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Economic Expert's View: Period of growth the time to build economic resiliency

The United States is approaching an historic milestone: the longest period of economic growth in U.S. history. This event occurs next summer, when the current economic expansion, which began in June 2009, hits the 10-year mark.

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Denfeld’s 1947 boys basketball team is the only Denfeld basketball team to win a state title. The team’s head coach was Lloyd Holm. Team members were Rudy Monson, Larry Tessier, Paul Nace, Kenneth Sunnarborg, Eugene Norlander, Howard Tucker, Tony Skull, Jerry Walczak, Bruce Budge, Keith Stolen and student manager Bob Scott.
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The United States is approaching an historic milestone: the longest period of economic growth in U.S. history. This event occurs next summer, when the current economic expansion, which began in June 2009, hits the 10-year mark.

But economic expansion cannot continue indefinitely. Recent signs suggest the current expansion may slow down in 2019. The stock market, probably the most closely watched leading indicator, has been particularly volatile over the past year, due to investors' concerns about tariffs and trade wars. And new-home sales have been weakening recently, another sign that investors see possible turbulence ahead.

One advantage Minnesota has is its projected $1.5 billion surplus for 2019-'21. What's more, the state's budget reserve (aka "rainy-day fund") has grown to $2.1 billion, the largest it has ever been. As a result, in the event of a recession, money may be available for stimulus spending on road and highway improvements or investments in health care and education.

Despite our relatively strong financial position as a state, our region should consider using this current period of growth to become more economically resilient - to bolster our ability to withstand or avoid future shocks, whether they take the form of an economic downturn, a natural disaster, the impacts of climate change, or the loss of a major employer.

Economic resilience includes three primary attributes: the ability to recover quickly from a shock, the ability to withstand a shock, and the ability to avoid the shock altogether. Research has shown that regions with certain "resilient" characteristics are less likely to be negatively affected by negative shocks such as downturns or natural disasters. They recover more quickly.

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The U.S. Economic Development Administration summarizes a number of initiatives that communities can take to build resilience, and I want to address three I think are particularly relevant for our community.

First, we must develop policies that broaden and diversify our industrial economy. Research has shown that industries located within strong regional clusters are more resilient to economic downturns. An October study conducted by the Initiative for a Competitive Inner City highlighted the importance of industry in our region. According to the study's findings, the industrial sector in Duluth had a $3.8 billion impact on the city's economy and generated $236.4 million in state and local tax revenue. Duluth's strongest industrial clusters include aviation, paper and packaging, water transportation, printer services, and leather and related products, among others. We should develop these clusters to make the industries within them more resilient to shifts in the economy.

At the same time, we should encourage resiliency among small-business owners. In recent years, Duluth-Superior has become known as a hub for creativity and innovation, and that is drawing a new population of entrepreneurs who want to be a part of our creative community. Chris Farrell, Minnesota Public Radio correspondent and economist, has presented several times locally about the amazing trajectory our region has experienced in the growth of its creative enterprises (e.g., Frost River, Bent Paddle, Hemlocks Leatherworks, and others). Research shows that areas with a higher share of self-employed workers are more resilient to economic shocks, but we must assist businesses in their economic resiliency efforts (e.g. adapting business retention and expansion efforts to include economic recovery plans).

Finally, we must invest in building a strong and competitive workforce. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, spoke at the March Regional Economic Indicators Forum and urged Duluth and Northeastern Minnesota businesses to raise wages in order to remain competitive with other parts of the Midwest and nation. He also encouraged our region to consider policies that increase immigration to the area. I would add a third recommendation: We must build a more resilient workforce that can better shift between jobs or industries when core employment is threatened.

The next recession or shock may not come in 2019, but it will come eventually. We should use this time of growth to become more resilient to whatever economic challenges may come our way.

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Monica Haynes is director of the Bureau of Business and Economic Research at the University of Minnesota Duluth. She wrote this at the request of the News Tribune Opinion page.

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