Minnesota's smallest metro is booming

The runt of the litter often has a chip on its shoulder.

Take Mankato, Minn., which is not exactly a small city, especially in the context of the rural expanse it sits atop of. But as a city of 43,000 people, and a region of about 100,000, it’s the smallest metro in Minnesota, and by a fair margin. But for the better part of two decades, it’s been punching above its weight in terms of growth.

“Mankato is booming,” said a local business contact.

Minneapolis Fed President Neel Kashkari visited the region in February to learn more about the city and regional economy. Local leaders described a growing economy with a natural connection to the farm sector that surrounds it, but also one that is diversifying and experiencing growth despite a tough ag economy for the better part of five years.

Early riser

Coming out of the recession, Mankato saw consistently strong growth compared with metros in Minnesota and across the Ninth District.

Part of that was due to being a regional center—the go-to place for shopping, entertainment, and business services—for a wide swath of rural counties. But it was also due to the strong connection the region has to agriculture, which was riding a wave of high commodity prices and a booming farm economy in the early part of the last decade.

The farm economy has since struggled with the onset and persistence of low commodity prices. Kashkari came to Mankato in part to hear about farm concerns and answer questions from an audience of several hundred at the annual Ag Symposium hosted by South Central College. Using an interactive survey, Kashkari polled the audience on a number of economic matters (Charts 1 and 2). Nearly two-thirds called the farm economy weak, with only 5 percent of attendees seeing growth over the previous year.

Farmers tend to be a hopeful group, and their outlook was better, but still not good, with 27 percent expressing optimism for the regional economy in 2020.

But that dour farm mood did not spill into sentiment for the overall economy, as almost three of four respondents at the Ag Symposium expressed optimism for the region’s economy in general this year. That’s likely because, farm economy aside, the underpinnings of the Mankato economy appear to be quite strong. Most industry sectors, for example, have seen steady and positive growth over the past few years, with construction and professional services seeing the strongest growth.

Commercial construction in Mankato has been active. Local residents widely agreed that various parts of the city—and especially downtown—are almost unrecognizable from only a decade ago, with new office and retail buildings, and a $30 million expansion to the city’s convention center anchoring downtown.

Although 2019 saw slower housing growth, residential development over the past decade has been robust. Multifamily construction has been particularly strong during the economic recovery. In a meeting with Kashkari and Mankato-area businesses, a developer noted that affordable housing development lagged for years, but now the city was averaging 100 units of affordable housing a year. “But we’re still short of the need,” given strong housing demand in the region, he added.

Strong housing demand, in turn, has been driven by steady population and employment growth in the region. Among the state’s metros, Mankato has either led or been among the leaders in overall growth since 2009 (Chart 3). Job growth has been robust in part because the region has managed to expand its labor force faster than most places in the state—and Ninth District, in fact—over the past decade.

From 2010 to 2018, Blue Earth County is one of the few counties in the state that saw growth from natural increase (births minus deaths) along with net domestic and international migration, according to Census figures.

But the region will likely need more migratory growth going forward if it hopes to continue its trajectory. That’s because natural increases in population have been trending lower statewide and nationwide. And while the region has seen diversity increase, it has comparatively low shares of minority and foreign-born populations . The fact that it is growing in light of this fact is itself a bit of an anomaly.

And despite comparatively strong labor force growth, it’s still not enough for local employers, who roundly complained to Kashkari about a lack of workers for available jobs. Mankato has lost a number of big-box stores over the past year or two—similar to regions across the country—yet local retailers “still struggle to find workers,” said one property manager.

Some employers are taking new approaches to labor tightness. A Mankato manufacturing firm said it has become more open to hiring candidates it would not have considered in the past, taking on workers with skill decifits or other obstacles and investing in their development. The approach has about a 50-50 success rate in terms of developing and retaining productive workers. “It’s expensive but very effective,” said the firm’s president. The company has almost 100 full-time equivalent workers, and “we do more work now than when the firm had 125 workers.”

Embracing, not leaving the farm

As Mankato grows, it still sees its future tied, at least in part, to agriculture.

That’s because the metro has become an economic nexus for the agricultural sector that dominates southern Minnesota and northern Iowa, a region that has some of the most productive farmland in the country. Agriculture is the largest business industry segment within this region, with sales of more than $15 billion annually. The region is a major producer of corn, soybeans, and hogs, among other farm commodities. Minnesota ranks fourth in the United States in ethanol production, and most of this production is located in the region, with 11 ethanol plants and a total capacity of close to 1 billion gallons a year—roughly 8 percent of total U.S. ethanol production.

That volume and sophistication of production has been a magnet for agribusiness, creating a natural industry cluster of hundreds of agricultural businesses, including food processors and manufacturers, input suppliers, farm equipment and repair shops, finance and government entities, and research, education, and member organizations. As one source put it, a majority of businesses in the region are either part of ag’s value stream or indirectly impacted by it.

The development of this industry cluster has sprouted GreenSeam, a regional initiative seeded several years ago to expand and connect these agricultural assets and to position the region as a national and international leader in agricultural talent, innovation, education, and business development. It seeks to capitalize on the ag ecosystem already present to nurture the next generation of products, processes, and innovation that will spin out new companies and create new markets for existing ones.

This expansive view of agriculture helps the region embrace its agricultural roots and clear new pathways for economic growth beyond the boom-and-bust cycles of on-farm income, adding value throughout the supply chain. “The way we define ag is that it begins with farmers, then continues through manufacturing, transportation, professional services, and research,” said Sam Ziegler, GreenSeam’s director. “This makes for a very resilient industry.”

That sort of resilience and competiveness are just what you might expect from the fast-growing runt of the litter.