St. Cloud Economy Hits Soft Patch

(KNSI) — If the St. Cloud economy were a car dashboard, the “check engine” light has just turned on.

At Thursday’s Quarterly Business Report presentation, St. Cloud State University Economist King Banaian downgraded the economy to a yellow light from green. Since 2011, that has only occurred four times.

Banaian encourages business owners to take note without panicking. “Pause. Be cautious, keep your senses aware of conditions changing here, because a recession might be coming. It’s more likely than it would be normally. But it doesn’t mean it’s my majority case.”

Twice it has marked a transition from a growing economy to a red light, or a recession. The other half of the time, though, when the economy stagnated it represented only a temporary lull, and was a false alarm. Banaian says we can’t know yet how the current situation will resolve.

There are some quirks to this soft patch. Banaian notes many companies are reluctant to fire people. “Businesses have learned, particularly from ’21 and ’22 they learned it’s really hard to get labor. So in ’24 and ’25, and now in ’26, what they’re saying is, I’m going to find a way to keep that person because it’s expensive for me to replace and go find a new worker.”

This is true even at firms where sales are flat or declining. Banaian points out that companies are more likely to let people leave and then not replace them, a gradual attrition, rather than actively slashing payrolls.

Banaian believes the current immigration crackdown represents a new wrinkle that might end up being the deciding factor that determines a recession. “Immigration enforcement over the last couple weeks reduces the amount of economic activity in our community. Some activity, some purchases, going out to dinner, buying clothes, is being lessened because people are choosing not to come out and interact with other people. What does that look like? I’m sure it means it’s having a negative effect. But because we’ve never gone through something like that before, we can’t tell you how much that is.”

Banaian says if he were consulting businesses, he would recommend they adopt a plan that works in at least two of the three possible scenarios going forward. Those are a return to the norm, a green light and expansion, a continued stagnation, or string of yellow light conditions, or a recession, the red light. Flexibility means being able to thrive in two of those, and survive in the last.

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