5 posts from April 2012

Open for business: New business filings up in Minnesota and Wisconsin

After seeing a pause in new business registrations last year, both Wisconsin and especially Minnesota have seen strong growth during the first quarter of this year compared with the same period a year ago.

In the Gopher State, total registrations in the first three months of this year grew by 23 percent, about twice that seen in the Badger State (see chart). Growth in both states was largely driven by new registrations of domestic and foreign limited liability companies (LLCs). Should it hold, this would be a return to the growth of LLCs seen through much of the last decade in both states. And while registrations for new corporations were flat in Wisconsin—largely continuing a long-term trend—the same trend reversed itself in Minnesota, where new corporation registrations grew by 18 percent in the first quarter and were 8 percent above 2010 levels as well.

 New biz registrations -- 4-24-12

In all, Minnesota recorded some 18,000 new registrations in the first quarter. Compared with its easterly neighbor, Minnesota tracks many additional forms of business registrations, including assumed names, which are not incorporations of new businesses but registration of a name, possibly for use by an unincorporated sole proprietor. There were almost 4,500 such registrations in the first quarter of this year, about 6 percent more than in 2011.

For more background on trends in young establishments, entrepreneurship and self-employment, see the cover articles in the July 2011 and January 2012 fedgazette.

The state(s) of entrepreneurship

Everybody loves a ranking, except when you’re on the unflattering end. That’s particularly the case when it comes to business and entrepreneurial types of rankings, because economic activity and jobs are so desperately desired.

So it is that some states are clapping or wringing their hands over a recently released annual index of entrepreneurial activity by the Kauffman Foundation, the largest foundation in the world dedicated to entrepreneurial research. The index captures new business owners in their first month of significant business activity and then tabulates a score based on a state’s adult population (per 100,000 people). Kauffman uses consecutive-month reports from the Current Population Survey from the U.S. Census Bureau. It flags people who report working for themselves for at least 15 hours per week during the past month (and not doing so the month before that).

District states didn’t fare particularly well in the rankings. Montana was the only state to exceed the national average, and South Dakota came within a whisker (see chart). But North Dakota, Minnesota and Wisconsin lagged well behind.

Entrepreneur -- 4-18-12

Such rankings hold some interesting insights into entrepreneurial activity. But they are not particularly good barometers of a state economy or the economic well-being of its residents. For example, among the top six in entrepreneurial activity, half of the states were in the bottom half of per capita income, compared with only two of the six states with the lowest index ranking. Average income gains in 2011 also favored low-ranking states over high-ranking ones. On average, those in the bottom of the index also had lower unemployment than high-entrepreneurial states (see chart). That shouldn’t necessarily be a surprise: States with high unemployment tend to have more self-employed people by necessity as they hustle for any income they can find.

On the other hand, the performance of district states implies an old adage: in all things, moderation. District states rank toward the middle of the index pack, and even toward the lower third for Minnesota and Wisconsin. But their unemployment rates are all considerably below the national average, and per capita income was higher than the national average for three of the five states (Wisconsin and Montana are ranked 25th and 35th, respectively, among states). More to the point in annual rankings, every district state ranked in the top half in per capita income gains in 2011.

One final tidbit: North Dakota saw its 2011 index score drop from a year earlier and is considerably below the national average, yet it has by far the best unemployment rate in the country and had the highest gains in per capita income last year (6.7 percent). That doesn’t mean North Dakota’s entrepreneurial activity is necessarily in a good spot, but it does mean that one can’t read too much into any economic index.

Some Ninth District regions seeing strong population growth

Nothing screams economic activity like population growth because, as the saying goes, people go where the action is. And if that’s the case, North Dakota is getting a little hoarse because it’s getting more crowded.

The U.S. Census Bureau recently published 2011 population estimates for states and their largest population centers. Among the Ninth District’s 15 metropolitan areas, Sioux Falls, S.D., and Bismarck, N.D., led the population pack with a 1.4 percent increase last year. In fact, every district metro saw at least slight growth, save for Grand Forks, which dropped one-half a percentage point (see Table 1).

Population -- Metro table 1

The Census is also gathering and publishing more data on smaller, so-called micropolitan regions, of which there are 41 scattered across the Ninth District. There was wide variation in population growth among these regions (see Table 2), and total growth for micro regions was slower than for district metros (0.6 percent versus 0.9 percent, respectively). Roughly one-quarter (10) of micro regions saw population declines. But six micro regions saw stronger growth than the top metro areas. Half of them are in western North Dakota, where Minot and Dickinson grew by 3 percent or more, and Williston grew an astounding 8 percent last year.

Migration and demographics play important roles in population change, as people move into and out of communities, while the existing population experiences both births and deaths. Unfortunately, new population statistics don’t tell us how many of each occurred in various communities. Communities in Ninth District states harbor fairly similar demographics in terms of age and fertility rates that would make local population change from births and deaths reasonably consistent and predictable in a given year.

Migration is likely the biggest factor in population performance, particularly among outliers. In western North Dakota, it’s clear people are migrating to the oil patch for jobs—a topic covered in depth in the April fedgazette online later this month.

Population -- Micro table 2


Robert Frost redux: Levees make good neighbors, especially in Velva

The city of Minot and surrounding region is still recovering and rebuilding from last summer’s devastating floods, when a raging Souris River damaged more than 4,700 residential, commercial, farm and public properties. A recent report by the U.S. Army Corps of Engineers put total structural damage at nearly $700 million.

But the floods would have exacted an even larger toll without emergency levees that were hurried into place when it became known that the region was in eminent danger of historic flooding. Though there was not enough time to build levees high enough to avoid catastrophic flooding in many places, the Corps estimates that an additional 1,500 structures would have been damaged, to the tune of more than $200 million, had no levees been erected (see table at bottom).

The tiny community of Velva, population 1,100, was the biggest beneficiary of emergency levees. A total of 29 homes and 5 businesses were damaged by the flood, totaling about $1 million. But emergency levees protected almost 500 structures, preventing $88 million in damage.

Minot and Burlington were the hardest hit, and the least saved, in a proportional sense. Minot suffered structural damages estimated at $577 million, while levees saved further damage to about 800 structures and $105 million in additional costs. Neighboring Burlington was barely spared; it suffered $32 million in property damage, and levees prevented just $94,000 in additional damage.

Total flood recovery costs also exceed these damage figures. Minot Mayor Curt Zimbelman recently told a U.S. Senate Budget Committee field hearing that the city’s unmet needs for flood recovery total almost $1 billion, about half of which is for a flood control project that would protect the city from a similar event in the future.

Minot-Souris River table -- 4-6-12

A rising oil tide lifts all wages

Average wages have risen dramatically in western North Dakota, where rapid oil and gas development has transformed the economic landscape. Between 2004 and 2011, the average annual wage in counties with substantial oil activity increased over 80 percent in constant dollars, to about $56,000—a surge in compensation that dwarfed increases in the state and nation.

Some of the increase is due to a rising proportion of well-paid workers engaged in activities related to oil and gas—exploration and drilling, transporting oilfield supplies and equipment, building new facilities for oil companies and oilfield service firms. Jobs in mining (a statistical category dominated by oil workers in the region), trucking and construction have posted strong gains during the oil boom (see chart). In 2004, oil-related jobs accounted for just 12 percent of total employment in five core oil-producing counties; in 2011, that share was 41 percent. On average, workers in oil-related industries earned twice the pay of workers in other industries last year.

But most of the increase in oil patch wages stems from labor demand chasing supply, not just in oil-related industries, but in virtually every sector of the regional economy. In communities such as Williston, Watford City and Dickinson, N.D., few workers are available to fill thousands of job openings. Many employers—including those in industries that depend to a lesser extent on oil industry spending—have responded by offering higher pay. For example, in core oil counties, inflation-adjusted wages for hotel and food service workers increased 63 percent from 2004 to 2011. Over the same period, real manufacturing wages increased 21 percent.

An analysis of the relative impact of the two trends—a shift in employment to oil-related activity and across-the-board wage increases—shows that broad wage hikes account for close to three quarters of the average wage increase during the oil boom, while the shift in employment to oil-related activity accounts for about one quarter of the average wage increase. So the oil rush has lifted all workers in the region, not just workers tied to oil and gas extraction.

For much more on labor trends in the oil patch, see the forthcoming April issue of the fedgazette.

Bakken wages -- 4-2-12