State budget forecast shows favorable conditions, job growth

Minnesota's economy made decent strides this year, despite lots of headwinds, chief state economist Laura Kalambokidis said Thursday.

Kalambokidis, arrived for her first budget forecast press conference with more favorable news than many prior forecasts offered. Her debut coincided with an $825 million budget surplus and strong signs in the job market. In recent months, Minnesota has recovered all the jobs lost in the recession.

Kalambokidis notes that the state's unemployment rate of 4.8 percent, is well below the nation's rate of 7.3 percent and incomes in Minnesota are growing.

But Kalambokidis said the picture could be yet rosier. She said the across-the-board federal spending cuts known as sequestration and the partial shutdown of the federal government in October have crimped the state and national economies this year.

"These things have taken a toll on consumer and business confidence," Kalambokidis said. "And that lower confidence in turn has dampened spending, investment and hiring in 2013."

The federal budget is still not set, and Kalambokidis thinks fiscal and political uncertainty will continue to make business owners jittery and possibly reluctant to hire. That means next year, jobs are expected to grow at about the same modest pace as this year.

"We're not expecting an acceleration," she said.

Business owners say they're worried about a lot more than just federal budget issues.

Their concerns include government regulations, access to capital and poor sales, said Mike Yeager is the president of Yeager Machine Inc., based in Norwood Young America. The company makes parts that are used in other manufacturers' operations.

Yeager said his business has been unpredictable lately, and he has a lot on his mind besides federal budget troubles.

Some of his biggest worries include how he'll afford a big spike in health insurance costs for his 20 workers under the Affordable Care Act.

He's also feeling pinched by a new Minnesota tax on machinery repairs-- one of several business to business taxes passed in the last legislative session.

The Minnesota Chamber of Commerce is asking Gov. Mark Dayton and the Legislature to repeal the new business-to-business taxes.

"It's not just one thing; it's every little thing," Yeager said. "My fear always is what's next. What are they going to pass next year? What are they going to do to us next year? It just seems to keep piling up. At some point it might not make sense to stay in business."

Despite those fears, manufacturers like Yeager could actually pick up steam in 2014.

National surveys point to rising confidence in the factory sector and the state budget forecast predicts a turnaround in manufacturing.