4 posts from September 2014

North Dakota leads district in personal consumption expenditures

Robust income gains in North Dakota in recent years appear to be leading to strong increases in personal consumption, according to recently released prototype estimates by the Bureau of Economic Analysis (BEA).

In 2012, personal consumption expenditures (PCE) per capita in North Dakota were estimated at $44,029 (see Chart 1), which ranked third in the country behind Massachusetts and Connecticut. Four of five district states were above the national average; Wisconsin was the only state below the national average.

PCE CH1 -- 9-30-14

State rankings vary by consumption category (see table for examples). While Minnesota’s per capita consumption ranked 14th in the nation overall, its per capita consumption of food and beverages purchased for off-premises consumption ranked 45th, which suggests that Minnesotans buy fewer groceries than residents in other states. Meanwhile, North Dakota ranked 31st in spending for housing and utilities despite ranking third overall.

PCE table -- 9-30-14

However, it’s important to note that state rankings may reflect not only differences in the overall amount of consumption, but also differences in prices. For example, even though housing costs in the western part of North Dakota are high, costs in the state overall are still moderate relative to other states, a likely reason for the middle ranking for housing and utilities. But it’s not surprising that Montana and the Dakotas rank relatively high in gasoline consumption, considering that the states have a larger proportion of population living in rural areas and often have longer travel distances than more urban states.

From 1998 to 2012, PCE per capita decreased only during the last recession, except in North Dakota (see Charts 2 and 3). During 2011 and 2012, real PCE per capita in North Dakota increased about 7 percent annually, the strongest growth among U.S. states.

PCE CH2-3 -- 9-30-14

The BEA plans to conduct additional outreach with data users to assess these prototype estimates, review the estimation methodology and continue to make improvements. The BEA plans to release official PCE statistics in 2015, provided that user evaluations are positive.

Farmland sales down in Ninth District

After several years of big increases, there are mounting indications that farmland prices have started to moderate. The change in the quantity of farmland bought and sold can offer added insight into what’s going on in that market.

The volume of farmland sales is harder to verify because no central agency tracks land sales nationally. Further, there are relatively few transactions, and individual pieces of land don’t change hands very frequently, often less than once a generation. For instance, in Minnesota, one of the only states for which a detailed record of land transactions is available, just under 120,000 acres were sold in 2013, out of 26 million farm acres in the state.

For this reason, the Minneapolis Fed’s second quarter (July) Survey of Agricultural Credit Conditions asked lenders a special question on land sales: “How does the volume of farmland sales this year compare to last year in your area?” As the chart shows, most respondents reported that the number of sales was down.

Farmland sales -- 9-24-14

A Minnesota lender said that the “land market is really a big guess, as very little [is] selling,” adding that the expectation was for “prices to decline as grain prices fall.”

These findings suggest that falling crop prices are helping to lower demand among farmland buyers, causing farmland values to level off (as economic theory would imply). Fewer farmland sales also imply that rather than selling into a plateauing market, farmers appear to be holding tight to their land at the moment.

Metro GDP: Move over Bismarck; Billings is top performer

The Bureau of Economic Analysis recently released estimates of 2013 gross domestic product for metropolitan statistical areas. Ten of the 15 Ninth District MSAs beat the national MSA average of 1.7 percent growth.

Billings was the top-ranked MSA in the Ninth District, at 7.1 percent, 11th best out of the 381 U.S. MSAs in growth rate, followed closely by Bismarck at 6.9 percent. However, not all metros are seeing strong growth. Both Great Falls and Missoula lost GDP in 2013 when compared with 2012, and three others failed to match the modest national average for MSAs.

MSA growth also has varying influence on state economies because output concentration differs across district states. Minnesota MSAs, for example, account for 84 percent of the total output for the state, while Montana MSAs account for only 38 percent of total output.

MSA GDP table -- 9-22-14

Global factors influence Bakken oil boom

Rapid energy development in the Bakken and Three Forks shale formations, also called tight oil formations, in North Dakota and Montana has led to production levels of over 1 million barrels of oil per day. The Bakken and other tight oil formations in the United States have contributed to overall gains in oil production domestically and worldwide. While tight oil production in the Ninth District has been spurred by advances in drilling and production technology, it also has been influenced by a number of global factors, as described in James Hamilton’s recent paper, “The Changing Face of World Oil Markets.”

Global demand for oil has increased over the past decade. However, global demand has not been fueled by developed countries, but rather by developing countries. From 2005 to 2013, oil consumption in the United States, Canada, Europe and Japan fell at an average of 700,000 barrels per day every year. Meanwhile, oil consumption has grown rapidly in developing countries, which now account for 55 percent of global oil consumption. China alone contributed 57 percent of the global increase in oil consumption since 2005.

On the supply side, Hamilton points out that between 2005 and 2013, oil production did not keep pace with pre-2005 trends. One factor was geopolitical disturbances, such as the overthrow of Muammar Gaddafi in Libya and subsequent sharp drop in oil exports. In addition, conflicts in Syria and Sudan, sanctions in Iran and attacks on Nigeria’s oil infrastructure have suppressed oil production.

A second factor contributing to stagnant oil production is geological limitations. While oil production in the Middle East increased modestly since 2005, the number of active drilling rigs increased at a faster pace. Meanwhile, oil production among major international energy companies decreased somewhat since 2005, despite tripling capital expenditures. Both observations indicate that the difficulty and cost of producing oil have generally increased.

With global demand increasing and growth in supply constrained, oil prices have remained near $100 per barrel since 2011. In response to new technology, but also relatively high oil prices, drilling in tight oil formations like the Bakken has contributed to a 2.9 million barrels per day increase in U.S. production since 2005. The growth in tight oil extraction more than offset the 0.6 million barrels per day drop among conventional wells in the lower 48 states, Alaska and offshore production, and has reversed the declining trend in U.S. oil production (see Charts 1 and 2). The net gain in U.S. production since 2005 equals the net increase in oil production worldwide.

Bakken tight oil -- 9-16-14