Ramstad: Minnesota’s big businesses are in crisis with a common problem

This is going to be a cruel summer, as Taylor Swift sings, for Minnesota’s biggest businesses.

Or more likely, as the Bananarama song goes, a cruel, cruel summer.

The state’s two largest public companies — UnitedHealth Group and Target — are in crisis. UnitedHealth recalled its previous top executive to turn things around, while Target’s recovery is in the hands of the leading candidate to succeed its current chief.

Several more of the state’s biggest names are struggling in ways unseen since the pandemic five years ago — and making big moves as a result.

Medtronic is spinning off its diabetes business to concentrate on more profitable business units, including cardiovascular devices. Sleep Number cut one out of five management jobs and scaled back on marketing and R&D. Patterson Cos. went private in an acquisition.

And on May 29, another major Minnesota company that’s been under sales pressure, Best Buy, will report its latest results.

It’s a fool’s game to draw too many linkages and conclusions from the experiences of companies that simply have geography in common.

Minnesota is distinctive from Silicon Valley, Michigan or other regional business centers because of the diversity of industries that are here. Finance, health care, medical technology, retail, logistics, manufacturing, energy and food — we’ve got big players in them all.

And yet, something is clearly happening in 2025 that’s different. When the Minnesota Star Tribune recently published our annual list of the 50 largest publicly traded companies based in the state, we showed that the market value for 31 of them had dropped since last year’s ranking.

That’s the most since June 2020, when the Star Tribune ranked companies at the height of the pandemic downturn and showed 32 with declines in year-to-year market value.

The U.S. tumbled into a brief recession in 2020 and is at risk for another. Minnesota’s diverse economy for decades insulated the state from national downturns. When recessions happened, the state’s economy tended to experience shallower, briefer declines.

Things may be different now with the state’s biggest employers distressed and the state government’s fiscal situation stretched. As of this writing, legislators hadn’t set a budget for the new two-year fiscal cycle that begins in five weeks.

UnitedHealth, Target and the state of Minnesota face completely different sets of problems that emerged at different speeds. However, the problem they all share — and that you and I do, too — is the cost of money.

Interest rates remain elevated relative to the ultralow levels that Americans in business and their personal lives became accustomed to in the 2010s.

And they are that way in large part because of the uncertainty President Donald Trump has created by trying to eliminate the country’s trade deficit through the use of tariffs. By raising the cost of imported goods, Trump’s policies threaten to trigger more inflation, which the Federal Reserve fights by raising interest rates.

Trump wants the Federal Reserve to lower interest rates. But the central bankers won’t do it if they believe inflation is on the verge of breaking out again.

Even if the Fed bowed to Trump’s desires, the bond market is another force driving up the cost of money that no president can control. Bond investors fear Trump and Republicans in Congress are going to massively expand the nation’s debt, which means higher rates will be needed to attract buyers to the bonds the U.S. will need to issue.

“It keeps coming back to all these policies that are increasing interest rates or adding an ‘uncertainty premium,’” said Louis Johnston, economics professor at the College of St. Benedict and St. John’s University in central Minnesota. “We just don’t know what’s going to happen.”

The worst-case scenario would be a rapid unwinding of the capital flows into U.S. stocks and bonds from overseas investors, a phenomenon that is helped when the U.S. sends dollars overseas by purchasing foreign goods.

Johnston laid out some of the possible effects on Minnesota from that “sudden stop” scenario in an essay for MinnPost last month. When we talked last week, he drew a direct line between borrowing costs and the travails of the state’s two big companies.

“UnitedHealth, with direct insurance and other kinds of products, has to arbitrage between what they can charge their customers and the rate at which they can borrow money out of the financial markets,” Johnston said. “And the same with Target. If they‘re going to have inventory sitting around, they’re going to have to pay interest on that either directly or indirectly.”

With its results last week, Target said its inventory was 11% higher at the start of May than it was at the same time a year ago. It would resort to price-cutting to move merchandise out the door. Executives said they don’t expect to see a gain in comparable sales in 2025 and they lowered their profit outlook.

Meanwhile, a week after the departure of its CEO, more scrutiny emerged on UnitedHealth after allegations of secret bonuses paid to nursing homes that kept prospective patients out of hospitals and saved claims on its insurance business. Investors already believed UnitedHealth had lost its ability to control costs. Its executives earlier this month halted financial guidance for the rest of the year.

Shares in both UnitedHealth and Target are at the lowest level since the pandemic. A half decade of valuation gains have been wiped away, and this cruel summer is just beginning.

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