Wells Fargo economist sees Minnesota recovery coming

Northwestern Financial Review, Jul 15-Jul 31, 2002 by Dullum, Justin

The Minnesota economy bottomed out before the national economy and is further along the road to recovery than is the United States, said Dr. Sung Won Sohn, chief economist of Wells Fargo banks.

"Employment and jobs, to me, is the best gauge of economic activity in Minnesota," said Sohn. "We actually peaked before the U.S. Then we dropped more sharply than the U.S., and now we have begun to rebound ahead of the U.S."

At a press conference held at the Wells Fargo Tower in Minneapolis, Sohn was optimistic about the Minnesota and U.S. economies saying that the worst is likely over.

Sohn predicts that in Minnesota the construction and manufacturing industries will be two pillars of its economic recovery. "Although the state has not yet started to recover manufacturing jobs, it has avoided the larger losses suffered at the national level." He said Minnesota's mixture of products and technology-mainly medical devices and scientific instruments-have faired better than the telecommunications and semiconductor industries throughout the country. "Medical devices and instruments should continue to be the growth engines of the Minnesota manufacturing complex," Sohn said.

Construction, manufacturing and housing in Minnesota are outpacing their national counterparts and Sohn said he expects Minnesota's unemployment rate to drop to 3.8 percent by the end of this year and to 3.2 percent by the end of'2003.

But Minnesota is not in the clear. The state's transportation, insurance and service industries were hardest hit by the slowing economy and September 11. Sohn said these industries are lagging behind the national rate of recovery. Services, Minnesota's largest economic segment, were also the state's weakest economic component. "But recently, this sector has showed signs of recovery," Sohn said.

As for the United States, Sohn said recovery will take place in three stages: an increase in consumer spending due to tax cuts and low interest rates, inventory building and businesses spending money on capital equipment in order to raise productivity. Factors that could slow economic growth include a falling stock market and the value of the dollar. Sohn anticipates neither.

He praised the Federal Reserve for its role in the recovery and expects no interest rate changes in the coming months.

"A rate cut would simply reinforce pessimism, hurting the economy," said Sohn. "I believe the economy will be strong enough later this year to begin thinking about hiking interest rates, " he added. "Perhaps toward the end of this year or early next year we might see some increase in rates, but not before then."

By Justin Dullum