3 posts from February 2011

District bank conditions stabilizing

Banks in the Ninth District are still working through some rough spots, but are slowly improving their overall position, according to performance benchmarks recently released by the Federal Reserve Bank of Minneapolis.

The indicators reflect a wide variety of bank performance metrics—including asset quality, earnings, capital and liquidity—that offer a broad view of overall health among the roughly 700 unique banks in the Ninth District. The benchmarks are tracked back to the 1980s, which allows users to see how current conditions compare to the last banking crisis during that decade.

The latest figures, which are updated quarterly, suggest that asset quality is still down, but has stabilized. The number of banks with negative earnings dropped in 2010 compared with a year earlier, but remains elevated. The number of banks with deteriorated ratings from regulatory agencies (including the Federal Reserve) also remains higher than normal. But the large majority of banks are still considered healthy, and bank failures were down last year.

A video summary of the latest benchmark data, as well as an outlook on banking is also available featuring Ron Feldman, senior vice president for supervision, regulation and credit.

Brighter outlook for district labor markets

District businesses are apparently more optimistic in their hiring plans for this year. But despite the good news, the twin specters of economic and policy uncertainty are still haunting labor markets.

The Minneapolis Fed sent an electronic survey to 500 Ninth District business contacts in January and got a response rate of 32 percent. Generally, respondents said they planned to increase hiring (34 percent) or keep employment unchanged (58 percent). Of the remaining 8 percent who planned to decrease employment, nearly all were in the real estate or local government sectors.

For firms that planned to hire more workers, 82 percent cited sales growth as one of the underlying reasons (including more than half who said it was the most important reason). Two-thirds of respondents also cited overworked staff as a reason for hiring.

Survey recipients were also asked what might constrain their hiring. The most common factor chosen (55 percent) was low expected sales growth, while 42 percent cited regulatory uncertainty. A substantial number of respondents also pointed to deteriorating financial conditions at their firm and underutilization of current staff. But nearly a third said there were no sources of restraint, which should be music to the ears of the unemployed.

 

Joe's survey table -- 2-16-11

The wrong kind of job growth?

The combination of huge federal budget deficits, the recession and the November midterm elections (which saw an unprecedented swing toward Republican and Tea Party candidates) has put the size of government—not only spending, but overall employment—firmly under the microscope.

According to the most recent state-level data available, government’s overall share of total employment in the district has risen, from 15.6 percent in November 2007 to 16.4 percent three years later, according to the Bureau of Labor Statistics. It went up even more at the national level, from 16.2 percent to 17.1 percent.

But those figures obscure several tributary employment trends that feed into the broader development. None is more central than the decline in private sector employment (see Chart 1). Government’s overall employment share would have increased even if no jobs were added to the public sector.

Govt. jobs -- ch1 
And that was actually the case at the national level; while federal employment increased by 3.6 percent nationwide, those gains were more than offset by employment losses among state and local governments (which are also much larger in terms of total employment size).

The trend is reversed in the Ninth District; there was no growth in federal government workers in district states, but local and state governments added employees, and overall public sector employment grew by 1.5 percent during this three-year period.

There was little consistency among district states in terms of public sector job activity (see Chart 2). The Dakotas saw gains at every level of government during this three-year period, the likely result of having more robust economies during the recession, particularly in the case of North Dakota. Minnesota, Montana and Wisconsin all saw losses at two levels of government (and in different combinations).

Govt. jobs - ch2 
Strong economic growth in North Dakota hasn’t made much of a dent in the overall share of public sector employment there (see Chart 3). Montana’s public sector employment continues to be high despite losing about 1,000 government jobs since late 2007.

Govt. jobs -- ch3