As inflation and rising interest rates kicked in early in the year, the Mankato region’s economy continued to hum.
“The underlying economy remains strong,” said David Krause, CEO of Pioneer Bank.
“The government did a lot of things to make sure we made it through the pandemic. There was a lot of liquidity put into the economy. Deposits into the banking industry increased substantially, and there’s still a good amount of cash out there and some of that is from actions taken during the pandemic.”
He said the banking industry has seen historically low consumer, ag and mortgage delinquencies.
“People are making payments and spending money. The economy is working,” Krause said.
Sam Ziegler, director of GreenSeam, said the dominance of agriculture and a variety of agribusinesses kept the region strong this year and will in 2023, even though inflation and rising interest rates are a concern for everyone.
“If you look at basic economic sectors, ag has ripple effects much more than the other sectors. Food and ag is in high demand. We’re not recession-proof by any means, but our region will do very well next year because of that food and ag economy.”
Krause agrees that ag drives the local economy. “Our farmers are awfully strong financially and as much as they contribute in our region, that’s good for everything. I’m very optimistic.”
Ziegler said one of the biggest concerns going ahead is whether the worsening drought is relieved next spring.
“We struggled with moisture this year, but we got timely rain. Talking to farmers, they are very happy with their yields and crop prices are very high, thanks in part to some unfortunate world events.
“But looking at the Drought Monitor map, it’s startling on how the severe drought has spread. It’s worrisome.”
Krause said it’s been an interesting few years for the banking industry.
“The rapid drop in interest rates in reaction to the pandemic in 2020 created some challenges, and now the rapid increase in interest rates by the Fed to battle inflation has caused issues. But banks have robust risk-management programs so that can be dealt with.”
He said the Federal Reserve has indicated inflation “is public enemy No. 1” and is battling it aggressively, even at the risk of a recession.
“We’re planning for the possibility of recession and will be ready. The great thing is the Mankato area has weathered recessions fairly well. I’ve been a banker for 38 years, and it certainly seems the businesses and industries in our region are better prepared than ever for a recession. Particularly agriculture and agribusiness,” Krause said.
Still, he knows increased interest rates and inflation are going to have an impact on farmers and businesses across the region.
“So it’s a good time to be diligent on how you move forward and what you spend money on. We’re going to be diligent in what we do as well.”
Housing strong, uncertain
An Oct. 30 Free Press story noted Mankato remains in a housing boom.
In the past 10 months, more than 20 housing projects have come before the city, ranging from massive apartment complexes to smaller projects adding apartments above bars and restaurants.
Add them all up and it totals 1,383 apartments, townhouses and residential lots for detached single-family homes.
Krause said some of those planned projects won’t end up being built.
“That always happens normally. But obviously, higher interest rates will probably change some minds on some projects. Interest rates have more than doubled.
“But housing has done great in this region. Mankato is a great place to live and there seems to still be housing needs.”
But Krause said he expects inflation and higher interest rates will inevitably cause some slowdown, at least temporarily.
“But that’s what the Fed wants — to slow growth and spending to cool off inflation.”
When GreenSeam was started through Greater Mankato Growth in 2016, it was intended to become a brand that covered southern Minnesota and attract food and ag businesses from across the nation and world.
“If you want to locate an ag business, they want to be in the GreenSeam. It’s like tech wanting to locate in Silicon Valley,” Ziegler said.
“It’s getting people in the ag businesses saying, ‘We want to be in the best place in the world for agribusiness.’”
He said the different agribusiness sectors are broad, including food processing, ag technology, machinery, automation and more.
Some major ag-related businesses have opened or done expansions in the region.
Nu-Tek BioSciences just opened a $40 million factory in Austin that will use ag products to make animal-free peptone proteins that are used in the pharmaceutical industry.
In Mankato, CHS is in the midst of a $60 million upgrade to its facility near Sibley Park.
The Mankato Archer-Daniels-Midland plant on Third Avenue is also undergoing a major upgrade as it constructs a new natural-gas boiler to replace a coal-fueled boiler.
Ziegler said the two soybean-crushing behemoths have long been a major economic driver.
“In the soybean realm, there is tremendous investment in Mankato. CHS is really updating. They process soy for human consumption and further refine soybean oil for what you see on grocery shelves.”
CHS also makes soy flour, proteins and isolates. The Mankato plant’s upgrade will help it also refine oil that comes from the CHS crushing plant in Fairmont, which recently got a $100 million upgrade to expand their processing capacity.
“There’s just been a lot of investment in food and ag in our region,” Ziegler said.
“The growth of agribusiness looks very strong moving forward.”
Many retailers across the state and nation were battered by the COVID pandemic and now consumer stress from inflation has been added.
According to a new KARE 11/Star Tribune/MPR News Minnesota poll in September, 33% of respondents said inflation is causing them major financial stress, 51% said it’s causing some minor stress, while 16% said they’re feeling no stress.
According to the poll, respondents living in southern Minnesota reported experiencing the highest levels of major stress of any region at 40%. Another 44% in southern Minnesota have minor financial stress because of inflation and consumer prices.
River Hills Mall Manager Robin Hanson said that while retail has been a tough world, they are finding things that have been working to draw in more customers.
“And things are starting to bounce back from COVID. Hopefully it will get back to full normal.”
The mall brought back Halloween festivities and trick-or-treating this year, serving 3,000 trick-or-treaters.
She said the mall has signed up several tenants who will fill spots during the Christmas season.
And some new eating options are arriving.
La Michoacana Mexican Ice Cream is opening in the former Dairy Queen spot. River City Eatery BBQ is coming to the food court as is Enchiladas El Gordo.
“So we’ll have eight of our 10 food spots filled,” Hanson said.