The economic forecast for north-central Minnesota is “sunny with a few clouds,” says regional outreach director Ronald Wirtz of the Federal Reserve Bank of Minneapolis.

Wirtz held listening posts last month in Park Rapids, Bemidji and Grand Rapids. The Minneapolis Fed published a summary of his visit and findings on Jan. 12 in the Fed Gazette. Wirtz reported that unemployment rates in north-central Minnesota are several percentage points higher than the state average, but contacts throughout the region expressed an optimistic outlook.

There are areas of improvement, including the unemployment issue, but the region has unique, defining characteristics such as a dependence on tourism, thanks to the many lakes that dot the landscape.

Described as “the junior municipality in terms of size,” Park Rapids depends the most on tourism with its iconic downtown district, pristine lakes, and the sixth busiest jet airport in the state.

Tourism over the past few years has been exceptional, according to local sources – so good, in fact, that resort ownership is seeing some turnover as a younger set interested in ownership give aging owners an opportunity to move to the leisure side of the equation.

Unemployment has declined across Hubbard, Beltrami and Itasca counties since 2009, but it remains higher than the state average, especially in Hubbard and Itasca counties.

This isn’t for lack of jobs. In fact, job vacancies have skyrocketed in northern Minnesota during the past decade. While figures are not available for the three counties, local employers reported they were hiring and had difficulty filling open positions.

A Park Rapids community official told Wirtz, “If you’re comparing to where we’ve been, it’s pretty strong,” but added that this was a low bar.

Apart from schools and the hospital, there aren’t a lot of middle-income jobs, locals said. Tourism is healthy, but businesses are seeking ways to extend the “shoulder season,” before and after traditional summer tourism, so local businesses stay busier longer.

Missed connection

Sources across the region noted a split economy. Tourism economies tend to cater to the wealthy. The good news, Wirtz reported, is that the region has been successful in attracting people of means.

The bad news is that many locals live more vicariously. A business contact described Bemidji as “a place where you can see a $60,000 car and a $600 car going to the same grocery store. There’s a lot of people with needs out there.”

Related to this are a mismatch between labor demand and the skills of available workers. Despite higher-than-average unemployment, workforce shortages were cited as a tourniquet to faster economic growth.

For example, Wirtz was told that a potato plant near Park Rapids is typically 25 people short, despite hourly pay running between $14 and $29 “with some of the best benefits you’ll find.” A manufacturing plant in Grand Rapids recently turned down a contract because it lacked the necessary labor. A banker said, “We’ve never seen a labor market like this in my career.”

Wages are rising in response. Tellers at a Park Rapids bank went from $12 an hour last summer to $14 this year.

A Park Rapids hotel operator said the business tries to have eight housekeepers on staff, but over the past six months, “we went through 35 people.” Pay was raised from $9 an hour to $11, but this had little effect on retention.

According to multiple sources, this was in part because higher pay can detract from government assistance for housing, daycare or other services that are worth more, in financial or household security terms, than higher wages.

Comparatively sunny

Wirtz weighed the region’s challenges against its advantages over other rural areas. He noted that the area is ahead of many rural areas in moving to a digital economy, broadband connectivity, and people and organizations planning and problem-solving for the public good.

An untapped source of skilled labor, he said, is “Boomerangs” – former residents who move back to enjoy life in the “outdoors mecca” after sampling life in larger cities. Unfortunately, the right opportunities are not always available, especially when a working spouse also needs a job.

Some make financial sacrifices to move back. A Grand Rapids resident said he took a 60 percent pay cut to return to his hometown, but said, “Every one of my friends is waiting in the wings to come back.”

For Wirtz’s full report, visit www.minneapolisfed.org/publications/fedgazette.