Cold, snowy winter slowed, but didn't stop, the Ninth District economy

While exceptionally cold and snowy weather had a chilling effect on some consumer and business activity during the winter months, the Ninth District economy continued to show signs of moderate growth.

February nonfarm employment in district states increased at a moderate 1.4 percent pace from a year earlier, while the district unemployment rate dropped to 5.1 percent from 5.8 percent last year. Employment growth was strongest in North Dakota, while growth slowed in most other areas of the district. Meanwhile, the unemployment rate increased slightly in Minnesota, while staying flat or edging downward in other district states.

Wages for manufacturing workers in the district and nation slowed to 1.5 percent during the three-month period ending in February compared with a year earlier. A year ago, district manufacturing wages increased 2.8 percent. In North Dakota, manufacturing wages increased less than 1 percent, the slowest growth since 2007. Manufacturing wages decreased in Montana and South Dakota.

Personal income growth (adjusted for inflation) was positive overall, but slowed during fourth quarter 2013 across district states. While North Dakota’s year-over-year personal income growth of 3.1 percent was the highest in the district, it was the slowest pace of growth in that state since 2009. Personal income dropped 1.3 percent in South Dakota, the only state to post a decrease, due to a steep decline in farm income.

New housing authorizations for the three-month period ending in February were down 8 percent in district states. This follows strong gains in housing units authorized over the past two years. Nationally, housing units authorized were up 8 percent over the same period. The Dakotas and Minnesota posted year-over-year declines during the past few months, while Wisconsin was the only district state to show an increase. Home prices continued to show increases compared with a year earlier in several district cities. During fourth quarter 2013, home prices were 14 percent higher than a year ago in Bismarck, N.D., 12 percent higher in Minneapolis-St. Paul, 7 percent higher in Fargo, N.D., and 4 percent higher in Sioux Falls, S.D.

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.

Higher ed endowments rebound in 2013 in district states

Higher education budget officials got a bit of good news this year as endowments at many universities posted strong gains in assets in 2013, according to an annual report from the National Association of College and University Business Officers (NACUBO) and Commonfund Institute.

Nationwide, assets in 835 endowments tracked by the report grew by 12 percent to almost $450 billion. Assets declined slightly in 2012.

There are 40 higher education endowments of at least $20 million in Ninth District states. In 2013, their combined assets grew by 14 percent to $10 billion. Sixty percent of these endowments benefit private institutions, but they hold of minority (40 percent) of assets. The two biggest, by a considerable margin, support the University of Minnesota ($2.8 billion) and the University of Wisconsin ($2 billion). Both had strong results in 2013, but Minnesota’s assets leapt by more than 21 percent (see Chart 1).

Endowments typically grow by both investment returns and donations, though the NACUBO report does not detail these different asset streams. Growing endowments mean more resources for universities because IRS regulations require that foundations disburse at least 5 percent of assets annually—a minimum of $500 million this year alone from endowments in Ninth District states. This disbursement rule is also one reason some endowments have struggled to return to prerecession levels.

The strong asset increase last year at the University of Minnesota (which, technically, is two separate endowments) belies a long road to asset recovery, as asset levels are still slightly below their peak 2007 levels (see Chart 2).

Most other endowments have been doing better. Among 24 other foundations (with available figures from 2007), assets grew 15 percent over this period. Three endowments saw zero or negative growth, but 10 had asset growth of 20 percent or more since 2007, including those benefiting the University of Wisconsin and the College of St. Scholastica, a small private college in Duluth, Minn., which saw its endowment nearly double over this period to $54 million.

Endowments -- 4-9-14

Have you thawed out yet? Sub-zero days high across district

The Ninth District experienced a very cold and long winter. The National Climate Data Center keeps a detailed record of weather conditions at local airports. The Minneapolis area experienced 50 days of below-zero temperatures, the most in more than 35 years (see table).

If you prefer mild winters, there was almost nowhere to turn in the district. One of the more temperate places was Billings, Mont., which experienced “only” 20 below-zero days. In Fargo, N.D., three out of four days were bitterly cold this winter—the coldest winter since 1979.

District below zero days -- 4-2-14

Correct me if I’m wrong: State corrections spending up

States will spend $40 billion to incarcerate and supervise offenders in fiscal year 2014, according to a new report by the National Conference of State Legislatures. That’s 2.5 percent higher than the previous fiscal year, but there is a wide divergence in corrections spending among states.

North Dakota, for example, is seeing the second-highest spending increase this year among states, at 8.2 percent (see Chart 1), according to the NCSL report. South Dakota and Minnesota were other district states that saw costs rise faster than the national average.

Corrections CH1 -- 4-1-14

The reason for North Dakota’s big increase is largely tied to its booming economy, which is drawing many new people to the region, especially among a demographic (younger males) more prone to have run-ins with the law.

Data on prison population and other corrections activity are not as up to date as budget figures. But leading up to this year, North Dakota’s corrections system was seeing increased pressure. The state saw its prison population increase 25 percent from 2003 to 2009, a trend that has subsided somewhat more recently, rising 3.5 percent from (fiscal years) 2011 to 2013, according to the state’s Department of Corrections. But the number of offenders on parole or probation (and needing supervision) has risen 12 percent from June 2011 to June 2013 (see Chart 2).

The mix of inmates housed has also changed, with a sharp rise in violent offenders and an increase in sex offenders, while the number of inmates with drug offenses has declined considerably (see Chart 3; 2012 data are the most recent available). Among drug offenders, the number incarcerated for drug dealing has risen slightly (8 percent), while the number in prison for simple possession has been cut almost in half.

Corrections CH2-3 -- 4-1-14

Minnesota’s population projections: Older but hipper?

Minnesota is getting more urban and older.

Those are just two conclusions from population projections recently released by the Minnesota State Demographic Center. The highest population growth rates between 2015 and 2025 are expected generally in counties along the St. Cloud-Twin Cities-Rochester corridor, while counties in the northeastern and southwestern parts of the state are expected to have relatively lower population growth rates (see map, left).

Given their large size, metropolitan counties in this same corridor also will see the largest numerical gains (see map, right). Population in the state’s top five most-populated counties is expected to rise by 175,000 between 2015 and 2025, accounting for over 50 percent of all population gains in the state.

MN population maps 1-2 -- 3-28-14

Statewide, another big demographic trend is the projected aging of the population. Between 2015 and 2025, the number of residents 65 years of age and over is expected to rise as a share of total population, while the share of working-age population ages 20 to 64 is expected to fall across all counties in Minnesota. By 2025, over 30 percent of the population in the northeastern counties of the state will be age 65 or over.

MN population map 3 -- 3-28-14

A budget breather: FY2013 more favorable to state budgets

State lawmakers have the difficult task—aided by forecasts—of setting budgets based on expected tax revenues and expenditures for the coming year. Changing economic conditions mean they come close but often miss the mark, sometimes substantially.

In fiscal year 2013 most Ninth District states missed on the favorable side, with higher revenues and lower expenditures relative to the approved budget (see Chart 1).

State budgets CH1 -- 3-25-14

Much of the higher revenue came from rising individual and corporate income tax collections. For instance, Minnesota and Montana saw general fund revenues exceed the budget by $500 million and $244 million, respectively. In both states, better than 90 percent of the variance came from higher corporate and individual income tax receipts. In the case of North Dakota, income tax collections were up 13 percent ($169 million) over the 2011-13 biennium.

On the expenditure side, public spending was also lower than budgeted in district states. A large part of the savings came from lower expenditures on health and human services. In Minnesota, for example, spending by the state’s Department of Human Services was $201 million lower than budgeted; more than two-thirds of that savings came from the Medical Assistance program. South Dakota’s actual expenditures fell $33 million short of budgeted figures, almost a third of which came from lower-than-planned spending by the Department of Social Services.

Savings in North Dakota, by contrast, came from the Department of Transportation, where expenditures were about $160 million (60 percent) lower than budgeted. The only district state that did not see expenditures come in lower than budgeted was Montana. General fund expenditures there exceeded the original budget by $160 million, most of which came from higher spending on education.

Many of the district’s larger cities have also experienced better-than-expected finances in fiscal 2013 (see Chart 2). Billings, Mont., and Sioux Falls, S.D., have both posted higher revenues and lower expenditures than budgeted. Though FY2013 results are not yet out for Minneapolis, the largest city in the district expects actual revenues to exceed budgeted amounts by $17 million based on year-to-date Q3 data.

Going forward, growing local economies are leading to higher revenue projections. Approved budgets for FY2014 show higher general fund revenues for St. Paul, Sioux Falls and especially Minneapolis, which expects budget revenue to increase by $95 million, or 26 percent.

In all of this analysis, it is important to keep in mind that budget versus actual comparisons are based on the cash method of accounting, which may not indicate the true strength of state finances if, for instance, large amounts of debt have been issued or major capital projects started during the fiscal year.

Even taking this method into account, state finances have clearly improved in 2013. One measure is net position, which is the difference between a state’s assets and liabilities, including capital assets and long-term obligations. Changes in net position indicate whether the financial position of the state is improving or deteriorating, and in FY2013, all district states posted positive increases in their net positions, particularly North Dakota and Minnesota (see Chart 3).

State budgets CH2&3 -- 3-25-14

Then and now: Labor markets in Ninth District counties

Unemployment rates in the majority of District counties were higher in 2013 compared with 2007, the year before the Great Recession (see map). Unemployment rates in several counties in the eastern and western parts of the district were more than one percentage point higher in 2013 compared with 2007. Meanwhile, most counties in western North Dakota benefiting from the energy boom posted decreases in unemployment rates.

County unemployment map -- 3-24-14

Overall performance can also be seen in Charts 1-6, which compare 2013 unemployment rates with rates in 2007. Dots above the 45-degree line indicate the unemployment rate in 2013 was higher than prior to the recession in 2007. Dots below the 45-degree line indicate that the unemployment rate in 2013 was lower than the rate in 2007. In each figure the respective state’s counties are highlighted in red.

North Dakota has the largest share of counties with lower unemployment rates in 2013 than in 2007. Meanwhile, unemployment rates in Upper Peninsula of Michigan counties were all higher in 2013, and have been generally higher during this period than most other district counties.

County unemployment charts 1-6 -- 3-24-14 -- 3-24-14

Per capita income race: It’s North Dakota by a length

Personal income growth slowed last year for many states. And then there is North Dakota.

Nationwide, personal income increased by 2.6 percent last year, down from 4.2 percent in 2012, according to estimates from the U.S. Bureau of Economic Analysis. While every state saw total personal income rise at least 1.5 percent, North Dakota was doing laps around the rest of the field with 7.6 percent growth, almost double the next fastest rate (Utah, 4 percent). Among Ninth District states (highlighted in dark red in the chart), South Dakota saw the smallest increase, at 1.8 percent.

In fact, North Dakota has been among the leaders in income growth for more than a decade. From 2003 through 2013, personal income in the state has risen at a compound annual rate of 6.8 percent (not adjusted for inflation), according to BEA figures. That’s 50 percent faster than the next closest state (Louisiana, 4.45 percent). Other district states saw annual compound growth of between 2.3 percent (Michigan) and 3.9 percent (South Dakota). Over this period, North Dakota has climbed from 37th in per capita income in the country to third ($57,000), behind only the District of Columbia and Connecticut.

BEA personal income 2013 Ch1

Foreign students helping to meet demand for STEM graduates

Nationwide and in the district, there’s widespread concern that colleges and universities aren’t producing enough STEM (science, technology, engineering and mathematics) workers.

Whether or not the district faces a STEM crunch—an inadequate supply of STEM graduates to meet employer demand—students from other countries account for a significant and rising share of STEM degrees awarded by higher education institutions in the region.

In 2012, about 7 percent of bachelor’s degrees awarded by district institutions in STEM fields such as computer science and engineering went to international students, according to the National Center for Education Statistics (see chart). There was marked variation among states, with North Dakota posting a foreign-awards rate almost five times higher than South Dakota's. The U.S. average was 5 percent.

The share of STEM bachelor’s degrees earned by international students has increased since the Great Recession, outpacing overall growth in foreign four-year degrees. The proportion of STEM master’s degrees and doctorates earned by foreign students is much higher—about 40 percent districtwide—but has declined slightly over the past decade.

International college enrollment has risen in the district since the mid-2000s, slowed only briefly by the recession. Many foreign students, including those from countries such as China and Korea that score high in math and science on international tests, opt to pursue STEM majors. U.S. students are less likely to declare majors in STEM fields—hence, efforts by educators, employers and others to increase the number of homegrown STEM graduates.

For much more on STEM education and international students, watch for the upcoming April issue of the fedgazette.

Foreign STEM degrees -- 3-12-14

March madness: ACA enrollments racing to sign-up goal

The March 31st deadline to sign-up for private health insurance plans as part of the Affordable Care Act is fast approaching, and enrollments in some states are sprinting toward their projected goals while others are lagging, according to data released last week by the U.S. Department of Health and Human Services.

As of March 1, enrollments in Michigan and Wisconsin are at 90 percent of enrollments projected by HHS before the new law’s launch (see chart). In contrast, fewer than 7,000 people have enrolled in South Dakota, or just 36 percent of its 19,000 projection. Minnesota is the only district state that constructed its own health plan exchange (all others are using the federal healthcare.gov exchange). Enrollment in private plans to date through the MNsure exchange was just 48 percent of the goal of 67,000.

States and the federal government are also keeping a close eye on the number and proportion of young people signing up. For health insurance markets to work efficiently, the number of younger (and healthier, actuarially speaking) enrollees has to balance out the number of older, less healthy enrollees. It was originally estimated that 18 to 34 year olds would make up 35 to 40 percent of all enrollees. So far, it’s just 25 percent, and has remained fairly consistent in monthly reports. Among district states, only about one in five Wisconsin enrollees are in this young age bracket, while South Dakota has one of the highest rates, at 29 percent.

ACA March update -- 3-17-14

 

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