College enrollments falling in Ninth District, nationwide

Something is happening on college campuses across the country—or rather, not happening.

Despite all the messages encouraging college attendance—not to mention job and other data that demonstrate its utility—higher education enrollments have been dropping steadily in recent years, according to data from the National Student Clearinghouse Research Center.

Every state in the Ninth District has witnessed an enrollment drop at degree-granting higher education institutions for at least two consecutive years. The drop from fall 2012 to fall 2014 was highest in Montana, at almost 6 percent, while North Dakota and Minnesota were also above the national average (see chart). In fact, save for South Dakota, enrollments have declined in every other district state for at least three years running.

Some of the reason behind the drop is a cyclical economy. Joblessness, for example, tends to push people into school to obtain better skills for the job market, and enrollments swelled during the Great Recession. A stronger job market is likely pulling many students away from their books.

Demographics are also playing a key role. When national higher education enrollment peaked in 2011, people in their so-called prime college years (18 to 21 years old) were also at their peak and have since declined, leading to lower enrollments.

College enrollments -- 2-26-15

Minnesota consumers benefiting from a drop in gasoline prices

 As oil prices have plummeted, so have gasoline prices, since the price of crude oil represents more than half the cost of a gallon of gasoline (see Chart 1).

In Janaury, the price for regular Minnesota gasoline dropped below $2 per gallon, more than $1 per gallon lower than a year earlier. Through the first week of February, Minnesota gasoline prices have picked up by about 20 cents per gallon, but are still about $1 per gallon lower than last year. Gas prices haven’t been consistently below $2 per gallon (other than a six-month period during the Great Recession) since 2004 and earlier.

MN gas prices CH1

As gasoline prices drop, consumers have more disposable income to spend on goods and services other than gas. According the Bureau of Labor Statistics Consumer Expenditure Survey data, a $1 per gallon decrease in gasoline prices over a year’s time could provide consumers with an additional $400 to $1,200, depending on how much they typically spend on gasoline (see Chart 2). Consumers with lower income tend to spend less on gasoline than those with higher income.

As a share of total expenditure, consumers in the highest income quintile spend a smaller share on gasoline and motor oil than those in lower quintiles (see Chart 3).

Retail sales data are not yet showing an impact from low gasoline prices. According to U.S. retail sales data, while gasoline prices and sales at gasoline stations dropped notably in December and January, there were only mild increases in U.S. retail sales after removing sales at auto dealers and gasoline stations. Consumers could be spending their extra disposable income on items not recorded in retail sales figures, such as utility, cable or medical bills, or putting it into savings.

MN gas prices CH2-3

Ad hoc survey: Ninth District businesses plan to ramp up hiring, increase starting pay

The Ninth District economy is in growth mode and employment is expected to increase, based on a recent poll of 140 business contacts from around the district (see methodology below).

Businesses are expecting to expand, with 46 percent of respondents planning to increase employment at their firms and 58 percent of these firms citing anticipated high sales growth as the most important factor behind increased employment. Only 3 percent plan to decrease employment. In the same survey a year ago, 41 percent planned to increase employment and 9 percent planned to cut jobs (see chart).

Other important factors cited for new hiring were overworked staff, the need for additional skills and improved financial condition of firms. The vast majority of respondents plan to use current employee referrals, word of mouth and advertising to get new employees. Forty-eight percent plan to use a recruiting firm, which is up from 22 percent of respondents in last year’s poll. Twenty-seven percent of respondents also plan to raise starting pay compared with only 8 percent last year.

Feb ad hoc survey Ch1+meth -- 2-13-15

Methodology: On Dec. 1, 2014, the Minneapolis Fed emailed a web-based survey to about 600 Beige Book contacts from around the Ninth District. By Feb. 12, 140 contacts had filled out the survey. The respondents come from a variety of industries (see table).

The aches and pains of working-age disability

Since the 1980s, working-age disability has been rising, and particularly over the past decade. Many disorders can qualify a person for one of two major federal disability programs: Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI).

However, recipients are increasingly qualifying for these programs because of either mental disorders or conditions related to the musculoskeletal system or connective tissues, which covers a variety of muscle, back and joint disorders like arthritis, back pain, tendonitis and herniated discs.

In Ninth District states, the most common disability diagnosis (at 42 percent) for SSDI recipients is a mental disorder, such as anxiety, post-traumatic stress disorder, depression or bipolar disorder (see Chart 1). While recipient growth in this category exceeded 50 percent from 2003 to 2013, it has leveled off in recent years.

The fastest growing diagnosis involves conditions related to the musculoskeletal system and connective tissue. This category covered about one in four SSDI recipients in 2013; total recipients have doubled over the past decade. Growth in these two major diagnosis categories has also been faster in the Ninth District than in the nation over the past decade (see Chart 2).

For much more on disability trends in the Ninth District, see the January cover of the fedgazette.

Dulguun Batbold, research analyst, contributed data to this article.

Disability diagnosis CH1-2 -- 2-10-15


A look at rising veteran disability

The incidence of working-age, civilian disability, as measured by enrollments in the largest federal disability programs, has been rising for the better part of three decades (see discussion in the January fedgazette). But one other federal disability program has been witnessing even faster growth of late: veteran disability.

Veterans’ disability compensation, as it’s called, is paid to veterans who incur a disability during active military service or are diagnosed with a post-service disability that is presumed to be related to military service. After seeing little growth in the 1990s, the number of veterans qualifying for disability compensation rose by 62 percent from 2000 to 2013, according to the U.S. Department of Veterans Affairs (see Chart 1). During this time, the population of eligible veterans also shrank by 17 percent, according to the Congressional Budget Office.

Though historical data on veteran disability by state are not publicly available, recent data suggest that the same growth trend is occurring in Ninth District states. From 2011 to 2013, every district state saw growth of at least 7 percent in veteran disability; Minnesota’s 12 percent growth topped the national average (see Chart 2).

Veterans disability Ch1-2

Across district states, 187,000 veterans received disability benefits in 2013. That translates to a small but notable portion of the district labor force—ranging from about 2 percent (Wisconsin) to almost 4 percent (Montana), with most district states above the national average (see Chart 3).

Veterans disability Ch3

While veterans receiving disability compensation are spread throughout a given state, they tend to be more concentrated around military bases, such as Camp Ripley in central Minnesota, Ellsworth Air Force Base in Rapid City, S.D., and Malmstrom Air Force Base near Great Falls, Mont. (see map).

Dulguun Batbold, research analyst, contributed data to this article.

Veterans disability -- Map 2-4-15

 

Mixed year for district mid-cap stocks in 2014

Stocks of mid-cap companies in the Ninth District had a lackluster year in 2014, closing the year with a less than 1 percent overall gain, following a 29 percent increase in 2013. Meanwhile, the benchmark S&P MidCap 400 Index increased 8 percent in 2014. Despite the 2014 performance, the longer-run trend in the district index remains broadly consistent with that in the larger S&P MidCap 400 Index (see Chart 1).

9th Dist stock index CH1 -- 1-26-15

Performance was mixed across companies in the index with gains in half almost offset by losses in the other half. The top performer was C. H. Robinson Worldwide, a freight transportation and logistics company based in Eden Prairie, Minn., which saw its market cap increase by $2.1 billion (24 percent) in 2014. Stratasys, a manufacturer of 3D printers also based in Eden Prairie had the largest loss at $2.3 billion (36 percent) of its market value.

In terms of sector composition, Ninth District companies in the services, basic materials and consumer goods sectors posted overall gains in market value (see Chart 2). The services sector had a particularly strong year in 2014, adding $4.9 billion in market cap. Notable performers in this category include the Buffalo Wild Wings restaurant chain (24 percent increase in market value), SuperValu, a food retail company (32 percent), and Patterson Cos., a medical equipment wholesaler (14 percent). Together, these performers added $1.9 billion in market capitalization to the sector total.

9th Dist stock index CH2 -- 1-26-15

In all other sectors, district mid-cap stocks posted overall decreases in market values. After Stratasys, worst performers included MDU Resources Group, a diversified utilities company based in Bismarck, N.D., whose market capitalization decreased by $1.2 billion (21 percent); Donaldson Company, a Minneapolis-based manufacturer of filtration systems, which dropped by $1.1 billion (17 percent); and Raven Industries, a diversified machinery producer based in Sioux Falls, S.D., with a $0.5 billion (36 percent) decline in market value.

The Ninth District Mid-Cap Stock Index applies a methodology similar to the one used by the S&P Midcap 400 Index to track changes in market valuations of mid-sized publicly traded companies headquartered in the district. For more details, see the index methodology.

Beige Book recap: Modest growth in Ninth District

Over the past two months, the Ninth District economy has seen modest growth, according to the latest Beige Book information released by the Federal Reserve Bank of Minneapolis. Increased activity was noted in consumer spending, professional services, manufacturing and non-energy mining. Activity was level in tourism and mixed in commercial construction, commercial real estate and agriculture. Energy, residential real estate and residential construction were down. Labor markets continued to tighten since the previous report. While overall wage increases remained modest, there were examples of steeper increases in some regions and industries.

Consumer spending and tourism: Consumer spending increased moderately. Mall and retail representatives across district states reported solid traffic and sales. Overall tourism was about level with a year ago, according to a variety of sources. Construction and real estate: Construction activity was mixed in the district’s larger cities. In Sioux Falls, S.D., the value of November commercial permits increased from a year ago, but fell in Billings, Mont.

Residential construction: Activity was mostly lower. In the Minneapolis-St. Paul area, the value of December residential permits decreased 9 percent from a year earlier and also dropped in the Bismarck, N.D. area (November data). Residential activity was stronger in Billings and Sioux Falls, however. Home sales were generally lower from a year earlier (in November). In the Sioux Falls area, home sales were down 12 percent, inventory increased 1 percent and the median sales price increased 6 percent relative to a year earlier. Sales were also down in northwestern Wisconsin, and the median sales price was 6 percent lower. Minnesota home sales were down 13 percent, inventories of homes for sale increased 5 percent and the median sales price rose 3 percent. Home sales in the Bismarck area were about level with last year.

Manufacturing: Activity increased slightly. A manufacturing index increased in December from the previous month in Minnesota and South Dakota, but fell slightly in North Dakota. However, the index pointed to continued expansion in all three states. Through October, manufactured exports in district states were up 1 percent compared with the same period a year earlier.

Energy and mining: The energy sector slowed slightly in response to lower output prices. Oil and gas exploration activity decreased in late December compared with a month earlier in Montana and North Dakota. Mining activity increased slightly. District iron ore mines were operating at or near capacity, with November production slightly higher than a year earlier.

Agriculture: Conditions remained mixed, with livestock and dairy producers faring better than crop farmers. A Minneapolis Fed third-quarter survey found that a majority of farm incomes had fallen from a year earlier and that capital spending also decreased. The fourth quarter outlook was also weaker, according to the survey. Prices received by farmers in December decreased from a year earlier for corn, soybeans, wheat, hay and milk; prices increased for cattle, hogs, eggs and poultry.

Employment and wages: Labor markets continued to tighten since the previous report. Overall wage increases remained modest, but there were examples of steeper increases in some regions and industries. Some construction firms in the Minneapolis-St. Paul area noted that labor costs have increased recently. In addition, some managers at Minneapolis-St. Paul area restaurants indicated that they were increasing wages to attract employees.

See the full Beige Book report for more details on the national and Ninth District performance.

Online job ads still high in North Dakota

The economic effect of low oil prices is a hot topic in oil-producing states like North Dakota. While many fear a big slowdown in the Peace Garden State, so far it’s not showing up in online job ads, according to the most recent figures published by Job Service North Dakota.

December online job ads showed a couple of interesting twists. First, while overall ads declined steadily in recent months, they were nonetheless 21 percent higher on a year-over-year basis (see Chart 1). Similar to 2013, a seasonal decline can be seen in the last half of 2014. Job openings in the energy production counties of the Bakken followed a similar trend, with a decline from August to December, yet December’s online job total was 18 percent higher than a year earlier.

ND online jobs CH1 -- 1-15-15

Despite continued strong job demand overall, some shifts in advertised jobs at the state level align with the notion of slower oil activity. For example, job ads in the construction and extraction sector grew less than 1 percent over the previous 12 months (see Chart 2). Meanwhile, health care, food service, management, and architecture and engineering increased more than 30 percent. On the other end, production job postings decreased about 10 percent.

It’s difficult to say how these sector changes played out geographically (county level data were not available for job sectors). Some of this shift is likely driven by growth in health care and other professional jobs in the state’s metro counties, especially Fargo’s Cass County, which saw online job postings increase by 40 percent over the past 12 months. There might also be transitional shifts in Bakken counties as communities there grow.

ND online jobs CH2 -- 1-15-15

Historic preservation: This old tax credit

Historic renovation activity over the past few years in Minnesota and Wisconsin points to the power of income tax incentives to spur rehabilitation of old buildings.

By defraying renovation expenses, historic rehabilitation tax credits are intended to save culturally significant structures that would otherwise deteriorate and eventually fall to the wrecking ball. Property owners can apply for a federal income tax credit worth 20 percent of the cost of restoring income-producing buildings, and in many states, state income tax credits that can be combined with the federal credit.

In 2013, the National Park Service accepted applications for renovation projects in Ninth District states (excluding Michigan) eligible for over $60 million in federal and state historic preservation tax credits, most of it in Minnesota and Wisconsin.

An unknown share of projects that received credits likely would have occurred without credits, or with the federal credit alone. In some cases, credits may serve to increase profits rather than provide the minimum return on investment necessary to make the project worthwhile. But data on historic rehab tax credit projects in Minnesota and Wisconsin indicate that more hammers swing on renovation projects when tax incentives increase.

In 2010, the Minnesota Legislature enacted a 20 percent historic preservation tax credit to match the federal credit, which was enacted in the 1970s. In subsequent years, the number of historic renovation projects applying for a tax credit (federal and/or state) rose sharply (see chart), although some of the increase was likely due to improved economic conditions in the wake of the Great Recession. Total estimated renovation costs also jumped.

In Wisconsin, historic tax credit projects surged last year after the state raised its modest 5 percent credit to the same level as Minnesota’s. From 2013 to 2014, estimated costs of active renovation projects swelled sevenfold to over $260 million, according to the Wisconsin state historic preservation office.

This apparent tax credit effect doesn’t necessarily mean that income tax credits are the best mechanism for fostering historic preservation. South Dakota has no historic preservation tax credit, but the state offers to freeze property tax assessments on rehabilitated buildings for eight years. In Minnesota, consumers support historic preservation through sales taxes allocated to arts and cultural heritage programs.

Other forms of financial support for historic preservation in the district and nationwide include rehabilitation grants funded by gaming revenue, the purchase of historic façade easements by cities and tax-deductible private donations.

Historic preservation

Pessimistic outlook for farm income

Though stronger crop production might take some of the sting out of lower prices for Ninth District farmers, the overall outlook is for lower income. In mid-December, the USDA released the latest financial forecasts for 2014, and predicted a 25 percent drop in national farm income compared to last year.

State income forecasts aren’t available yet, but there’s reason to believe the results will be similar in the region. The decline in crop prices that began in 2013 led to a drop in farm incomes that year in Minnesota and particularly North Dakota. Other district states avoided the drop mostly because of a combination of factors, like recovery from drought in South Dakota and Wisconsin, which hampered incomes in 2012.

Since 2013, crop prices have retreated further, with corn falling by more than a third, for example, and incomes are expected to follow. Respondents to the Minneapolis Fed’s third quarter (October) Survey of Agricultural Credit Conditions also predicted falling incomes for the final three months of 2014, an acceleration from an already-existing trend (see chart).

  Farm income -- 12-13-14