman said.

The skills gap — the availability of good-paying jobs and the lack of workers with the right skills to fill them — will continue to be something to work on this year at policy and academic levels.

A group of bicyclists leave Endion Station for a ride on the Lakewalk. (2016 file / News Tribune)

Tourism

Visit Duluth expects another strong year after 2016 was, at least in terms of taxes collected, “one for the record books.”

“In many respects, 2017 promises to be a transformational year for tourism with positives outweighing challenges,” the organization’s CEO, Anna Tanski, wrote in an op-ed published recently in the News Tribune.

She listed the expansion of rideshare services Uber and/or Lyft to the area, an influx of international travelers and increased work providing access to the St. Louis River as some successes to look forward to this year.

Competing for convention business and seeing where hotel prices land when a bevy of new hotels open this year will be a few of the challenges to watch.

Everything else

What business issues should get more attention this year? Email business reporter Brooks Johnson at bjohnson@duluthnews.com or call (218) 723-5329.

Brooks Johnson

Brooks covers business and the economy for the Duluth News Tribune.

(218) 723-5329
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