While it's not recession-proof, Minneapolis/St. Paul's economy never hits unsustainable highs or dramatic lows as other regions of the United States do. Food processing and medical high-tech business tend to insulate the Minneapolis/St. Paul market from the ups and downs in the U.S. economy.

“Other markets seem to have steeper ups and downs than Minnesota,” says Kevin Powell, president of Werner Electric Supply of Minnesota, Minneapolis. “If you consider the diversity of business in Minneapolis, Minnesota's biggest market, you gain an understanding of why.”

Adds Greg Hames, president, Viking Electric Supply/Sonepar USA, Minneapolis, “We have a very stable overall economy that rarely sees large gains or decreases in the level of business activity.”

The Twin Cities of Minneapolis/St. Paul make up the 14th largest market in the United States, according to Hames. Built on the banks of the Mississippi, Minnesota and St. Croix rivers, the metropolitan area is nicknamed “Twin Cities” for its two largest cities, Minneapolis and St. Paul, the state capital.

Food processing companies are major employers in the area and Gary Brusacoram of Andrews-Johnson-Brusacoram, a manufacturers' rep in Minneapolis, says Minnesota has 10 companies among the top 100 food processors in the United States. “This is a very substantial part of our Upper Midwest economy, about 22 percent of our manufacturing shipments,” he says. “This list would include General Mills, Land O'Lakes, Cargill, Hormell (Jennie O & Spam), Michael Food, American Crystal Sugar, Malt-O-Meal, Schwan's and another 10 to 15 companies that have expanded their operations in the past few years.”

Hames of Viking/Sonepar USA says food processing also drives a robust OEM packaging industry in the area and that med-tech businesses such as Medtronic, St. Jude Medical and Boston Scientific are expanding their Twin Cities-based operations and office facilities. Other companies expanding operations include UnitedHealth Group, which is building a new hospital and new administration building; Cargill, which has a new office campus in Excelsior Crossings, Minn.; Dakota County's huge new administration campus; IBM's expansion in Rochester, Minn.; Mayo Clinic's Gonda building expansion; Medtronic's new campus completion; and the Region Hospital expansion.

Data center expansion has also been big. “Data center expansions for Target Corp., Thomson West Publishing and United Health Care combine with a robust hospital construction business at locations like Regions Hospital, St. Joseph's Hospital and Park-Nicollet Hospital to create a positive outlook for the large construction segment in the near future,” says Hames.

3M is a big employer in the Minneapolis area, but most of 3M's expansion has been outside of Minnesota. “3M has only built one new plant in the last 25 years and it was built in the Carolinas,” says Ken Rowland, Border States' Northeast region manager in Coon Rapids, Minn. “They continue to invest in capital equipment and building expansion to support the production of new product.”

Ethanol is also driving the Minnesota economy. Ethanol is big in the Midwest because of the amount of available raw material, specifically corn, says Rowland. Fagan Inc., Granite Falls, Minn., a design-builder, has built approximately 50 percent of all the ethanol plants in the United States. The company is very busy and has projects extending beyond 2010, he says.

But at least one industry observer questions ethanol's future. Werner Electric's Powell says it's difficult to tell if ethanol is a sustainable market. “Those with a disagreement with government subsidies will cite statistics on energy and water requirements to produce the end product,” he says. “Those with a stake in ethanol growth say most of the information in the media is old and outdated science or not factual, and that ethanol is a viable energy alternative with current technology.”

While the medical and food processing segments of the Minneapolis economy are enjoying steady growth, the area's housing market has not escaped the impact of the national housing crisis. Minneapolis has seen year-to-date total building permits drop by 34 percent through September.

“The housing market is very depressed, and from what we are hearing and seeing around here, nobody is looking for a recovery before the fourth quarter of 2009,” says Border States' Rowland. “They have basically stopped building new homes, which is increasing the inventory of existing homes for sale in the marketplace.” New home construction is down 50 percent from the height of construction three years ago, he says.

Electrical distributors and manufacturers' reps agree that the Twin Cities' fastest-growing areas are in the southern and western regions of the metropolitan area, including suburbs such Shakopee, Savage, Eden Prairie, Chaska and Victoria. Retail and school construction has followed the development of housing in these areas, says Hames of Viking Electric Supply/Sonepar. Denis Lawless of manufacturers' rep firm LESCO Inc. says the northwestern suburbs had been growing, but are now in a holding pattern. “There is just too much housing on the market at this time,” he says.

Outside of the housing market, some exciting new construction projects are underway. Minneapolis recently broke ground on the new Twins baseball stadium, which is scheduled to open in 2010. The other big stadium project in Minneapolis right now is the construction of the University of Minnesota's Gophers stadium. It's scheduled to be completed in January 2008. “I am excited to see the construction get underway because commercial work will inevitably follow,” says Powell of Werner Electric.

Border States' Rowland says his company in now negotiating for business for the Twins stadium, including the contracts for lighting and switchgear. Gephart Electric, St. Paul, a large electrical contractor in the area, was awarded the contract for the stadium.

Rowland says a big light-rail system — the North Star Transit — is being built in the same area as the Twins stadium. The light-rail system will extend about 50 miles outside of Minneapolis to Big Lakes, Minn. Although the light-rail system itself may not present a lot of business for electrical distributors, opportunities could develop as terminals are constructed along the way and ancillary construction, including shopping, begins to grow, says Rowland. In one area of Coon Rapids, 250 to 300 units of housing are planned along the light rail. “We will certainly be bidding on that as well,” says Rowland.

Another major construction project in Minneapolis is the rebuilding of the Interstate 35W bridge, which is just starting and will run through 2008. On Aug. 1, the bridge, the main transportation artery in the heart of Minneapolis, fell into the Mississippi River killing 13 people and injuring more than 100 others.

“The I-35W bridge collapse had a negative impact on the Twin Cities market for a long time, but it seems the traffic flows have now adjusted to the disruption of a major artery into downtown Minneapolis,” says Hames of Viking Electric Supply. “The contract has been awarded for the construction of the new bridge and that completion will help the Minneapolis business market keep growing.”

Additionally, a number of projects in the Twin Cities are on hold awaiting approval of a Tax Increment Financing bill that Minnesota Governor Tim Pawlenty vetoed, says Lawless of LESCO. “When the legislature meets in January, we expect them to address this Tax Incremental Financing and if it's approved, some large projects will quickly go back on track.”

These projects include the Mall of America expansion. While still in the planning stages, the Phase II mixed-used complex is zoned for up to 5.6 million square feet of new development and would be built on 42 acres of adjacent property to the north of Mall of America on the old site of the Met Center.

Other projects in the area on the drawing board or already started are the Children's Hospitals expansion, Fairview Children's Hospital and the Washington County Government Center. Children's Hospitals and Clinics of Minnesota earlier this year unveiled a $300 million plan to refurbish hospitals in Minneapolis and St. Paul with all-private patient rooms, wider operating suites and more efficient emergency departments. Fairview is building a $175 million hospital in Minneapolis.

The electrical distribution landscape

“These are all projects for the larger contractors,” says Lawless, “And these contractors are expected to have plenty of work. The problem is with the small- and medium-sized contractors. There are just not enough projects in the $1 million-to-$5 million category to provide work for them. This mix of business makes it difficult to predict the economic picture, as those that write the business for the large projects will look good and those that do not may look very bad. It's the small and medium projects that drive the total economy in a positive manner, as there is enough product sales for all.”

Electrical distributors and manufacturers' reps don't see many new players in the Minneapolis/St. Paul electrical distribution market. “The market hasn't really changed a lot,” says Brusacoram. “The regional and national players remain. Maybe a new name appears on a building here and there, some new locations, a few major line changes, but the available dollars are the same.”

“The biggest change in the local distribution market has been the purchase of Minnesota Electric Supply by Border States Electric in 2007,” says Viking Electric Supply's Hames. “This market still has a number of strong independent regional distributors that have significant market share in Minneapolis.”

Business forecast

Border State's acquisition of Minnesota Electric gave the company another Twin Cities location. Border States now has seven branches in Minnesota. On the electrical contractor front, Hames says Hunt Electric and Parsons Electric have gained dominant market positions. Other Minneapolis-St. Paul electrical contractors have sales volumes well below that of these two market leaders, he says.

Minneapolis has never been subject to the dramatic economic swings common in some fast-track metropolitan areas, but LESCO's Lawless says that may be changing. “We were never up as much or down as much due to our food and medical-based economy, but the Twin Cities have grown and diversified to the point that we do ebb and flow with the national economy,” he says. “In fact, we actually have slightly more unemployment than the national average.”

LESCO is expecting a 2 percent to 3 percent increase in 2008, which includes inflation, says Lawless. “We expect the market to be flat or down slightly and the increase to be the result of pricing increases,” he says. “The only bright spots are the ethanol plants that are starting up or already planned and wind generation, which is also growing.”

While confident about his own company's prospects, Powell of Werner Electric says he is less confident in the electrical market for 2007-2008. “A combination of housing decline, ethanol potentially being at a peak, and an exceptional election year, all combine to create customers who can't or won't make a decision to invest,” he says. “Many customers, I suspect, will take a wait-and-see approach, spending what they need to and saving what they can.”

Herm Isenstein, president, DISC Corp., Orange, Conn., forecasts that electrical distributors in the Minneapolis/St. Paul metropolitan area sold approximately $1 billion in electrical products in 2007. No growth in total sales is expected in 2008. He expects the contractor market to be down more than 3 percent in 2008, but that this decrease will be partially offset by the industrial market, which is expected to be up 2.5 percent for 2008.

Renewable energy is the bright star on the horizon, according to Border States' Rowland. “There is one major market segment that shows significant opportunity for the future and that is in renewable energy, which would be some type of biofuel or wind generation,” he says. “That will also spur some additional growth in electric transmission. They must build new transmission lines to get the electricity to the grid, and there are a significant amount of wind generation projects in the Upper Midwest.”

Minneapolis by the Numbers

2007 sales through electrical distributors. $1 billion in electrical products this year. No growth in total sales is expected in 2008, according to forecast data provided by DISC Corp., Orange, Conn., www.disccorp.com.

Building permits. Total building permits year-to-date through September for Minneapolis-St. Paul-Bloomington, Minn., were down 38 percent. Building permits year-to-date through September for single-family homes are down 36 percent.

Major construction projects underway: Minneapolis recently broke ground on a new baseball stadium for the Twins. The stadium is scheduled to open in 2010. The construction of the University of Minnesota's Gopher stadium will be completed in January 2008.