There are signs Minnesota’s economic downturn is slowly gearing up for a better-than-expected 2012. More jobs, a better than expected increase in retail sales, and more factory orders of durable goods are prime indicators that things are beginning to turn around.

Minnesota experienced a sharp drop in unemployment claims in January, falling to 5.6 percent. That’s down 0.1 percent from December’s 5.7 percent unemployment rate. Economists say that is one of the signs that suggests the Gopher State is on the mend, economically. However, Wells Fargo Senior Economist Scott Anderson said the state’s unemployment rate decline may be more due to “people dropping out of the labor force.” In which case, the rate belies the real unemployment number, further suggesting that those persons searching for a job face less competition statewide.

Keep in mind that the state has only recaptured around 75,000 of the 156,000 lost jobs since the Great Recession hit in 2008.

While job gains remain dismal in the U.S. and the Midwest region, retail sales in the region show signs of renewed life. Target, a Minnesota-based retailer, recorded an increase in its same-store sales during February of 7 percent. Target management had predicted a 5 percent jump. Other stores such as Kohl’s registered a slight decline in February of 0.8 percent. Kohl’s had projected a decline of 0.2 percent.

Target rivals Walmart and J.C. Penney will compete in coming months with the bright red bull’s-eye for market share by discounting goods, something that Target has shunned.

Factory orders for durable goods are up 20 percent ahead of what had been forecast, according to Wells’ Anderson.

There is another glimmer of hope in the state. Mortgage rates in the U.S. have hovered around the 3.75-3.9 percent rate, an all-time low, according to Frank Keating, president and CEO or the American Bankers Association (ABA). (ABA represents all banks of all sizes in the United States

Keating did indicate that banks have an abundance of cash to loan to prospective buyers, but that the days of sub-prime loans, no-document mortgages are gone. He said in a recent interview, that home buyers will have to qualify with credit scores at or above 700. Buyers will also have to prove solid employment and present a strong down payment, of 20 percent.

Mortgage rates did slip last week from 3.95 to 3.9 percent , according to the Freddie Mac, the taxpayer bailed out U.S. mortgage giant. That is a good thing for potential home buyers or home owners wishing to refinance an existing mortgage with a high rate of interest to capture the lower fixed rates.

However, the meager gains in the state’s economy may be stifled by higher prices at the pump. As consumers have to dig deeper to pay at the pump, there may be a stranglehold on the recovery. If the predicted meteoric rise to $4 or even $5 a gallon is realized look for a downturn in consumer spending and confidence.

There may be a silver lining in that dark economic cloud. Car makers that have retooled to produce more of the fuel efficient small cars might experience a surge in sales. Gone are the days of monster SUVs that were gulping huge amounts of fuel, and were given government sponsored incentives to buy the gas-guzzling during the Bush administration. Smaller cars from Detroit, Japan, Germany and Korea are capturing the attention of buyers in the American marketplace. (In February, some 23 percent of the new vehicles sold were small cars. In December that number was 17.9 percent, according to Edmunds.)

Look for an increase in small vehicle sales as the prices at the pump continue to soar.

In this election year, look for efforts from Washington to calm the economic waters, especially among incumbents in the House of Representatives, the Senate and the White House.

Hang on, it could be an interesting economic summer.

—Keith Hansen