Top business stories of 2014 in Minnesota

The after-effects of two massive information technology disasters late in 2013 continued to dominate the Minnesota business landscape in 2014.

Target data breach fallout

Target's holiday season data breach compromised the security of 40 million payment cards, plus the email addresses and other personal information for 70 million Target customers. Store traffic, as measured by sales transactions plunged.

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Target U.S. same store sales and traffic
Target U.S. same store sales and traffic
MPR News graphic / Bill Catlin

Steinhafel might have survived the breach alone, but there was another concurrent debacle: Target's problem-plagued and money-hemorrhaging foray into Canada. About two weeks before the company reported that operating losses in Canada had topped $1 billion and a second consecutive big decline in net income, Steinhafel was gone.

Target's board hired the first outsider, Brian Cornell, to replace Steinhafel at the helm.

MNsure woes

In St. Paul, MNsure, the state's already deeply troubled health insurance exchange, began 2014 with a newly installed interim CEO in place. The agency's $100 million website was clearly an operational disaster when it first opened in October 2013, but this year the full extent of the problems began to emerge.

Gov. Mark Dayton wrote a letter highly critical of IBM Curam, one of MNsure's software vendors, that surfaced in January, a few weeks after it was sent. But within the month, a few weeks later, an independent consulting firm issued a damning review of MNsure's internal workings. MNsure's management structure was "non-existent," according to the Optum report, which said the agency's leaders had been making decisions in crisis mode.

MPR reporters Elizabeth Stawicki and Catharine Richert began an in-depth investigation of MNsure's troubles and found that poor communication and lack of oversight compounded the problems of a software development project that may have been too difficult to complete on time in any case.

The website's performance improved over the year, but the task of getting the software up to snuff remained enormous. The state hired Deloitte Consulting to mend the website and in June Deloitte issued a grim assessment, finding that MNsure could not reliably perform nearly two-thirds, or 47 of 73, necessary functions, because they did not work properly or were non-existent.

But if MNsure was a massive technical failure, it was a success from a policy standpoint in this sense: the number of people lacking health insurance dropped by 180,000 or 41 percent as of May.

Minnesota's economic recovery

In the ongoing story of Minnesota's economic recovery, the state's jobless rate continued to drop in 2014, reaching 3.9 percent in October. That ranked Minnesota fifth-lowest among the states and matched the low point of the previous 2002-07 economic expansion. In October the state also reported there were 1.6 unemployed people for every job opening. That's the lowest reading since 2001.

Unemployment rate since Great Recession
Unemployment rate since Great Recession
MPR News graphic / Bill Catlin

In the latest budget and economic forecast for Minnesota state economists said "Minnesota's expansion continues to make steady progress." But they also warned that the state's economic outlook has weakened due to lack of pressure pushing up wages and slow household formation that will hold back the housing sector.

Wage growth will be a key economic story to watch in 2015. Pay hikes have been chronically weak since the end of the Great Recession. In fact, wages, when adjusted for inflation, have been stagnant for a dozen years.

Fatter paychecks would represent both an important cause and effect. Because personal consumption is the dominant factor driving economic growth, rising wages would give consumers more spending power to fuel stronger economic growth and job creation. Rising wages would also be an effect of stronger hiring that reduces the surplus of available workers.

Housing is another sector to watch in the coming year, and there are two competing story lines in Minnesota. State budget economists characterized Minnesota's housing recovery as "stalled," citing unexpectedly slow rates of new household formation, in part.

"The causes appear to be attributable to a less mobile and more stable aging population, slower immigration, and more young adults sharing homes due to a sluggish job market and heavy student loan debts," their report said.

The Minneapolis Area Association of Realtors (MAAR) counters that home sales have been waning — in the 13-county metro area, at least — because of something to celebrate: there are far fewer foreclosures and short sales in the mix. In November, traditional homes represented 87 percent of closed sales. That's about the same portion as in 2007, before the Great Recession, and more than double the approximately 40 percent levels seen at the starts of both early 2009 and 2011.

Historical closed sales market share
Historical closed sales market share
Minneapolis Area Association of Realtors

And the raw numbers of traditional sales are at least as high as 2007. MAAR president Emily Green said agents are "getting calls from buyers who are thinking of spring and sellers who are thinking of spring. ... We're going to have quite a market to look forward to in the coming year."

Historical closed sales
Historical closed sales
Minneapolis Area Association of Realtors

But home prices have also staged a recovery. The median sales price of a traditional home is now over $217,000, far north of the recent low around $175,000 early in 2012. Demand for rental housing has pushed up rents. So if tight finances are holding back new household formation, rising wages could also help fuel the housing market, which plays an important role in overall consumption.

What's next for MNsure, Target?

The other things we're watching related to 2014's biggest stories are the efforts to turn around Target and MNsure.

So far, MNsure's operations for the 2015 enrollment period appear to be far smoother. But the emerging question is whether enough people will enroll in commercial insurance through the exchange to make MNsure financially self-sustaining. MNsure's budget depends in part on collecting a small percentage of premiums for health plans sold on the site, and the agency has already slashed 2015 enrollment projections by one third.

Target's latest earnings report suggests that consumers have moved beyond the shock of the data breach. The company said same-store sales and net income rose in the most recent quarter, but the operations in Canada are still losing money. Despite a 1.6 percent increase in same store sales, the bottom line was $211 million in the red, as in the color of the Maple Leaf on the Canadian flag and the Target bullseye.

Target Canada financial results
Target Canada financial results
MPR News graphic / Bill Catlin