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

Strong crop production in Ninth District helps offset lower prices

Farmers have been preparing for a bumper crop this year: Nationally, a record number of soybean acres were planted this spring, and while corn acreage was down from last year, weather in much of the country was favorable enough to produce good yields. And, sure enough, the USDA’s latest crop production estimates for 2014 confirm record production of both commodities for the United States.

The picture was only slightly different in the Ninth District. Due to a late spring and an early frost, corn yields in Minnesota and North Dakota were revised down from earlier forecasts, and production came in below 2013 (see Chart 1), though only narrowly for Minnesota. Corn production for South Dakota and Wisconsin did hit new records, however.

Soybean production hit new records in every district state, the result of both higher acreage and improved yields. North Dakota saw the biggest increase, with a 41 percent jump in bushels grown over 2013 (see Chart 2).

The big harvest should offer some comfort to farmers, who are also coping with much lower prices for these outputs, thanks in part to the expected boost in supply. Prices received by farmers for soybeans were down 23 percent in October compared with a year earlier, while corn prices fell 36 percent over the same period, according to the USDA.

  Crop production -- 11-17-14

October Mid-America survey shows softness in Dakotas; Minnesota on top

Update from last week’s blog.

Results from the October Mid-America Business Conditions Index, released this week, show weakening conditions in the Dakotas and Minnesota. The index surveys supply managers monthly in a nine-state region, and an index greater than 50 indicates expected expansion over the next three to six months.

For the first time in recent memory, sentiment in North Dakota is hovering near contraction, with the state’s overall index declining to 54.8 and employment dropping to 51.2; both of South Dakota’s scores have continued a general descent of late, declining to 51.8. While Minnesota’s scores also dropped, it remains a bright spot, with its overall index at a healthy 63.7, with employment at 56.7.

Mid-America UPDATE -- 11-4-14

Sure it’s cold, but we’re upwardly mobile

If you live in a Ninth District state, which do you prefer, moving out or moving up? Probably the former if you don’t like the cold, but likely the latter in most other cases. And while Ninth District states have cold winters, so too do they offer better upward income mobility than the nation overall, according to data from a team of researchers from Harvard and UC-Berkeley.

The research project, dubbed Equality of Opportunity, collected income data on millions of parents in the last half of the 1990s. It then tracked how kids from low-income families in this sample fared in 2011 and 2012, when they were in their early 30s. (For more information on the study’s methodology, go here.)

The study split the country into more than 700 commuting zones, which are rough approximations of local economies (urban and rural). It then ranked commuting zones for absolute upward mobility—roughly, the average national income rank of a child from low-income parents in the commuting zone.

The data show that Ninth District states stand out for high absolute upward mobility. The distribution of scores for commuting zones in every district state (including the combined region of northwestern Wisconsin and the Upper Peninsula of Michigan) skewed higher than scores for all other commuting zones not in the Ninth District (see charts below).

For more data and discussion on this topic, see the October fedgazette for in-depth articles on both high income mobility and low income mobility in the Ninth District.

  Absolute income distribution 9th states -- 11-13-14

U.P. electricity prices tops in district

Households and firms in the Upper Peninsula of Michigan have long complained about expensive power. Civic and business leaders say high electricity rates squeeze family budgets and hamper efforts to foster industrial development in a region plagued by high unemployment.

Angst over the price of U.P. electricity has come to a head this fall. A regional power grid authority has ordered Wisconsin-based We Energies to continue operating an aging coal-fired power plant near Marquette, with costs passed along to U.P. ratepayers. If federal energy regulators approve, U.P. utility customers could see average rate increases of $100 annually to fund operating subsidies for the Presque Isles plant and two other coal-fired power plants in the U.P.

The Michigan Public Service Commission and big U.P. power consumers such as Cliffs Natural Resources—owners of the Empire and Tilden iron mines—have objected to the proposed rate hikes, saying they would further burden utility customers already paying dearly for electricity.

Federal price data show that U.P. residents pay higher electricity rates than those in other parts of the Ninth District and the nation as a whole (see Chart 1). Electricity costs about 20 percent more in the U.P. than it does in Minnesota and about 35 percent more than in North Dakota. But Yoopers pay less than Michiganders overall, and U.P. power is a bargain compared with utility rates in some parts of the country, such as New England.

However, the U.P. average rate obscures wide disparities across the peninsula; residents of some U.P. communities pay significantly more than others to keep the lights on, the result of differing customer densities and, in some cases, reliance on imported power rather than local generation sources. State PSC figures for 2013 show that power producers such as Upper Peninsular Power Co. and the Alger Delta Cooperative Electric Association, which primarily serve customers in the western and central U.P., charge much higher rates than other utilities (see Chart 2).

UP power -- 11-3-14

Surveys: District manufacturing, state economies seeing fluctuation

Amid the news of falling oil prices and a slowing global economy in contrast to a comparatively strong U.S. economy, two monthly surveys by Creighton University offer a somewhat muddled picture of economic growth in three Ninth District states.

The Rural Mainstreet Index asks community bank presidents and CEOs in rural areas of a 10-state region (including Minnesota and the Dakotas) about current economic conditions and six-month outlook in roughly 200 small communities.

Since mid-2013, the overall index has stayed mostly in expansion territory (an index score of 50 or more). But the index has dipped into contraction on a couple of occasions—particularly for South Dakota—and the general slope of sentiment is slightly downward (see Chart 1).

The good news: Respondents have been upbeat on new hires, with particularly strong scores in Minnesota and North Dakota. The less good news: Sentiment toward farmland prices has tumbled, especially in Minnesota and South Dakota, most likely stemming from low crop prices over this period. Aside from a single-month blip, North Dakota’s farmland index has stay strongly in expansion territory, most likely the result of the state’s very strong economy, with farmland prices possibly being buoyed by demand from nonfarmers.

Mid-America Ch1 -- 10-31-14

A second survey by Creighton, the Mid-America Business Conditions Index, compiles monthly data from manufacturing, purchasing and supply executives in the same 10-state region (and also including Minnesota and the Dakotas). Overall, respondents in these Ninth District states have reported solid expansion, with the overall index slightly upward over the past year (see Chart 2). After a big uptick in employment sentiment, index scores dropped over the summer, but respondents in Minnesota and North Dakota continued to see healthy expansion in the latest surveys. In both manufacturing indexes (overall and employment), South Dakota has seen its scores dip of late, and they appear to be trending downward.

Mid-America Ch2 -- 10-31-14

A summer of steady growth in the Ninth District

The Ninth District economy continued to show signs of steady growth through the summer months, characterized by job growth, decreases in unemployment rates and gains in home building.

As of August, nonfarm employment in district states was up 1.8 percent relative to a year ago, posting a net increase of about 122,000 jobs. North Dakota reported the strongest employment growth among district states, accounting for about one in every six jobs added in the Ninth District over the past 12 months despite the state’s workforce comprising only 7 percent of the district total. Employment growth in other district states was largely in line with the national trend (up 1.8 percent), except in South Dakota, where nonfarm employment growth was 0.7 percent.

The district unemployment rate dropped to 4.7 percent over the same period, down 0.8 percentage points from a year ago. The spread in unemployment rates among district states has narrowed over the past 12 months. Regions with relatively high unemployment rates, such as the Upper Peninsula of Michigan, Wisconsin and Montana, posted larger year-over-year declines than Minnesota and the Dakotas, where unemployment rates started out much lower last year.

Manufacturing wage growth in the district slowed to 1.4 percent during the three-month period ending in August, compared with a growth rate of 2.5 percent during the same period a year earlier. With the exception of North Dakota and Wisconsin, growth in manufacturing wages in district states was below the national average of 1.6 percent. Montana’s manufacturing workers reported the lowest year-over-year growth rate in hourly earnings among district states, which barely reversed the flat or declining trend in manufacturing wages in the state for much of 2013 and early 2014.

During second quarter 2014, personal income growth (adjusted for inflation) across district states was positive, posting a 2.2 percent overall increase relative to a year ago for the district. Except for North Dakota, all district states posted lower personal income growth rates relative to the national average of 2.4 percent, while South Dakota’s state ranking in growth was near the bottom.

New housing authorizations for the three-month period ending in August were up 8.2 percent in district states; however, rates varied widely among district states. Montana and South Dakota posted year-over-year declines of over 20 percent in new housing authorizations, while North Dakota showed a 42 percent increase over the same period. Housing authorizations in Minnesota and Wisconsin were up 5 percent and 10 percent, respectively, closer to the national average of 7.7 percent.

Home prices continued to show increases in several district cities. During the second quarter of 2014, home prices were 7.4 percent higher than a year ago in Bismarck, N.D., 6.7 percent higher in Minneapolis-St. Paul, 3.2 percent higher in Fargo, N.D., and 2.6 percent higher in Sioux Falls, S.D. Nationally, home prices increased by 4.4 percent during the same period.

For current and historical data on the economic indicators referenced here, see the “Monthly Summary” spreadsheet, along with other Ninth District data that are updated regularly.