Indicators show potential for upside in jobs report

State officials provide the latest reading on Minnesota's job market later this morning with the December employment report.

A number of indicators are showing continued improvement in the labor market, but reasons for concern still abound.

Minnesota's previous jobs report -- for November -- offered little worth cheering. Only a handful of industries plumped up their payrolls.

Employers slashed a net 5,100 jobs, but a couple measures of the job market have picked up since then.

"We are seeing strong signs that the pace of layoffs has dropped off," said Steve Hine, the state's head labor market analyst.

Hine said seasonally adjusted, first-time claims for jobless benefits in Minnesota fell below 25,000 last month, a sizable drop below November's levels. And that number, 25,000, is significant: in past recoveries, dropping below that threshold signaled a turn towards job growth.

That might not hold true after the Great Recession, Hine said, but on the other hand he notes another positive sign: permanent layoffs are also way down.

"Those reached a low that we haven't seen since 2008," he said.

Still, a decline in layoffs only helps so much. More robust hiring is needed to bring down the unemployment rate. Nationally, payroll growth last month was tepid, potentially a bad omen for Minnesota's December report.

And while Minnesota has been enjoying stronger job growth than the national average the state's edge will likely start to dull, said Scott Anderson, senior economist at Wells Fargo in Minneapolis. He cites an index of Minnesota's economic activity developed by the Federal Reserve Bank of Philadelphia.

"It was very strong in the second quarter of last year, really outperforming many other states in the nation, but that's recently slipped back to a more normal, kind of an average growth rate for the state of Minnesota, and I think that's where we're going to end up longer-term," Anderson said.

The lackluster housing market is one of the conditions restricting stronger payroll growth, he said, and state budget problems are another. Anderson expects state and local governments to cut more jobs.

While year-end home sales and prices showed improvement at the state-wide level in December, the Twin Cities housing market languished.

And, he notes, Minnesota isn't expected to draw many people from other places, which crimps growth in the long run.

"One of the things we look at when we look at regional outlooks and forecasts is, are people moving into the region for job opportunities, because that boosts demand for a lot of local services, including retail trade, education, housing, and health care," Anderson said.

But he notes that Minnesota does have an advantage over many other states because of its manufacturing sector, which has been adding jobs.

Some of those strengths are evident at Jones Metal products in Mankato.

"We're in a full hiring mode right now, so we're hiring daily," said Sarah Richards, director of sales and marketing.

The company makes metal parts and products for use in agriculture, the military, and heavy construction. Richards said business has been growing for about a year now, which has allowed the company to add back all the workers it laid off during the recession and then some.

Richards said her company plans to keep adding workers though mostly in the first three months of this year. She says demand for the company's products appears to be steady.

"Last year if you had called me in February, I would've said I'm cautiously optimistic. Now I'm optimistic," she said.

"I'm probably in between those two yet," said John Haas, general manager of Grede St. Cloud, which largely serves the automobile industry and is therefore much more reliant on consumer spending.

Like Jones Metal Products, Grede St. Cloud has hired back as many workers as it slashed in the downturn. But some hires are temps.

"We're hiring people temporarily to see if everything's going to be stable," he said.

Haas said those temporary workers come in at lower wages but eventually get brought up to par with the other workers.

Wages could be another bright spot in Minnesota's somewhat murky job market. Minnesota workers who suffered a permanent layoff in the last three months of 2009 appear to be losing only about 7 percent of their earlier pay upon rehire -- that's much less than some national estimates of up to 30 percent.