Comprehensive Annual Financial Report - Minnesota State ...

Economic Conditions
and Outlook
Although the Great Recession officially ended in
2009, its effects continued to be felt across the world
in fiscal year 2012 (FY12). Despite record low longterm
interest rates, benign inflation, and an influx of
money into the economy, the pace of recovery from
the Great Recession has only been about one half of
the average rate of growth in prior post-World War II
recoveries.
World economies were contributing factors to a sluggish
economy in the U.S. Unsustainable debt, especially
in the Eurozone, brought about an economic
crisis. Europe entered a second recession, interest
rates soared, and countries like Greece, Spain and
Portugal required huge bailout packages. Arab political
uprisings caused an increase in oil prices, and
China’s economy remained in the doldrums.
In the United States, median household income fell
1.5 percent in calendar year 2011 to $50,054, eight
percent lower than 2007 (before the recession took
hold). Although the unemployment rate fell from
9.2 percent at the end of FY11 to 8.2 percent at the
end of FY12, the labor participation rate fell to 64.3
percent, the lowest rate in thirty years. The median
length of unemployment fell slightly to 18.5 weeks.
Consumer spending, which makes up more than
seventy percent of GDP, has grown at a 1.9 percent
annual rate since the recession, not enough to sustain
a recovery from the longest and deepest recession in
the post-war period. While about 150,000 jobs were
added each month in FY12, sixty percent of those jobs
were low-skill, low-wage jobs.
Funding Ratios
(Percent Funded)
General Employees Retirement Fund 73.5%
Public Employees Police and Fire Fund 78.3%
Public Employees Correctional Fund 89.3%
Minneapolis Employees Retirement Fund 69.1%
The chart above reflects funding ratios for four defined benefit funds
administered by PERA.
Introductory Section
Persistent unemployment, elevated world-wide debt
levels, high energy and food prices, and low consumer
confidence took a toll on the markets. The Russell 3000
index rose just 3.8 percent in FY12, and the Morgan
Stanley Capital International World Ex-U.S. index fell
14.1 percent.
Minnesota’s economy was not immune from the financial
crisis, but it has fared better than the nation as a whole
since the start of the Great Recession. Manufacturing
output fell 1 percent from 2007 through 2011 across the
U.S., but rose 13 percent in Minnesota during that same
period. Minnesota’s unemployment rate fell from 6.7
percent in June 2011 to 5.6 percent in June 2012, well
below the national average. 35,000 jobs were added
during FY12. Over 82,000 jobs have been added in
Minnesota since the end of the recession in September
2009. The labor force participation rate in Minnesota
was 71.7 percent, third best in the U.S. Minnesota’s
median household income rose to $57,820 in 2011,
ninth best in the U.S. The housing market began to
recover, largely due to historically low interest rates.
Housing closings increased 14.6 percent over the previous
year, and the median sale price of a home rose from
$157,500 in the summer of 2011 to $179,950 in the summer
of 2012.
Uncertainty about the “fiscal cliff ” coupled with large
budget deficits will likely continue to be a drag on the
economy during fiscal year 2013, however. Slow but
steady growth seems to be the new normal.
Current Funding Ratios
The primary funding objectives of the Association are:
1) to establish contribution rates which, when
expressed as a percentage of active members’ payroll,
will remain level from generation to generation;
and
2) to meet the required deadlines for full funding.
Public Employees
Retirement Association
of Minnesota