In Greater Minnesota, Local Economies Emerge from the Pandemic

From retail spending to labor demand, Ryan Pesch can tell you what the economic indicators say about Minnesota’s small towns and rural areas as it emerges from the coronavirus pandemic. He can also point to one sign of this recovery that needs little explanation: more people are leaving the house and heading for Main Street.

“You can just see more traffic in a downtown business district,” said. “It’s walking traffic.”

Pesch, an Extension educator in community economics with the Center for Community Vitality, said there is a clear sense among residents of Greater Minnesota communities that the pandemic is on its way out. Industries long strained by the statewide restrictions implemented to slow the spread of COVID-19—such as the food service, resort, and hospitality industries—are rapidly regaining momentum as those restrictions loosen and federal relief funds reach communities.

Exactly how well various communities have weathered the pandemic’s economic toll largely depended on how many different industries play a major role in that economy. Diversified areas tended to fare better overall, as pandemic-resistant sectors propped up the economy while more susceptible ones dipped.

Communities that relied heavily on one or two industries, on the other hand, felt more pronounced effects. If a large chunk of the community worked at the local meat packing plant, for example, the effects of even a short shutdown due to an on-site COVID-19 outbreak likely had serious repercussions for its workers and for the community.

“To the extent you zero in and zero out, any given community can be very defined by a particular industry,” Pesch said. “West Central Minnesota, for example, was fairly resilient because it’s a very well-balanced economy. There’s manufacturing, there’s hospitality, a strong service economy, and the ag economy.”

While the challenges small towns faced often mirrored those of urban environments, Pesch said the greater proportion of small-scale and independent businesses in Greater Minnesota allowed some areas to be more nimble in solving those problems. Grocery stores with fewer middle managers and supply chains built on personal connections, for example, could sometimes address shortages on their shelves with just a phone call.

Small towns tended to embrace grassroots solutions to problems throughout the pandemic, Pesch said, driven by the broad familiarity among community members.

“It’s in part psychological, this feeling that we’re all in this together,” he said, recalling stories of volunteers who took it upon themselves to deliver groceries to neighbors. “There is something to be said about the small town mentality of ‘we all know one another, let’s figure it out.’”

Finding Space in the Nesting Economy

As the pandemic pushed Minnesotans into practicing social distancing and—in many cases—working from home, some people sought out new living spaces. Rural and small town communities, with their lower population density and less crowded public areas, appealed to many of those who relocated, Pesch said.

While the data isn’t available yet to quantify how many may have moved from urban to rural communities in Minnesota, a recent Federal Reserve data brief showed these migrations took place in many metropolitan areas across the US during the pandemic. Meanwhile, a Harris Poll found COVID-19 made about a quarter of Americans living in urban and suburban areas want to live in a rural area.   

As Minnesotans faced the reality of spending most of their days at home, they fixated on improving those spaces. This “nesting economy”—where people shift their spending into upgrades that make their home cozier or more functional—fueled a spike in construction work and related trades. People were suddenly looking to build a new deck, paint rooms, and purchase appliances. So much renovation work took place that the supply of some building materials ran thin. Electricians, for example, had trouble getting their hands on electrical breakers and outlet boxes.

“Back during the 2008 crash, the Great Recession, there was that phrase economists used: ‘people are investing in hearth and home,’” Pesch said. “This is the same thing. People were spending money buying potting soil and gardening, not on vacations and dining out.”

Part of this shift, he added, included a swelling of interest in purchasing food from local and independent sources. More Minnesotans went out of their way to participate in community-supported agriculture programs (or “CSAs”), which helped buffer the agriculture industry in their area.

It wasn’t all good news, however. While consumers also kept shopping for retail products during their life at home, their purchases largely shifted from the stores in their community to online orders through centralized retailers like Amazon. A smaller portion of retail spending stayed within local economies.

Momentary Behaviors or a New Normal?

As the recovery continues, Pesch said local governments, economic development groups, and chambers of commerce are eager to see whether some of the changes in residents’ behavior spurred by the past year of life under COVID-19 outlive the pandemic.

One of the main questions is whether more Minnesotans will call small town and rural areas home. New residents are a boon for communities, adding to the number of skilled workers in the workforce, the tax base for local governments, and the total spending in the local economy. Anecdotal evidence suggests an influx could be the case, Pesch said, but the hard numbers are not yet available.

In the meantime, one thing is certain: consumer activity is rapidly growing at some of the businesses that have been hardest hit by the pandemic. The food service industry is a prime example.

“I’ve spoken to a number of restauranteurs in Greater Minnesota just in the last week, and they are back at full staff and looking at their numbers increasing on a weekly basis,” Pesch said. “They’re now looking to a summer season and saying, ‘let’s bring on the traffic.’”


Farms See Higher Income

Farms across the state saw greater profitability in 2020, according to research by UMN Extension.

The increase in median net farm income, which reached about $107,000, was driven by higher commodity prices in the second half of 2020. The rise follows seven years of low profitability.

“Minnesota farms have faced many struggles in recent years,” said Pauline Van Nurden, extension economist at the University’s Center for Farm Financial Management. “This past year’s increased profitability has given many a sigh of relief and renewed hope for the future of their farm.”

For more on how farms have fared—including a break down of crop, dairy, pork, and beef producers—see the UMN Extension analysis.