4 posts from December 2011

In North Dakota's oil patch, a housing gusher

Housing contractors in northwestern North Dakota can’t pour concrete and pound nails fast enough to keep up with demand—a stark contrast with the slow pace of housing construction nationwide.

Rapid oil and natural gas development in the region has created thousands of jobs in oilfields and related industries such as construction and trucking. Those new workers, many of them migrants from elsewhere, need places to live—hence, the housing boom.

Since 2009, when a global drop in oil prices caused a marked slowdown in oil activity and housing starts, the number of permits issued for new housing has surged in the oil patch. In Williston, a bustling oilfield service center, city permits for new single-family homes and townhouses increased more than 10-fold between 2009 and 2011 (see chart). Through November of this year, more than 400 homes were permitted.

Oil patch housing -- NEW chart 1   2-6-12

Minot and Dickinson, communities on the fringes of the Bakken shale-oil formation that have become bases for oil exploration and engineering firms, have also seen marked increases in home construction since 2009. In Minot, the region’s largest city, new home approvals doubled from 2010 to 2011 as developers rushed to provide shelter for oil industry workers and replace about 3,000 homes destroyed or badly damaged in last summer’s flooding (see October 2011 fedgazette). In Dickinson, new home permits increased sharply from 2009 to 2010 before falling slightly this year.

Approvals for apartments—the most efficient way to build housing on quickly appreciating land—surged in the oil patch as well. Apartment units permitted in Williston tripled from 2010 through November of this year, to about 750. Dickinson approved only 14 multifamily units in 2009; since then, over 140 have been slated for construction.

In comparison with western North Dakota, the pace of home building in the eastern part of the state, while steady, has not increased over the past two years. In Grand Forks, for example, annual permits for new homes fell from 2009 to 2011.

This post, including the accompanying chart, was updated on Feb. 8, 2012.

Red-light special: Lower consumer debt levels

This Christmas shopping season is shaping up to be fairly robust. The National Retail Federation was forecasting a modest increase of about 3 percent for this holiday season, but later reported that shoppers spent a record $52 billion during the kickoff Black Friday weekend.

If Santa proves to be comparatively generous this year, the reasons are likely many. For example, consumer confidence has been on the rise of late, according to indexes from both the Conference Board and the University of Michigan.

Households might also be feeling better about their financial ability to splurge a little because per capita debt has fallen across the district since the start of the recession, according to the Consumer Credit Panel, produced quarterly by the Federal Reserve Bank of New York (see Chart 1). Somewhat ironically, the lone anomaly in that trend is flattening debt in North Dakota, whose economy never officially went into recession and has seen strong job and wage growth. Minnesota is also notable for the fact that its average debt is considerably higher than any other district state, including Wisconsin, with which it shares many social and economic similarities.

Panel data for 2011 are not available for all states. But the panel tracks a set of 11, mostly larger, U.S. states (including Michigan) on a more regular basis, and debt trends continue to be favorable for this group. For example, much of the average debt is buried in home mortgages. States vary in the amount of total debt made up of mortgages; nationwide it’s a little less than 80 percent. But total mortgage debt has continued to drop through the third quarter of this year, according the New York Fed figures. Equally important in terms of purchasing power, other outstanding debt (like credit cards and home equity and auto loans) also has been falling, save for a tiny bump in the third quarter of this year (see Chart 2).

Some of the debt improvement might be a tad superficial, such as debts discharged through bankruptcies, which remain elevated. But other indicators suggest better overall financial health. For example, the percentage of mortgages more than 90 days late nationwide has fallen five consecutive quarters (through the second quarter of 2011, the most recent panel data). In Michigan, the percentage of seriously delinquent mortgages fell from a peak of 7.8 percent in the fourth quarter of 2009 to 5.7 percent last summer; the percentage of consumers with new foreclosures also has been cut in half since its peak in the second quarter of 2009.

District debt -- Charts 1-2    12-16-11

The New York Fed’s Consumer Credit Panel consists of detailed credit-report data from the private firm Equifax that allow for longitudinal quarterly data on individuals and households from 1999 to 2011. The panel is a nationally representative 5 percent random sample of all individuals with a Social Security number and a credit report (usually aged 19 and over). Additional individuals living at the same address are also sampled, which allows the panel to track household-level credit and debt. The resulting database includes approximately 40 million individuals in each quarter.


Flood affects business, banking in the Ninth District

Many communities in the Ninth District were hard hit by flooding this past year (see past reports in the fedgazette). But banks in district states report that, in general, the impact on local economies will be modest overall, according to a fall survey by the fedgazette.

A total of 86 banks responded to the (nonscientific) survey, including 52 from the Dakotas and Montana, which saw the worst flooding. In terms of their local economies, bankers reported that agriculture and retail sectors in general have been hit the hardest. For example, 15 of 25 Montana bankers reported adverse flood impacts on agriculture, and 44 percent of North Dakota bankers said retail has been negatively affected, along with about one-third of bankers in North and South Dakota regarding the transportation sector. Construction saw a mixed response, with roughly equal (and small) numbers of bankers stating there were negative and positive effects from flooding.

But those difficulties were not necessarily flowing through to bank business to the same degree. A large majority of respondents across district states said that loan repayments from existing clients have not been negatively affected across major portfolio areas (construction, agriculture, commercial and industrial, and commercial real estate; see Chart 1). Agriculture saw the highest reports of repayment problems (36 percent in Montana; 24 percent in North Dakota). Among the minority of banks reporting repayment issues with any loans (about one in three), many said they restructured loans or made other accommodations in loan terms.

Flood bank charts 1&2 -- 12-8-11

Maybe more importantly, bankers said they expected little change in future loan repayments (see Chart 2). Agricultural loans were again the area of biggest concern. In terms of loan demand, most banks reported no flood-related changes; in fact, slightly more banks saw an increase in loan demand related to the floods compared with those reporting a decrease.

The survey was conducted in cooperation with state banking associations, who passed the survey along to an estimated 750 members. While overall results appear modestly positive under the circumstances of widespread flooding this summer, results likely vary significantly among individual communities, given the different localized effects of flooding.

Flyover country? Not for Fortune 500 HQs

For most people, the words “Fortune 500” conjure up images of Manhattan, maybe Silicon Valley or southern California, even the gleaming office towers of Dallas. So here’s a heart-warming economic stocking-stuffer for the holidays: You should be thinking “Minnesota.”

In spite of real and perceived obstacles—from weather to business environment—the Gopher State has been a decades-long powerhouse in nurturing Fortune 500 companies, according to recent research by J. Myles Shaver, a professor of strategic management at the Carlson School of Management at the University of Minnesota.

Shaver is a Twin Cities transplant. He said he was aware of the fact that the Twin Cities metro area was home to a number of major corporations, but once here, “I soon found out that the extent of HQ activity was much more than I thought.” So he began to look into the matter “with the recognition that such things evolve over decades. I wanted to start with getting a picture of what this looks like now and what things have looked like over the last 50 to 100 years.”

Today, Minnesota has 20 companies on the Fortune 500 list—almost double the number (11) from 1955—and is tied with New Jersey and Virginia for eighth-most in the country. These companies represent such diverse industries as health care (Medtronic and UnitedHealth Group), food (Land O’ Lakes and Supervalue), retail (Best Buy and Target), energy (Excel Energy), finance (Ameriprise and U.S. Bancorp), manufacturing (3M) and mining/agriculture (Mosaic).

New York, California and Texas have the most Fortune 500 headquarters, each with over 50. But on a population-adjusted basis, Minnesota is tops in the nation, and by a considerable margin (see table). In fact, flyover country avails itself rather well, with Nebraska, Illinois, Ohio and Michigan also making this top 10 list on a population basis.

MN HQs -- 12-6-11

Because of the size of Fortune 500 companies, people tend to think of them as economic mainstays, unchanged over the years. But in fact this list sees significant turnover through the course of decades. Shaver found that only three of Minnesota’s 11 Fortune 500 companies in 1955 remain today: 3M, General Mills and Hormel. Others on the list merged with other firms (Seeger Refrigerator, ranked 264th in 1955, merged with Whirlpool the same year) or were bought outright (Pillsbury, ranked as high as high as 61st in 1987 and acquired by General Mills in 2001). Archer Daniels Midland ranked 155th in 1955 and 39th in 2011, but is no longer on Minnesota’s list because it moved its headquarters from Minneapolis to Decatur, Ill., in 1968.

Minnesota’s net gain of nine Fortune 500 firms over this period—seventh best in the country—also tells a fraction of the turnover story. Since 1955, a total of 51 Minnesota firms have been on the Fortune 500 list, and 31 subsequently fell off the list by 2011, leaving the current list of 20. The state also has 16 firms on the Forbes 500 list of the nation’s largest private firms, including the top company, Cargill. That ranks ninth nationally and second (to Missouri) on a population basis.

Shaver pointed out that few companies relocate their headquarters to Minnesota. Combined with a lot of turnover among the nation’s biggest companies, he said the state has shown a penchant for “creating and growing new businesses that grow really big.” The reasons behind Minnesota’s success are mostly a matter of conjecture.

Some cite the state’s strong education system or its hard-working Nordic culture. “Most of the answers to ‘why’ are an individual’s pet theories,” said Shaver, adding that common explanations may have some merit, “but I think they’re incomplete at best.”

Shaver expects to tackle the source of Minnesota’s success in future research. What he’s learned so far is that the state and Twin Cities in particular have “an amazingly dynamic business community. When my colleagues around the world ask if I like being here, this is one of the things I note. Most are surprised by what is here.”

A powerpoint presentation of Shaver’s research is available here.