Overall economic outlook

Jim Skurla

Economist

University of Minnesota Duluth

The U.S. economy should grow between 2 percent and 3 percent, and we should see Minnesota and the Arrowhead region follow the national growth rate closely. One of the drivers of the recovery will be Northland consumers. As consumer confidence grows in the economic recovery, retail sales have shown and will show improvement. Also, local manufacturers should see a slow improvement over the year 2010 as depleted inventories are replenished.

Another positive sign for the regional economy is that the taconite industry has begun calling back long-idled workers. This mining activity is based on Asian markets promising robust growth for 2010.

On the negative side, the forecasted $1.5 billion state of Minnesota budget deficit will be a drag on the state’s economy. The state will continue to make cutbacks in 2010, which will ripple through local economies. The unemployment rate will lag other aspects of the recovery.

This is a fragile recovery, and another dip in the economy could happen. Some factors to watch will be unemployment, whether energy prices spike, if financial market problems get worse and if consumers cut back spending.

Nevertheless, I am still expecting the Northland economy to show true signs of recovery in 2010.

Unemployment

Drew Digby

Regional labor analyst

Minnesota Department of Employment and Economic Development

Unemployment in the Duluth-Superior metropolitan area hit some dramatic highs in 2009. Duluth is starting 2010 with about 1,400 fewer jobs than the peak of 2008. January and February are usually the roughest months of the year, but the winter of 2010 should be tempered with new temporary census jobs and jobs created by new restaurant and hotel openings. The story of 2010 is likely to be a slow and steady recovery. The biggest worries of the year are likely to be what state budget troubles will do to the area’s colleges and health systems.

The brightest stars of 2010 are likely to be Duluth’s growing creative technology sector: high-paying jobs in information technology, architecture and engineering, though many market factors could limit job growth for some businesses. Those industries have been led by entrepreneurs who have found ways to keep their heads above water and prove their value.

Health care, which has been a major driver of the region’s economy for several years, is likely to have a mixed year. Hospitals will very carefully watch employment numbers. Long-term care facilities, especially those not aimed at seniors, will see continuing growth.

Tourism

Tony Barrett

Economist

College of St. Scholastica

Tourism spending is considered discretionary spending, and therefore it depends on overall economic and personal income growth. Since I see 2010 as a year of steady, if unspectacular, growth both nationally and regionally, it follows that our tourism will see steady growth as well.

There are two issues that need to be emphasized. First, Duluth’s tourism industry got through 2009 relatively unscathed. This occurred despite the worst economy in the region since 1982 and the worst financial setting since the Great Depression. The 2009 performance proves beyond any doubt that tourism can be counted on as a pillar of a diverse and robust local economy.

The second issue is the uncertainty regarding personal household spending. Faced with evaporating real estate and financial wealth, Americans (and Duluthians were no exception) reduced spending, paid back debt and increased savings. While that is desirable in the long run, in the short run it hurts the economy. Tourism is especially vulnerable to this type of behavior.

If Americans don’t loosen their purse strings a bit in 2010, our tourism industry will face another challenging year. However, if we revert to more traditional levels of spending, Duluth should see a more vibrant 2010.

Iron ore mining

Peter Kakela

Professor

Michigan State University

The North American iron ore industry is in a state of shock. After two decades of operating at about 90 percent capacity, the industry eked out only 48 percent capacity. Many of the mines were closed for various time periods, and when reopened, they operated at reduced rates.

The consolidation of the iron ore producers into four main entities — U.S. Steel, Cliffs Natural Resources, ArcelorMittal Steel and the Iron Ore Company of Canada — has cushioned the full impact of the economic crisis on the North American iron ore industry. No mine has declared bankruptcy.

However, the unionized work force suffered tremendously. More than 37 percent were laid off and hours worked fell by 30 percent in 2009. Unfortunately, for all concerned the 2010 outlook is for only a moderate recovery to about 73 percent operating rate.

Changes in the past 27 years have resulted in an industry that has more consolidated control and that will be able to rebound more quickly from the current recession. They will be better able to plan the long lead times needed for mine planning, pit development and optimum withdrawal of ore from the ground. What may be lacking is the time and money for innovation to increase competitiveness.

Shipping

Adolph Ojard

Executive director

Duluth Seaway Port Authority

As prosperity begins to gain ground around the world, we should see a rise in international shipping.

But for international trade to be efficient and cost effective there needs to be a balance between inbound and outbound cargoes.

With decreased demand for imports in the lower Great Lakes and a weakened U.S. dollar, products brought in will be more costly than in recent years. So we may not see the volume of saltie traffic into the Seaway system in 2010 as we’ve seen historically. Having fewer ships available may drive up the cost of outbound grain shipments, which are actually up 30 percent in Duluth-Superior from 2008. But we should also see greater activity in inbound wind turbine shipments, which bodes well for backhauls of grain.

On the flip side, an increase in domestic manufacturing and mining will lead to an increase in U.S. and Canadian laker traffic on the St. Lawrence Seaway. With all but one Iron Range taconite plant now up and running, signs are positive that by mid-2010 we will see shipments of iron ore, limestone and coal rebounding to levels of previous years.

I sense more optimistic projections for the Great Lakes maritime industry in 2010 and beyond.

Real estate

Mike Peller

President, Duluth Area Association of Realtors

Owner, Gables & Ivy Real Estate

The federal first-time homebuyer tax credit stimulated the local real estate market in 2009 and should keep sales volume up through its expiration in mid-2010.

This credit kept sales volume in entry-level homes about 8 percent to 12 percent higher than 2008, and similar results are expected in the first half of 2010.

In higher price ranges, sales decreased. Some segments were down 15 percent to 25 percent. The new tax credit aimed at existing homeowners may stimulate sales in this bracket. A rebound to 2008 levels may be expected.

We should see sales of homes priced in the lower and middle levels remain active, keeping the median price lower. It’s anticipated that volume at lower levels should level off, giving way to slightly higher median prices market-wide in the second half of 2010.

I would estimate the median price will go up in the second half of the year due to the volume of entry level home sales going down slightly with the expiration of the tax credit. But it will likely fluctuate greatly throughout the year.

Tags: growth and development, tourism and activities, outlook