No Kidding Around

Plus: This Week's Featured Place: Minneapolis-St. Paul, Minnesota Miracle

Issue 63: April 11, 2022

Inside this Issue:

• The Fed Makes It Clear: Won’t be Cavalier in Busting Inflation’s Rear

• Markets Get the Message: Will Spiking Rates Cause Housing Wreckage?

• Bye Bye Benjamins: A Disturbance in Global Dollar Dominance?

• Dimon Charge: A Literary Fling from Wall Street’s King

• Lack of Immigration Causing Inflation? The Labor Market’s Missing Millions

• Passing It On: Conagra’s Costs Soar but the Slim Jim Costs More

• Reaching for the Stars: Amazon Sends Satellites to Space

• And This Week’s Featured Place: Minneapolis-St. Paul, Minnesota, Minnesota Miracle

A Quick Note: The Econ Weekly podcast is now available in iTunes, Stitcher and Spotify. Just search for Econ Weekly and please leave a review to help spread the word. In this week's episode, we talk about Fed policy, inflation, airline consolidation, the Twin Cities and lots more... 

Quote of the Week

“The whole world that we have is built on structurally low interest rates. Higher interest rates, higher inflation… It blows everything apart.”

-Joseph Wang, former Fed trader and author of the Fed Guy blog, speaking on the program “Forward Guidance”

Market QuickLook

The Latest

We’re not kidding around. No, really, we’re not kidding around.

That was the message Lael Brainard delivered last week. She’s the number two person on the Federal Reserve’s Board of Governors (or will be pending Senate confirmation), and she’s making it perfectly clear that defeating inflation is now job number one. No more talk about patience. No more invocations of the word transitory. The cannons are out, and the Fed is ready to fire them.

Its chief weapon is raising overnight interest rates, which it started doing at its last meeting in March—and which it will all but certainly do again at its next two-day meeting that begins on May 3rd. Not stopping there, the Fed intends to rapidly shrink the $9 trillion pile of Treasury and mortgage bonds it amassed to encourage lending during the pandemic. This should begin sometime this summer, putting further upward pressure on borrowing costs. Brainard’s message, importantly, was reinforced by what Fed policymakers said amongst themselves during their March meeting—the transcript of this meeting was published last week. One revelation: Many were ready to hike by a half-point, electing for just a quarter-point only after the Ukraine conflict introduced new uncertainty.

The idea, to be clear, is to slow demand by making borrowing more expensive—but not so much as to cause a recession. Financial markets are clearly getting the message, with longterm borrowing rates—30-year home mortgage rates most importantly—up by roughly a full percentage point in just the past few weeks. According to Freddie Mac, the average 30-year mortgage rate now stands at 4.72%, up from 3.76% at the beginning of March and around 2.8% last summer. The last time mortgages were this expensive? Late 2018.

This naturally has implications for the systemically vital housing market, which sure enough seems to be cooling. That’s probably a good thing following the massive runup in prices during the past year and a half. But it could affect consumer spending. So might the impact of higher borrowing costs for credit card loans. The auto market too, is sensitive to interest rates, though the most pressing problem there continues to be the semicon shortage that’s crippling output. Student debt, amounting to a higher figure than even credit card and auto debt, will be less of a short-term risk to household spending, because most student debt is owed to the federal government, which is again extending a freeze on repayments (until September). Washington’s own borrowing costs, meanwhile, are unambiguously increasing, with 10-year Treasury yields ending the week at 2.72%. They started the year, remember, at just 1.63%. Historically, borrowing costs below 3% are still extremely low. But sharp increases can be worrisome, especially for a government with $30 trillion in debt. Reminder: The value of everything the U.S. produces (GDP) is only $24 trillion.

Oil prices mercifully stayed below the $100 mark, helping the Fed’s cause (though $98 is no bargain). Encouragingly, used vehicle prices dropped 3% from February to March, according to Manheim Consulting. They’re still up 25% from a year ago, however. Stock prices dropped last week, but here too a y/y comparison is helpful—the S&P 500 is still 9% higher than it was last April. The Nasdaq Composite index is down y/y, however, reflecting recent investor distaste for tech stocks like Meta, Netflix, PayPal, Zoom and the electric carmaker Lucid.

Amazon’s stock is down 9% y/y, in part because of worries about labor costs as unionization efforts advance. Workers at an Amazon warehouse on New York City’s Staten Island voted last week to become the company’s first U.S.-based union. Amazon’s rival Walmart, meanwhile, clearly has labor issues of its own, specifically finding enough truck drivers. This might do the trick though: A new plan to pay first-year drivers $110,000 a year.

The driver shortage could ultimately disappear if autonomous trucking becomes the norm. The concept is inching forward as Pittsburgh’s Aurora plans trial journeys between Dallas and El Paso for the trucking firm Werner. Warren Buffett’s Berkshire Hathaway, the country’s fourth-largest firm by revenues (after Walmart, Amazon and Apple), became the largest shareholder in HP, best known for its personal computers and printers. Berkshire, remember, is also one of the largest shareholders in Apple, not to mention other familiar names like Bank of America, American Express and Coca-Cola. That’s in addition to full control of companies like Union Pacific and Geico (yeah, the one with the lizard).

Still, Warren Buffett no longer ranks as America’s richest person. Forbes currently has him at number four, behind Bill Gates (no. 3), Jeff Bezos (no. 2) and the richest of them all Elon Musk. Mr. Musk was again making headlines last week, buying a major stake in Twitter and opening a new Tesla factory in Austin. In Washington, Treasury chief Janet Yellen gave a speech about digital currencies, downplaying the likelihood of the U.S. government issuing one anytime soon, notwithstanding China’s advancements in this area. “Issuing a CBDC [central bank digital currency] would likely present a major design and engineering challenge that would require years of development, not months.” Some of the issues aren’t economic, like protecting people’s privacy.

Back to the Lael Brainard speech last week, one sub-theme of her inflation discussion was inequality, and how rising prices disproportionately affect lower-income Americans. Lower-income households, she said, spend 77% of their income on necessities, more than double the 31% spent by higher-income households. The difference in housing expenditure is stark as well: 45% vs. 18%. The Labor Department’s consumer price index (CPI) she notes, doesn’t show this, including for example, caviar and canned tuna in the same index category.

An exceptionally interesting read was Jamie Dimon’s take on the American economy and its financial sector. Dimon is often called the King of Wall Street, running the country’s most powerful bank, JPMorgan. In a letter to shareholders, he flagged a few critical trends, one being the rise of non-banks when it comes to lending. Banks like JPMorgan today account for just 32% of mortgage originations, he said, compared to 91% before the financial crisis a decade ago. They’ve also seen their role as market makers in money markets diminish, referring to the important overnight lending markets that the economy depends on to ensure adequate day-to-day funding for companies, along with smooth operation of payments moving throughout the economy. (This has forced the Fed to step in as a money broker of last resort on several recent occasions). Dimon, separately, expects more bank mergers as competition from non-banks including fintech startups and retailers like Walmart intensify. (For more on Dimon’s letter see the Companies section below).

Dimon will take center stage again this week as JPMorgan kicks off Q1, 2022 earnings season. Joining it will be other banks like Wells Fargo, Citi and Goldman Sachs, along with UnitedHealth, Delta Air Lines and the world’s largest money manager Blackrock. Also keep an eye on Fastenal, a large Minnesota-based distributor at the heart of America’s strained industrial supply chain. Oh yeah, and Tuesday will bring the latest CPI inflation data, for March. Later in the week: New data on retail sales.

Companies

• Conagra: Minneapolis-St. Paul, with companies like Cargill, is known for its food processing (see the Places section below). But Chicago punches above its weight in foods as well, with companies like Conagra. The latter reported earnings last week, which were strong (double-digit margins) despite the twin scourges of inflation and supply chain headaches. If that sounds familiar, it was perhaps the single top theme of calendar Q4 earnings season, or in Conagra’s case, the theme of its earnings that covered December, January and February (its unusual fiscal third quarter). American shoppers know Conagra through its popular brands, like Duncan Hines, Birds Eye, Orville Redenbacher and Slim Jim. They’ll also surely notice that prices are up, as the company responds to what can only be described as extreme cost inflation. “At the time of our Q2 call, we expected Q4 gross inflation of about 11%. Today, we expect Q4 gross inflation of approximately 16%... On a two-year basis, Q4 gross inflation is expected to be an unprecedented 26%.” OMG! That’s for sure putting pressure on margins, even if still healthy. But management expects recent pricing actions to effectively neutralize the cost spike, which by the way is most acute for Conagra in commodities and transportation. Though it sells to restaurants and cafeterias, etc., it benefits most when people do more of their eating at home, which is what happened during the pandemic—and what it says is happening right now as households react to inflation by cutting their restaurant visits.

• JPMorgan: More on America’s largest bank this week. But last week, CEO Jamie Dimon penned a letter to shareholders that (as mentioned above) highlighted important trends challenging large U.S. banks. He separately noted that the number of publicly-traded companies in the U.S. stands at just 4,800 today, down from its peak of 7,300 in 1996. Over the same time, the number of privately-held companies—which are less regulated and less transparent—went from 1,600 to 10,100. “Is this in the country’s long-term interest?” Dimon asks. Regarding labor markets, he cited the pandemic-era phenomenon in which 2m people retired early, the supply of immigrant workers dropped by 1m, available jobs soared to 11m, the number of job seekers dropped to 5m and wages spiked, especially for lower-income workers. Closely watched for sure is Dimon’s take on the Fed, which “needs to deal with things it has never dealt with before (and are impossible to model), including supply chain issues, sanctions, war and a reversal of QE [quantitative easing] in the face of unparalleled inflation.” Rates, he asserts, “will need to go up substantially.” And with respect to JPMorgan’s ability to cope: “Our bank is prepared for drastically higher rates and more volatile markets.”

• JPMorgan: A separate section of Dimon’s lengthy letter dissects the world economy as it unfolded after the great financial crisis of 2008-09. From 2008 to 2014, he writes, the global financial sector sharply cut lending which slowed economic growth and by extension, reduced the incentive among businesses to invest. Onerous bank regulations further reduced lending and money supply. The Fed’s bond purchases (quantitative easing) merely added to a global savings glut, meaning the supply of capital far exceeded demand. All of this contributed to the slow U.S. GDP growth of the early 2010s, which some economists like Larry Summers called “secular stagnation.” Dimon himself used the term in his letter. And today? He’s hopeful business investment will increase, with GDP now growing faster and with lots of capital required (an estimated $4 trillion annually) to address climate change. Lending, meanwhile, the main driver of new money creation, will likely increase to fund business investment, and also to fund ever-greater spending among governments. Central banks and private banks, meanwhile, won’t need to buy as many unproductive safe assets as they did after the 2008-09 crisis.

Tweet of the Week

Sectors

• Airlines: Not so fast, Frontier. JetBlue, America’s sixth-largest airline by revenues (after Delta, American, United, Southwest and Alaska), made a surprise counter-bid for Spirit Airlines. On Feb 7th, Frontier agreed to pay $26 a share for Spirit, which likewise sports a business model featuring dense seating configurations and heavy dependence on non-ticket revenues (i.e., charging for bags and other services). JetBlue, with a more upscale business model, said it would pay $33 per share. The day before the offer, Spirit’s stock was trading at $22. It reached as high as $39 in early 2021, while trading in the $50 range before the pandemic. JetBlue could have an antitrust problem, however. It also needs consent from competition regulators for an alliance with American that it hopes to develop. JetBlue and Spirit also fly a lot of overlapping routes along the U.S. east coast. Given the context of rising inflation and the Biden Administration’s pro-competition sympathies, getting waivers for both the Sprit and American plans could be a tall order for JetBlue. In any case, at stake is a battle for Florida, a giant tourist market where JetBlue, Spirit and Frontier all deploy substantial amounts of their capacity. It’s a market where demand held relatively strong during the pandemic, and where demand is currently red hot. But that’s naturally attracted a lot of new supply, pressuring ticket prices. One interesting fact here: Former Spirit CEO Ben Baldanza is currently a JetBlue board member. JetBlue, by the way, is based in New York City. Frontier is based in Denver and Spirit’s in Fort Lauderdale.

Markets

• Labor: America’s aging population is surely the biggest reason why labor force participation has steadily declined in the past several decades. There’s simply a much larger percentage of Americans who are retired now. More recently, immigration—or lack thereof—has exerted additional pressure on labor supply. On the “Macro Musings” podcast, the Cato Institute’s Alex Nowrasteh calls immigration crucial to the longterm economic health of the U.S. given declining native birth rates. The 7% U.S. population growth during the 2010s, he said, was the lowest ever in the country’s history, with the number of 18-year-olds actually shrinking. As mentioned in last week’s issue of Econ Weekly, Nowrasteh estimates that the U.S. would have between 2.5m and 5m more immigrants today had arrival trends from 2015 persisted. More stringent visa policies enacted during the Trump Administration, followed by the pandemic, are the chief reasons for the slower pace of legal immigration. More recently, with the U.S. economy recovering, and with so many jobs unfilled, illegal immigration has increased. But it’s still well below its 2007 peak of about 12.2m, according to Pew Research. Illegal immigration was down to more like 10m in 2019. Taking a longer look back, Nowrasteh claims: “If we had no immigration since 1800 there’d be about 95m to 100m people living here [rather than today’s actual U.S. population of 330m].” If the U.S. needs labor so badly, why not welcome more immigrants? It’s a controversial topic, with some arguing that newcomers are a net cost to taxpayers. More important is the political reality that immigration has important sociological and cultural effects as well, some unwelcome by large numbers of people. In the “Macro Musings” discussion, the speakers described a “brains vs. stomachs” division between those that view immigrants as brains that produce new wealth, and those who view immigrants as extra stomachs to feed.

• Labor: What’s indisputable is the timeless role of cheap immigrant labor in the development of the American economy, to speak nothing of the free labor on which the pre-Civil War South depended (or the native-born female laborers used by early New England textile mills). Irish workers helped build the Erie Canal. Chinese workers helped build the transcontinental railroad. Eastern European workers staffed the country’s steel and auto factories. The examples are many. More recently, arrivals from Asia and Latin America have proved critical to sustaining the U.S. service economy (think nurses from the Philippines or hospitality workers from Mexico). It’s really not unique. Every successful economy depends on a pool of cheap labor: Turks in Germany, North Africans in France, Eastern Europeans in Britain, rural Chinese in urban China, Indians in the Gulf kingdoms, Filipinos in Hong Kong… one could go on. Japan is often cited as an exception, though it relies heavily on offshore low-cost labor, producing autos in Thailand and China, for example. The U.S., importantly, has looked offshore for cheap labor as well, becoming heavily dependent on cheap Chinese factory labor to build the iPhones, toys, furniture and so on that fill the homes of Americans. One influential argument is that such outsourcing (especially since China joined the World Trade Organization in 2001) has decimated U.S. factories and the American manufacturing workforce, hurting American males in particular. Some cite this narrative in explaining everything from the sharp drop in male labor force participation to the opioid epidemic to the political rise of Donald Trump.

• Labor: One final thing to say about labor in America, in this case regarding not cheap low-skilled labor but expensive ultra-high-skill labor. This has also been a key ingredient in American economic growth since the country’s founding. As Derek Thompson, host of the Plain English podcast points out, immigrants account for more than half of all U.S. Unicorns—that is, startups with a value of at least $1b. Google was in fact co-founded by a Russian immigrant. Amazon’s founder was raised by a Cuban immigrant. Microsoft’s CEO is an Indian immigrant. Apple’s founder was the son of a Syrian immigrant. Tesla’s CEO is a South African immigrant. You get the point.

Debate

• The End of Dollar Dominance? The U.S. dollar is America’s currency. That’s obvious. But the dollar is also—in a sense—the world’s currency. Put another way, it’s the currency used for most international transactions. International trade is largely invoiced in dollars. Lots of international borrowing and lending involve dollars, even when the U.S. is not involved. Central Banks around the world hold dollars as reserves (to ensure they have ample supply to obtain the international goods and services their economies need). It’s an offshore dollar-based monetary standard—often called the “Eurodollar” system—that first developed in the 1950s. The system started with U.S. banks (and later non-U.S. banks) lending dollars outside of the U.S. to avoid U.S. interest rate regulations. And remember, lending dollars means creating new dollars, meaning growing the money supply. The system was reinforced by dollars becoming the exclusive currency with which to buy oil—you’ll sometimes hear the term “petrodollar.” In the early 1970s, the U.S. decided to end its policy of backing the dollar by gold, meaning holders of dollars could no longer automatically swap them for gold on demand. Still, the dollar retained its dominance in international commerce. U.S. price stability from the 1990s to the 2020s helped solidify global confidence in the dollar. Foreign companies increasingly issued bonds in U.S. dollars (one of the largest dollar borrowers pre-pandemic was China’s Evergrande). Today, estimates Boston University’s Robert McCauley, roughly $13 trillion worth of dollars is owned by non-banks outside the U.S. Is this dollar dominance, however, destined to erode? Is it already eroding? This is currently one of the most talked-about topics in macroeconomics. Will the dollar remain dominant?

  • No, the dollar’s influence will fade: On March 22, the IMF published a working paper by Serkan Arslanalp, Barry Eichengreen and Chima Simpson-Bell. Its title: “The Stealth Erosion of Dollar Dominance.” It notes how central banks have steadily reduced their use of the dollar as a reserve currency; it accounted for 79% of all reserves in 1999 but just 59% in 2021. About a quarter of the lost share, the authors note, has shifted to the Chinese yuan, reflecting China’s growing importance in world trade. It’s almost as if finance is becoming like technology, with different currency platforms emerging just like Apple iOS coexists and competes with Google’s Android, Eichengreen has said. The yuan, incidentally, is now starting to circulate in digital form, another reason why it’s poised to eventually replace the dollar—hedge fund magnate Ray Dalio is a leading proponent of this theory. Credit Suisse analyst Zoltan Polszar, a closely followed commentator on the global financial system, believes the commodity shock caused by Russia’s attack on Ukraine will lead to more international transactions invoiced in non-dollar currencies. Russia in fact, now wants Europe to pay for its oil and gas in rubles. Saudi Arabia, meanwhile, has agreed to accept yuan for some oil. When the U.S. and its allies seized Russian dollars held abroad, Polszar and others argue, it sent a strong message to China and others that relying on a dollar-based international economy carries major geopolitical risks. Geopolitical incentives to diversify currency usage have thus increased with Russia’s war. High rates of U.S. inflation now add to the dollar’s unattractiveness. What besides the yuan might eventually replace the dollar as an international currency for trade, finance and reserves? How about a digital currency like Bitcoin? Gold again? The euro? A unit of account tied to multiple currencies? If Blackrock’s Larry Fink is right, and international commerce is becoming less globalized, then perhaps a fragmented international monetary system featuring multiple currencies will indeed emerge.

  • Yes, it will remain dominant; there are no viable alternatives to the dollar: Barry Eichengreen, one of the co-authors of the IMF paper mentioned above, is also a longtime defender of the idea that reserve currencies have always come from countries with predictable legal systems and full convertibility rights. This is where the yuan falls short. Holders of Chinese currency can’t just convert it anytime to dollars or euros or gold. Beijing has capital controls. That diminishes the yuan’s usefulness as a store of value. Only the dollar, Eichengreen has argued, has the liquidity, flexibility and reliability that’s required of a reserve currency. True, more central banks are holding yuan and other currencies as reserves these days. But for international transactions, universal use of the dollar lowers transaction costs and works well as a medium of exchange. The dollar’s value is also anchored by the U.S. economy’s enormous size and resources, buttressed by extremely liquid capital markets. David Beckworth, a George Mason professor and host of the Macro Musings podcast, argues that the dollar is deeply embedded in the world economy, comparing the relationship between foreigners and the dollar like a long-lasting romantic relationship. “Breaking up takes time, there is no one else as special and the relationship is an eternal flame. There is no other currency system that comes close to providing so many safe and liquid assets to the world… If investors wanted to break up with the global dollar system, there would be nowhere else to go to meet all their relationship needs.” This is reinforced, Beckworth adds, through network effects. “As investors turn to dollar investments because they are in ample supply, the network of dollar users expands and, in turn, makes dollar assets more liquid. As a result, this enhanced liquidity increases the demand for dollar assets and reinforces the dollar’s dominance.” If anything, some economists assert, dollar dominance has only grown since the 2008-09 global financial crisis and the 2020-21 pandemic. During both events, the Federal Reserve acted as a dollar provider of last resort to the entire world, not just the U.S. banking system. It did so through temporary dollar swap lines and collateral repurchase agreements accessible to foreign central banks. This essentially ensured that foreigners didn’t run out of dollars, which could have destabilized the entire world economy, America’s included. One effect: To further entrench the dollar’s dominance. As for digital currencies like Bitcoin one day replacing the dollar? For one, governments would fight hard against it. And in Bitcoin’s case specifically, the computer program that underpins it includes a hard cap on the total number that can ever be issued. A central lesson from financial shocks, however, is that currencies need to be elastic, expanding with economic activity and contracting with recessions. Otherwise, you get damaging deflation (like all too often under the gold standard) or inflation.

• Does U.S. dollar dominance even benefit the U.S.? That’s another debate. The predominant view is that a strong dollar is an “exorbitant privilege,” giving the U.S. lower borrowing costs, a liquid market for its government debt and no worries about an international payment crisis, not when all the goods you need from abroad are purchased in your own currency. There’s the benefit of seigniorage too, the simple fact of creating an asset with value (the dollar) out of thin air. It also entails geopolitical might, as the ability to punish countries like Russia and Iran by restricting their dollar usage shows. Michael Pettis of Peking University, however, prefers the term “exorbitant burden” when describing the impact of dollar dominance on the U.S. economy. He and others like Luke Gromen argue that global demand for dollars makes them more expensive, which makes exporting from the U.S. uncompetitive. The inevitable result is huge chronic trade and current account deficits with the rest of the world, along with strong economic incentives to import goods and services from low-wage countries with cheap currencies, most importantly China. This has contributed to America’s de-industrialization, the decline of America’s middle class and perhaps even the opioid epidemic and the rise of political populism. Economist Lyn Alden writes: “Folks who are often on the higher end of the income spectrum who worked in finance, government, healthcare, or technology benefitted from this system, since they obtained many of the benefits of globalization and none of the drawbacks. Folks who are often on the lower end of the income spectrum, specifically those that make physical things, are the ones that benefitted least and gave the most up, since their jobs were outsourced and automated at a faster rate than other developed countries.” The Eurodollar system of global dollar usage certainly benefitted German and Japanese automakers, Taiwanese and Korean semiconductor fabs, and Chinese manufacturers of consumer goods working for U.S. firms like Apple. For Pettis, he views America’s geopolitical might anchored not with dollar dominance but with “the creativity of Hollywood and New York in entertainment and fashion, with technological innovation in San Francisco, Boston, New York, Austin, and elsewhere, with its composers and artists in New York, San Francisco, and elsewhere, with its overwhelming military superiority, with its universally-valued ideal of ethnic inclusiveness and individualism, with its Ivy League and elite universities, with its think tanks, with its astonishing scientists, and with a host of other factors more important than the currency denomination of central bank reserves.”

Places:

• Minneapolis, Minnesota: “The Silicon Valley of Food.” That’s one way someone once described Minnesota’s Twin Cities, whose economic rise depended less on traditional manufacturing than many of its Midwestern peers. While Detroit was busy building cars, Pittsburgh busy building steel and Chicago busy building, well, pretty much everything, mills in Minneapolis and St. Paul were busy turning wheat from America’s Great Plains into flour used for bread. From those humble roots emerged a 21st-century food processing powerhouse of global significance, not to mention an economy that in many ways looks more Sun Belt than Rust Belt. The Minneapolis metro area, which includes the adjacent city of St. Paul, is home to Cargill, an agricultural goliath with $134b in annual revenue. That makes it similar in size to Ford and General Motors, and larger than even JPMorgan Chase or Johnson & Johnson. Cargill, with 155,000 workers, is America’s largest private company (in other words, the largest without publicly traded stock; it raises money by other means). Cargill, furthermore, is one of the four “ABCD” firms that dominate global agricultural commodity trading, the others being Archer Daniels Midland, Bunge and Dreyfuss. You might recognize other corporate manifestations of the Minneapolis industrial food complex, like General Mills (maker of Cheerios and Wheaties), Hormel (headquartered south of the city) and Land O’Lakes. There’s the Minneapolis Grain Exchange. And there’s CHS, an agribusiness giant indirectly owned by some 500,000 farmers and ranchers. The Twin Cities are also leaders in biotech innovation, which naturally has implications for food manufacturing (more commonly referred to as food processing). Food, however, is far from the only reason this economy gained weight. The Minneapolis economy is by any measure a successful economy, extremely well-diversified and unusually well-defended against recessions. These days, it’s perhaps more renowned for health care than food, which served it well during the 2008-09 recession, which barely affected the health care sector. The pandemic of course was a crisis centered on health care, but one in which many health care companies nevertheless thrived. One was Minneapolis-based UnitedHealth, the country’s largest health insurer and sixth largest U.S. company overall, behind only Walmart, Amazon, Apple, Berkshire Hathaway and CVS (based on annual revenues). Not too far from the metro area is Rochester, Minnesota, home of the famed Mayo Clinic. The largest employer in the Twin Cities is the Allina Health system, with a staff of nearly 30,000. Health Partners and Fairview Health are almost as large. According to the Minnesota Department of Employment and Economic Development, the area is home to more than 40 medical device manufacturers with at least 100 employees each. During the pandemic, local companies 3M and Medtronic were key suppliers of personal protective equipment and ventilators, respectively. The story doesn’t end with food and health care. The state-run University of Minnesota is located downtown along the Mississippi River. St. Paul is home to Minnesota’s state government. The largest employer outside of health care, education and government is a familiar name to all Americans: Target. Wells Fargo, though larger in San Francisco and Charlotte, has a giant presence in Minneapolis as well. US Bank, the nation’s fifth-largest bank, is headquartered in the Twin Cities. So is the retailer Best Buy and so is the trucking giant C.H. Robinson. Fastenal, mentioned in the Companies section above, is based about two hours south in a town called Winona. In fact, the Twin Cities are home to 16 Fortune 500 companies, putting it in the same league as Atlanta and Washington, DC. It even attracts a decent amount of tourism, thanks to major sporting venues and the Mall of America, which pre-Covid attracted 40m visitors a year (the mall also employs more than 10,000 people). But what about information technology, a key engine of 21st-century economic growth? Yes, here too, Minneapolis is strong, benefitting like Silicon Valley, Boston and Los Angeles—if on a much smaller scale—from Cold War-era defense contracts for various military supplies, computer products and scientific instruments. The area has an abundance of finance jobs too, some of which—like some IT jobs—cater to the health sector. No wonder why the Minneapolis metro today has the 28th highest per capita income in the country, out of the nearly 400 ranked by the Commerce Department. Though it ranked as high as the ninth-largest metro in America by population a century ago, it ranks a still-impressive 16 today, holding its place thanks to robust 9% population growth during the 2010s. That’s high for a place not in the Sun Belt or Far West. It was certainly high compared to other cold-weather places like New York, Chicago, Philadelphia and Detroit. Minneapolis is a major international airline hub thanks to Delta. Unemployment was 3.1% before Covid and just 2.4% currently. The area’s labor force participation rate is 72%, compared to 63% nationally. It did lose manufacturing jobs during the 2000s like the rest of the country, but even during the 2008-09 recession, it added nearly 8,000 new health care and education jobs annually, similar to the gains before the recession. This gave rise to the term “Minneapolis Miracle,” still relevant given conditions in 2021. So is there anything negative to say about the Minneapolis economy? Well, labor shortages are pretty severe, holding back further expansion. The region’s extremely cold winters don’t help when attracting newcomers, and many people given the choice to work from home would rather do so in places without the need to shovel snow. Sure enough, the population shrank slightly in the 12 months to July 2021. Perhaps most worrying are the challenges the Twins Cities have faced in fostering economic opportunities for historically disadvantaged groups. It’s of course a challenge not unique to Minneapolis, but one that burst into national attention there with George Floyd’s fatal encounter with Minneapolis police officers. Also key to the future health of the economy is the area’s immigrant population, which accounted for 16% of the Minneapolis-St. Paul labor force in 2019, according to the New American Economy. Large immigrant groups include Somalis, Ethiopians. Mexicans and the Hmong community from southeast Asia. To be clear, Minneapolis never gained the immense economic scale of Chicago or even Detroit. But nor did it experience as difficult a transition from the industrial economy to the knowledge economy. Likewise, Minneapolis never became quite a global superstar city like Chicago in the 2020s, owing to the domestic orientation of its top industries like food and health care, along with its relatively sleepy downtown. Nothing wrong with that though, as the Minneapolis Miracle makes clear. (Sources: PNC Bank, Minneapolis Fed, Census, HUD, Minnwest Bank, New American Economy, Minnesota Department of Employment and Economic Development, MPLS Regional Chamber).

Abroad

• Here’s a quick one: What was the fastest-growing economy in the world last year? Guyana, according to The Economist. Why? The South American nation recently discovered oil.

Looking Back

• The First Bank of the United States: Thanks to the efforts of Alexander Hamilton, the U.S. was early to adopt a central bank—sort of. A better term would be national bank, with the right to operate branches across state lines, and the responsibility of managing the Federal government’s tax collection (much of it from import tariffs) and debt payments. The First Bank of the U.S., based in Philadelphia, was controlled by private investors, even though the Federal government was the single largest shareholder with a 20% stake. The bank didn’t conduct monetary policy. It wasn’t a lender of last resort. It didn’t regulate other banks. It didn’t have a monopoly on issuing currency (though its notes were the only currency accepted for paying federal taxes and backed entirely by gold reserves). It wasn’t allowed to lend to Washington by buying Treasury bonds (though it could loan money to the U.S. government via direct bank loans). So no, it wasn’t quite a modern central bank but a private bank influential enough to “alter the supply of money and credit in the economy and hence the level of interest rates charged to borrowers.” That last description is from the Federal Reserve History website managed by the St. Louis Fed. Congress ultimately voted against renewing the bank’s charter in 1811. Not having a national bank, however, proved problematic when trying to raise money to fund the War of 1812. So Congress chartered a new similarly-structured bank that would open—again in Philadelphia—five years later. The Second Bank of the U.S., alas, would also fade into oblivion, a victim of President Andrew Jackson’s anti-bank fervor. More on that in next week’s issue.

Looking Ahead

• The Space Economy: In a challenge to SpaceX, Amazon says it’s launching 83 missions to deploy a constellation of more than 3,000 satellites designed to offer high-speed broadband internet for people anywhere on earth. One of the companies providing the rocket lift is Blue Origin, owned by Amazon founder and recently-retired chief Jeff Bezos. Also involved are France’s Arianespace and United Launch Alliance (a joint venture between Boeing and Lockheed Martin). Project Kuiper, as Amazon calls its satellite business, promises to deliver “affordable” broadband, targeting individual households as well as schools, hospitals, businesses, government agencies, disaster relief operations, mobile operators, and other organizations working in places without reliable internet connectivity. The satellite launches will take place over the coming five years. Amazon, by the way, has more than 1,000 employees working on Project Kuiper.

• Delivery Drones: Wing, a subsidiary of Google’s parent Alphabet, began delivering Walgreens packages to homes in the Dallas-Worth worth area—by drone. It’s the first-ever commercial drone delivery service in a major U.S. metro, Wing says. It’s starting out on a small scale in just two neighborhoods but hopes to expand before long. Another partner besides Walgreens is Blue Bell Creameries, which will use Wing to deliver ice cream—the drones can sure enough keep items cold. Texas Health, meanwhile, plans to use Wing to deliver first aid kits. Many safety and logistical hurdles remain before drone delivery becomes widespread. But it has the potential to radically alter the logistics industry, perhaps no less so than autonomous trucking.