4 posts from September 2011

District businesses upbeat about near term

As part of an ongoing effort to track the recovery of the Ninth District economy, the Minneapolis Fed conducted an ad hoc electronic survey of 330 business contacts from around the district (85 percent from Minnesota) in late August.

The results indicate that businesses performed well over the past three months and they expect that to continue for the next three months. Credit conditions have stopped getting worse, as access to bank credit was largely unchanged. Over the past three months, responding firms noted growth in revenue and profits (see table). This was accomplished with a slight increase in employment and space occupied. However, input costs have also risen, squeezing profit margins.

Over the next three months, firms expect revenues and profits to continue growing. “We are seeing growth from some expansion in service offerings. We do not see any likely deterioration, but rather pretty static/slight uptick sort of growth,” commented a Minnesota respondent from the professional services sector. Employment may pick up, as 21 percent expect to increase hiring while 10 percent expect to decrease staff over the next three months. Respondents also expect to incur higher input costs.

Meanwhile, credit market tightness seems to have leveled off, with nearly two-thirds of the respondents seeing no change in access to bank credit.

(The survey is over-weighted to Minnesota; 85 percent of the respondents were from Minnesota while the state represents about 60 percent of the district’s population. However, the results from the other states were similar to the overall results.)

Ad hoc survey Toby -- 9-19-11 

People-on-a-stick: 2011 state fair attendance

Maybe it was good weather. Maybe it’s all the comfort food. Whatever the sources, district states generally saw strong attendance at their state fairs this year.

State fairs come in all kinds of shapes and sizes. Most occur between late July and Labor Day. Some run longer than others. For example, South Dakota’s fair runs just five days, while Montana and North Dakota go for nine days, and Wisconsin and Minnesota keep the deep fryers roiling for 11 and 12 days, respectively.

Regardless of length, state fairs have been popular of late (see Chart 1). South Dakota saw an estimated 10 to 15 percent increase in its state fair attendance this year, highest of any district state. Montana and Wisconsin also posted small gains.

 State fair attendance -- 9-15-11

While Minnesota posted a tiny decrease in attendance (0.3 percent), it nonetheless has a lot to crow about: It has the second-largest total attendance in the country, at almost 1.8 million people (see Chart 2), second only to Texas. But at 150,000 people per day, Minnesota has the highest average daily attendance of any state fair in the country. On the final Sunday of this year, the fair drew 230,000 people—more than many fairs will see in total—yet it fell short of the attendance record by about 5,000 people.

North Dakota’s state fair had been seeing strong attendance gains in recent years, but was canceled this year due to the catastrophic flooding in the host city of Minot.

Maybe the most notable attendance trend is in South Dakota. As recently as 2006, the state was subsidizing the fair to the tune of almost $1 million annually. With tight budgets, lawmakers there have slowly cut back on that support, and this year’s subsidy was $270,000. Yet attendance has steadily climbed.

The buzz (or … zzz?) for green power

Much has been made of efforts to increase the country’s renewable energy. A lot of the effort has been on the production side, requiring utility companies to garner a certain percentage of electricity output from renewable sources, like wind and solar power. (See previous fedgazette articles on renewable energy here and here.)

Despite the widespread public support for more renewable energy, so far it appears that many are not willing to put their money where their green side resides. Over the past decade or so, utility companies have rolled out literally hundreds of programs that allow consumers to consciously choose renewable power, but at a small premium over the normal cost of electricity (more on this in a bit).

Consumers who choose green-pricing programs are not necessarily receiving power from a renewable source when they turn on a computer or flat-screen television—the electricity grid is not capable of such pinpoint delivery. In essence, these programs ask consumers to pay more to support the development of renewable energy, which is more expensive than electricity generated by traditional sources like coal or nuclear.

This summer, the Energy Information Administration (EIA) released data that offer the most complete look at subscriptions to green-pricing programs across the country, and about the only safe conclusions are that such programs appear to be buzzing in some states, while snoozing in others. Oregon is by far the leader in green power subscriptions, with 776 subscribers per 10,000 households, almost triple the next closest state, Texas. At the other end, six states have fewer than three in 10,000 households participating (see chart; Ninth District states are highlighted in rose).

Green pricing -- 9-8-11 

It’s hard to pinpoint the exact source of the disparity. Economic theory would suggest that program participation depends to some extent on prices—for both existing retail power and the premium charged to be a renewable power subscriber. Cheap electricity rates, for example, might allow and convince some to pay the premiums necessary to support renewable energy.

Unfortunately, that theory doesn’t appear to offer much of an explanation for the wide divergence among states. Seven of the top 10 states in green-power subscriptions—including Minnesota—have electricity rates that are below the national average. (Wisconsin is also in the top 10, but has above-average electricity rates.) Many other states have similarly cheap power at their fingertips, yet have very low participation in green-pricing programs (see chart).

The premiums charged for green power also offer clues. Oregon, the national leader, has 18 separate utility-run programs, many of which charge a premium of 1 to 2 cents per kilowatt hour (kWh) and have been in place since at least 2003. Even with the premium, participating Oregonians still pay less than the national average for electricity. At the other end of the spectrum, Arkansas has the lowest takeup rate in the country, with just 25 subscribers statewide in 2009. One reason is likely that the cost of the program is 5 cents/kWh—roughly a 50 percent increase in the state’s average power rate of about 11 cents/kWh). The program was also implemented in 2008, a comparatively short span to judge its attractiveness.

But there are also enough exceptions to the relationship between premiums and subscribers to suggest that other factors are at play. Montana barely moves the green-pricing needle despite electricity rates that are significantly lower than the national average, along with five green programs charging just 1.1 cents/kWh or less, and a sixth charging 2 cents/kWh. Ohio’s electricity rates are almost identical to Arkansas’ and it has eight green pricing programs that are significantly cheaper (0.5 to 2.5 cents/kWh), yet its participation rate is only slightly better than that of Arkansas (see chart).

Lastly, some states might have low subscription rates because programs are not widely available or are only newly available (as in Arkansas). Though the EIA’s review included the number of participating utilities in each state—which ranged from one in the District of Columbia to 100 in Minnesota—there was no information regarding green-pricing availability among all households in a state. 


District shipping ports are (mostly) busier

With sluggish economic news of late, it’s hard to know what to hang your hat on in terms of the direction of the regional and national economy. Trends in commodities can offer some clues, and recent iron ore shipments from Ninth District ports offer both hope and a bit of angst regarding the near-term economy.

There are six major shipping ports in the district—five on Lake Superior and one on Lake Michigan. Taconite mines on the Iron Range of Minnesota and the Upper Peninsula of Michigan produce the vast majority of the country’s iron ore, which means these six ports handle virtually all of the country’s iron ore shipments. The port at Superior, Wis., also ships large amounts of coal to ports elsewhere. (There are eight other, small ports in the district, most of which only receive coal.)

Through July of this year, the six ports saw total iron ore tonnage increase by about 10 percent—a nice continuation of the rebound seen last year (see Chart 1). Among the six ports, four saw increases over last year, with big jumps at ports in Duluth, Minn., and Presque Isle, in the U.P. (see Chart 2).

Iron ore trends -- 9-6-11 

Signs look a little more mixed among other raw materials and the broader shipping industry. The Lake Carriers’ Association (LCA) represents 17 American companies and their 55 U.S.-flag vessels carrying raw materials on the Great Lakes. Through July of this summer, U.S.-flag cargos stood at almost 45 million tons, an increase of 3 percent compared with the same point last year. However, coal and limestone—indicators of power production and construction—are down by 5.1 percent and 4.6 percent, respectively, through July of this year.

By tonnage, the twin ports at Duluth and Superior comprise the largest port on the Great Lakes and one of the top 20 ports in the United States, handling an average of 46 million short tons of cargo each year. The port at Superior is the lone major coal exporter in the district, and it handles close to 60 percent of coal shipments throughout the Great Lakes. Shipments there through July were down almost 20 percent over last year, while coal shipments from ports on lakes Michigan and Eerie saw a considerable increase during the same period, according to LCA data.

The Duluth port also handles a significant amount of grain, mostly wheat, and this year's shipments are up almost 50 percent through July. Though total grain tonnage to date—780,000 tons—is a fraction of iron ore and coal shipments, grains have considerably higher value by weight.