Diverse economy expected to cushion state in the event of an economic slowdown

MINNEAPOLIS (AP) -- Minnesota's diverse economy should provide some cushion if there is a national recession, but sales of big-ticket items such as vehicles and building materials would be hurt, an economist said Wednesday.

"Minnesota's economy is not overly reliant on any one kind of business," said Sung Won Sohn, chief economist for Wells Fargo & Co. "So, even if there's a slowdown in one business segment, we could see other segments pick up the slack."

Sohn said the probability of a national economic recession next year has risen about 40 percent.

"The Federal Reserve should cut interest rates as soon as possible and a limited tax cut to cushion the economic slowdown would be helpful, if one can be enacted quickly," he said.

In event of a recession, Minnesota would fare no worse than the rest of the nation but better than some nearby states, Sohn said.

"Michigan, Wisconsin, Indiana and Iowa face a much greater chance of feeling the pain of an economic slowdown because their economies are focused on fewer industries," he said.

Among Midwestern states, Minnesota ranks behind only Illinois and Ohio in economic diversification and is 11th nationally, Sohn said.

The state's durable manufacturing sector is split about even among household goods, old-economy capital goods and high-tech goods.

Sohn noted that companies that process food products and provide health, management and education services will continue to grow even as the economy slows.

A survey of Wells Fargo bankers throughout Minnesota shows confidence in the economy has not tanked and most bankers see business conditions remaining the same. Of the others, more see conditions improving than getting worse, Sohn said.

A few locations in extreme northern Minnesota were more pessimistic, he said, expressing worry about impending layoffs at iron ore mines and higher costs of interest and energy that cut into money that would be spent on larger household purchases.

Sohn said the major problem facing Minnesota business continues to be labor shortages. And he said that is a typical concern of an expanding economy, not a faltering economy.

Other positive signs Sohn cited for Minnesota:

--Median household income in the state is about 15 percent above the national average.

--The state is a leader in exporting manufactured goods to Asia, Europe and Latin America.

--Population growth in the state is outpacing all other states in the region.

--Strong in-migration bodes well for the labor supply and demands for housing, goods and services.

--Housing prices in the state are rising faster than the national average.

Sohn's report came five days after the Federal Reserve Bank of Minneapolis reported that non-farm employment and personal income are expected to grow slightly faster in 2001 than they did this year in Minnesota.