Dr. Tom Stinson
State Economist
Dr. Tom Gillaspy
State Demographer
Minnesota and the New
Normal
Tom Stinson, State Economist
Tom Gillaspy, State Demographer
November 2010
Real GDP Is Growing Again
-8
-6
-4
-2
0
2
4
6
2006 2007 2008 2009 2010 2011 2012
% Change
The Great Recession Is Over
• The recovery began in June 2009
• We have had 5 quarters of real GDP
growth
• The economy is...
The Outlook Is for Slow Growth
through 2011
• Real GDP growth rates of less than 2
percent for the remainder of 2010
• Rea...
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...
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...
-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
1990-19...
Why a Slower than Usual Recovery
• No decline in interest rates
• Excess production capacity limits
need for new business ...
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...
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...
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 201...
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 ...
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 ...
What to Watch During the Next
Six Months
• Payroll employment
• Consumer spending
• Savings rate
• Credit markets / intere...
National Mobility Has Fallen To Its
Lowest Point Ever Recorded
Census Bureau, 2009 CPS and historical
Convergence In Population Growth
Rates
Census ests, Exurban includes Isanti, Chisago, Sherburne, and Wright.
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...
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,...
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 ...
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
$6,69...
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...
Age Of Minnesota Agriculture
Workers
2000 Census PUMS and 2008 ACS
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%
...
Percentage of Minnesota
Agriculture Workers Foreign Born
2000 Census PUMS and 2008 ACS
The Old Normal
+ The Great Recession
+ Long Run Demographic Changes
= The New Normal
The “New Normal” Probably
Means
• Higher interest rates
• Slower economic growth
• Increasing numbers of retirees
• Less c...
The Great Recession Has Been
Blamed for Raising the Level of Social
Angst
But What Is Really Happening
Is That We Have Ent...
Grieving For The “Old Normal”
• Denial – “This is not happening.” “Just wait, things will
return to normal.”
• Anger -- “W...
But Why Fear The New Normal?
It Plays To Our Strengths!
Future economic growth will depend
increasingly on increasing prod...
“Making Things Better” May
Offer the Greatest Potential
• Cost cutting efforts have focused on
transactional jobs
• Larges...
Productivity Is Not Just
Making Things Cheaper
• Productivity is also
Making things better—Quality
Making better things—In...
Long term cost saving
may require investments
which increase short term
expenditures
Focusing Just On
Expenditure Cuts May...
The New 3 R’s for Economic Success in
the 21st Century
Retention
Recruitment
Retraining
The Fiscal Catch-22
If we don’t make the necessary public
investments in human capital, research
and infrastructure, then ...
“If something can't go on forever,
it will stop.”
Herbert Stein, Chair President Nixon’s
Council of Economic Advisors
“I skate to where the puck will be,
not to where it has been.”
Wayne Gretzky
Famous Canadian Philosopher
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  • 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
  • Stinson gillaspy

    1. 1. Dr. Tom Stinson State Economist Dr. Tom Gillaspy State Demographer
    2. 2. Minnesota and the New Normal Tom Stinson, State Economist Tom Gillaspy, State Demographer November 2010
    3. 3. Real GDP Is Growing Again -8 -6 -4 -2 0 2 4 6 2006 2007 2008 2009 2010 2011 2012 % Change
    4. 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. 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. 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. 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. -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. 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. 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. 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. 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. 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. 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. 15. What to Watch During the Next Six Months • Payroll employment • Consumer spending • Savings rate • Credit markets / interest rates • Capacity utilization
    16. 16. National Mobility Has Fallen To Its Lowest Point Ever Recorded Census Bureau, 2009 CPS and historical
    17. 17. Convergence In Population Growth Rates Census ests, Exurban includes Isanti, Chisago, Sherburne, and Wright.
    18. 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. 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. 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. 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. 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. 23. Age Of Minnesota Agriculture Workers 2000 Census PUMS and 2008 ACS
    24. 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
    25. 25. Percentage of Minnesota Agriculture Workers Foreign Born 2000 Census PUMS and 2008 ACS
    26. 26. The Old Normal + The Great Recession + Long Run Demographic Changes = The New Normal
    27. 27. 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
    28. 28. 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”
    29. 29. 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.
    30. 30. 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
    31. 31. “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”
    32. 32. 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
    33. 33. Long term cost saving may require investments which increase short term expenditures Focusing Just On Expenditure Cuts May Be Short Sighted
    34. 34. The New 3 R’s for Economic Success in the 21st Century Retention Recruitment Retraining
    35. 35. 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.
    36. 36. “If something can't go on forever, it will stop.” Herbert Stein, Chair President Nixon’s Council of Economic Advisors
    37. 37. “I skate to where the puck will be, not to where it has been.” Wayne Gretzky Famous Canadian Philosopher

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