Diversity Helps

Though the recent recession may have changed the way we do business, it did not perceptibly change the region's economic base.

Not all areas experience recessions at the same times or at the same intensity as their state or nation. Regions that host both pro-cyclical and counter-cyclical industries will experience more subdued recessions than less diversified areas. Likewise, dense networks of local trading partners increase the intensity of a recession as well as the speed of expansion.

With the recent economic turmoil and so many layoffs, how has the local economy changed? Figure I depicts the year-over-year change in total employment in Minnesota with that of the St. Cloud MSA (Benton and Stearns Counties).

Note first that the employment trend in the St. Cloud area does not follow the state's path. Minnesota experienced more severe declines in employment between the third quarter 2001 and fourth quarter 2002, for example. In addition, strong local employment growth lasted until first quarter 2008, during which time the employment growth in the state was virtually static.

Source: Quarterly Census of Employment and Wages

Figures 2 and 3 show the employment by industry for Quarter 1, 2006 and Quarter 3, 2009 for Minnesota and St. Cloud MSA. Quarter 1, 2006 was the peak of the year-over-year employment growth rate in the state, and Quarter 3, 2009 is the latest data available from the Quarterly Census of Employment and Wages.

Education and Health Service industries employed the greatest number of workers, and Trade Transportation still ranks second in Minnesota. However, Professional and Business Services edged out Manufacturing for the number three spot in the state. Likewise, jobs in Public Administration edged higher than Construction employment. Education and Health Service industries are the largest employers in the St. Cloud MSA as well, followed by Manufacturing. The only local change in industry rank by employment is that public administration in St. Cloud edged above other services by 2009 Quarter 3.

If we compare the proportion of employment by industry in St. Cloud to the proportion in Minnesota (Location Quotients) for Quarter 3 of 2009, St. Cloud hired 1.4 manufacturing workers for every one hired in the rest of the state. The area hired 1.3 workers in natural resources and mining industry for every one working in those industries in other parts of the state. However, we employed only seven employees for every 10 working in Education and Health Services and Professional and Business Services statewide. This suggests that we export manufacturing and natural resource/mining products outside of our area, but we tend to go elsewhere to purchase education and health services as well as professional and business services.

Because of disclosure concerns, St. Cloud data does not include employment statistics for Trade, Transportation and Utilities, Business and Professional Services, or Information. We classified employment in these industries as "Other."

Figure 4 highlights the percent change in employment for St. Cloud MSA compared to the state. A focus on total employment leads to the conclusion that the number of jobs declined slightly for the state (-2%) and was constant for the St. Cloud MSA (-0.2%). However, underneath the aggregation we see substantial changes in employment by industry. In the last three and one-half years, the employment growth in St. Cloud MSA overshadowed the state in natural resources and mining. The growth in public administration jobs was slightly higher in the state, but in education and health services in the MSA grew by 7.4% while such employment barely increased at the state level. The number of construction jobs grew locally, but fell in the rest of the state. On the other hand, the local leisure and hospitability industry held constant while that in the rest of Minnesota grew by about 7.5%. The three industries hardest hit in both Minnesota and the St. Cloud MSA are financial activities, manufacturing and other services. Manufacturing employment decreased by 12% in the state but only by 7% locally. Locally, the Other Services jobs plummeted by 18%, where that industry's employment fell by 3% statewide.

If one looks at the quarterly employment trends for the area's three largest sectors, the difference in employment trends between St. Cloud MSA and the State becomes evident. Figure 5 shows a spurt in year-over-year local employment in education and health services that did not occur statewide. Note that during the last recession, these industries displayed positive growth rates compared to the previous year, thus without a strong education and health sector, the St. Cloud MSA would have a deeper recession than otherwise.

If the industries and the St. Cloud MSA and the competitive advantages within the MSA were equivalent to the rest of the State, between 1st Quarter 2006 and 3rd Quarter 2009, the area would have lost 2,170 jobs. Instead, 180 jobs evaporated. Did the recession change St. Cloud's economic base? Not perceptibly. St. Cloud is a diversified area with strong specialties in manufacturing, construction and natural resources. Growth rates of many of the local industries between these two periods surpassed those of the state. The diversification allowed us to partly side step a potentially deep and prolonged recession that other parts of the state endured.

Mary E. Edwards is a Professor of Economics at St. Cloud State University, meedwards@stcloudstate.edu