21 posts categorized "Construction"

Business survey: Ninth District should continue to grow

Results from a Federal Reserve Bank of Minneapolis ad hoc survey of 603 Ninth District firms (see methodology) reveals that economic activity at firms across industry sectors increased over the past four quarters and should continue over the next four quarters (see table).

Looking back: Firms across industries reported increased sales revenue, profits, productivity and employment. The availability of labor decreased, especially in the construction sector, where the majority of respondents reported a lack of available labor. Respondents from most sectors reported increases in selling prices and input costs. Wage and benefit increases were moderate. They also noted an uptick in availability of financing.

Looking forward: Respondents are more optimistic for the next four quarters, as a higher proportion of respondents reported expectations for increased sales revenue, profits, productivity and employment. The availability of labor is expected to continue to decrease. Respondents expect to raise prices and pay more for inputs. However, wage and benefit increases are expected to be moderate.

State economic outlook: Respondents expect their state economies to grow as well. Employment, consumer spending and profits are all expected to increase. However, the vast majority of respondents across industries expect inflation to increase.

August ad hoc table -- 8-21-14

Ad hoc survey methodology: On Monday, August 18, an email was sent to 5,000 contacts (not a random sample) from various sectors around the Ninth District. By 12 noon Wednesday, August 20, 603 responses were received, representing a 12 percent response rate. The largest number of responses came from finance (24 percent), professional services (20 percent), manufacturing (15 percent), real estate (13 percent), construction (8 percent) and nonprofits (7 percent).

Ninth District businesses remain optimistic

There has been a fair amount of attention given to the possibility of an economic slowdown in 2014. While only a small anecdote in the volume of economic data, a recent survey still suggests a positive outlook in 2014 for the Ninth District economy.

The Federal Reserve Bank of Minneapolis conducted an ad hoc survey of 135 Ninth District firms and asked them about their outlook for 2014 (see methodology). Over 80 percent expressed optimism for their community’s economy over the next 12 months. This is comparable to the 74 percent of respondents to the November 2013 fedgazette Business Outlook Poll. Results by sector show that construction respondents were the most positive with 9 out of 10 reporting optimism, followed by manufacturing (87 percent), professional services (80 percent) and finance, insurance and real estate (79 percent).

“Seeing improved trends,” said a Minnesota banker, reflecting the overall mood of respondents; 53 percent expect increased sales for their operations compared with only 9 percent that expect decreased sales. Part of the sales increase is due to higher productivity, which 65 percent said occurred at their firm over the past 12 months. Higher sales expectations are partially reflected in the 39 percent of businesses that expect to increase prices, while 8 percent expect to lower prices.

More companies also plan more capital investment—30 percent expect an increase over last year’s spending, while 12 percent predict a decrease. Companies are having a better time financing these capital expenditures through better access to bank credit; 19 percent reported improved access, while only 5 percent noted deteriorated access.

More companies are hiring, too, with 34 percent expecting more employment and only 9 percent expecting less. Firms are facing some challenges; 44 percent noted that securing workers was a challenge, and over half reported that complying with government regulation was a challenge. FIRE respondents, at 69 percent, reported the most concern about complying with regulations.

Ad hoc survey methodology: On Feb. 10, an email was sent to 1,000 business contacts from various sectors around the Ninth District. By 5 p.m. on Feb. 12, 135 responses were received, representing a 13.5 percent response rate. The largest number of respondents came from finance, insurance and real estate (44 percent), professional services (24 percent), manufacturing (14 percent) and construction (10 percent). The disproportionate number of FIRE responses could have some unknown influence on results.

Report: Minneapolis area real estate on the upswing

As many know, real estate runs in cycles. The market provides signals to build, and two years or more might pass before permits are approved, construction is done and people move in. If many people act at the same time, it can create a supply glut when expansion is followed quickly by contraction.

Integra Realty Resources (IRR), a commercial real estate services firm with an office in Minneapolis, has modeled and described four phases of this cycle. IRR identifies the first phase as recovery, a period in which vacancy rates decrease and there is little new construction, followed by an expansion phase with decreasing vacancy rates and moderately high new construction. The third phase is hypersupply, with high new construction and increasing vacancy rates. The last phase is recession, with increasing vacancy rates and low construction. Each phase also has three stages, or positions, within a phase.

IRR sees the current Minneapolis office market in the recovery phase (see Chart 1) with a 14 percent to 15 percent vacancy rate (depending on property class) and low construction and rent growth. There may be some movement in that market as plans for an office park near the new Minnesota Vikings stadium are under way and a medical company plans a multimillion-dollar, two-story 180,000-square-foot office, manufacturing and warehouse facility.

Integra CRE report MPLS -- CH1 -- 1-8-14

The Minneapolis apartment market is in the expansion phase, according to IRR (see Chart 2), with a 3 percent to 4 percent vacancy rate and high rent growth. But it’s in the third stage of expansion, nearing hypersupply—maybe not a surprise given the multitude of apartment buildings planned or under construction around the Minneapolis-St. Paul area. According to the city of Minneapolis, last year four of the top five construction projects by building permit valuation were apartments, with a combined value of $244 million.

Integra CRE report MPLS -- CH2 -- 1-8-14

Charts reprinted with permission from Intregra Realty Resources.

 

Housing recovery? Let’s say “improvement”

In the rush to put the bad days of recession and slow recovery behind us, there are many news accounts of recovering housing markets. But recovery is a matter of economic context. Recovered compared to what? Housing sales, prices and construction have all been rising of late, but it helps to see the path recently taken.

Through August of this year, for example, Ninth District states have seen single-family housing permits rise by 22 percent over the same period a year ago, just a tick off the national average of 24 percent. Performance of individual states ranged from North Dakota (9 percent growth) to Montana (37 percent). North Dakota’s modest growth belies surging growth in housing; the state didn’t have near the drop in permits experienced by other states during the recession and is currently at record levels, having seen strong annual growth since 2009.

But North Dakota aside, permits fell so far during the recession that it’s hard to deem the most recent period a recovery. In 2004, for example, almost 21,000 single-family housing units were authorized in Minnesota through August of that year—the most ever at the time or since. By 2009, it was barely 4,000. This year, it’s back up to more than 7,000 so far through August. That’s certainly an improvement, but not likely back to full health.

Part of the problem is not knowing what a healthy housing market looks like. Post-recession, it would appear that the pre-recession housing boom was not normal or healthy. And if that’s the case, then a full recovery might not be as far off as pre-recession permit levels might suggest.

Building permits thru August -- 9-26-13

Bakken banks growing faster than peers in shale plays elsewhere

The Bakken energy boom in western North Dakota and eastern Montana has had a catapult effect on banks in the region, helping to fuel rising deposits, fast loan growth and growing profits. But the Bakken is only one of a handful of major, active shale plays across the country. How does the performance of Bakken banks compare with banks in other shale plays?

New research by the Federal Reserve Bank of Minneapolis measured bank performance among banks located inside and outside shale plays in the Bakken, Arkansas, Louisiana, Oklahoma, Pennsylvania and Texas. It found that Bakken banks saw significantly higher growth in deposits, construction and land development loans, and commercial and industrial loans, as well as an increase in profits compared with banks in other shale plays.

“While there are some points of similarity between the relative activity of Bakken banks and banks in other shale areas, the exceptional performance of Bakken banks has generally not been replicated in other shale areas,” noted bank authors Ron Feldman, executive vice president, and Stacy Jolly, financial analyst.

Among the more notable results (see also the accompanying charts at bottom):

• Deposits in Bakken banks increased 49 percent from 2010 to 2012. The next closest shale region was Louisiana, where bank deposits (in shale counties) rose 39 percent, but over a longer period (2008 to 2012).

• Construction and land development loans originating from Bakken banks almost doubled over the previous year ending in March 2013; over the previous three years, these loans grew by 165 percent to $209 million. Commercial and industrial loans within the Bakken saw a more modest rise (29 percent since the end of fourth quarter 2011), but that rate was still much higher than elsewhere. Owing in part to the Bakken’s rural nature and lack of population, residential loans were also higher as workers flocked to the region.

• Profitability of Bakken banks, as calculated by return on average assets, has been slightly higher and more consistent than banks in other shale regions, though banks in Pennsylvania’s Marcellus shale also have seen a persistent rise in profitability since 2009.

 Bakken banking 3 charts -- 8-20-13

For an extensive set of tabbed charts outlining bank performance in shale states, go the original research published online in the fedgazette.

A leaky drinking water system

The heat of summer is probably the best time to let you know your drinking water infrastructure is badly in need of some upgrades.

In 2011, the Environmental Protection Agency began a nationwide assessment of drinking water systems, randomly surveying more than 2,700 medium and large community water systems. The survey collected data on capital improvement projects that system respondents deemed necessary over the coming 20 years. Improvements included replacement or rehabilitation of existing infrastructure due to age or deterioration, as well as new or expanded infrastructure necessary for current population needs or to comply with regulatory requirements.

Last month, the EPA released its final report, which estimated nationwide needs of $376 billion, a slight increase in the amount identified in a similar 2007 survey ($369 billion). Among Ninth District states, the report pegged capital investment needs for Minnesota and Wisconsin at $7 billion and $6.7 billion, respectively. (These were the only district states with enough surveys to allow for a state-based breakdown.) Needs in Minnesota rose more than 8 percent from the 2007 survey, while Wisconsin drinking water needs rose by almost 2 percent.

The report broke down needs by system size as well as capital investment categories (distribution, treatment, etc.). The needs of the two states were very similar in terms of categories—for example, the majority of investment needs in both states lie in transportation and distribution systems (see Chart 1). But Minnesota has a larger need among medium-sized drinking water systems (see Chart 2).

Drinking water -- 7-17-13

The other Bakken pipelines: Water for fracking

Much pipeline development in the Bakken region of North Dakota and Montana is focused on transporting crude oil. But pipe is also being laid to carry a humble commodity essential to oil production in the region: water.

Copious amounts of water are required to extract oil from the Bakken’s shale beds. The fracking process—injecting a mixture of water and chemicals into shale rock to release oil—consumes up to 8 million gallons of freshwater per well. And along with oil and natural gas, wells produce even larger amounts of subterranean saltwater over their operating life. “The first thing that’s produced out of a well is water; the last thing ever produced out of a well is water,” said Rodney Wren, president of New Frontier Midstream, a Texas-based developer of oil and gas infrastructure.

Today, most freshwater used for fracking is trucked to wellheads, and tanker trucks also haul away saltwater and used frac (“flow back”) water for disposal in deep wells. Trucking water raises costs for producers—fees in the Bakken range from 2 to 10 cents per gallon, depending on miles traveled—and contributes to wear and tear on rural roads.

It’s cheaper to pipe water to and from the wellhead, especially in areas where wells are close together. Brigham Exploration, an oil company acquired by Statoil of Norway in 2011, was a leader in laying water pipelines in the Bakken, installing them simultaneously with crude oil and gas lines. Incoming pipe delivers freshwater for fracking from municipal or rural water systems; outgoing pipelines carry away wastewater for disposal.

There are no public data on oil-industry water networks in the Bakken, but Statoil, New Frontier and other petroleum and energy transportation firms are laying new water pipe to wellheads. New Frontier has plans to build wastewater gathering systems and disposal wells near Dickinson, N.D., and Sidney, Mont., to serve oil and gas producers in those areas.

The next step in oilfield water management is recycling frac flowback water. Statoil has tested a fracking method that uses a 50:50 mixture of flow back water and freshwater. The company aims to raise the proportion of flow back water used to 80 percent—greatly reducing the volume of freshwater that must be transported to the wellhead.

For much more on pipelines and other energy transportation infrastructure in the Bakken, look for the upcoming April issue of fedgazette.

Dusting off the construction hammers

It’s been a long road, but signs of the housing recovery continue to build.

The U.S. Census recently released annual housing data showing that last year saw significant housing growth across the Ninth District and the country (see Chart 1). While growth is good news, the data context is critical. The preceding year was one of the poorest on record. Still, five Ninth District states saw total permits rise at least 20 percent; all but Wisconsin saw permits increase more than 30 percent. Growth occurred in both single-family and multifamily categories; booming North Dakota was the only state to see a bigger increase in single-family permits.

But the show stopper was multifamily permit growth in Minnesota last year, which rose more than 200 percent over 2011. While the state’s outlier growth comes in part from a poor 2011, the 6,700 multifamily permits were the most since 2005. A dearth of new multifamily units since then has led to steadily tighter rental vacancy rates in the Twin Cities and across the state (see Chart 2), and is likely a major factor in the state’s hyper multifamily growth last year.

For more discussion about rental markets in Minnesota and the rest of the Ninth District, see the July 2012 fedgazette.

Housing permits & vacancy -- 2-27-13

More evidence that businesses expect to grow, increase hiring

Signs are upbeat that the Ninth District economy will continue to grow, according to a recent poll of more than 300 business contacts from across the district (see methodology below).

For starters, 40 percent plan to increase employment at their firms, and nearly three-quarters of these firms cited expected high sales growth as the most important factor. Only 7 percent plan to decrease employment. In the same survey a year ago, 38 percent planned to increase employment and 10 percent planned to cut jobs.

Other important factors cited for new hiring were overworked staff, improved financial condition of firms and the need for additional skills. The majority of respondents plan to use word of mouth and advertising to get new employees. Twenty-eight percent plan to use a recruiting firm, and surprisingly few (9 percent) plan to raise starting pay.

For those respondents not planning to hire additional people this year, most expected low growth sales and a desire to keep operating costs low. Many reported difficulty finding skilled candidates. Though fiscal policy developments were not a factor for most respondents, 35 percent said they had a detrimental effect on hiring and 4 percent said they would increase hiring plans.

The survey also asked about wages and benefits; 36 percent expected wage growth of 2.5 percent or more, and a similar amount expected positive wage growth of less than 2.5 percent (see Chart 1). Respondents generally believed benefit increases would be larger than those for wages (see Chart 2).

  Ad hoc survey Ch 1-2 -- 2-5-13

Methodology: On Jan. 15, the Minneapolis Fed invited, via email, about 1,000 Beige Book contacts from across the Ninth District to answer the special question in a web-based survey. By Jan. 31, 303 contacts had filled out the survey. The respondents come from a variety of industries (see table below).

Ad hoc survey METHOD TABLE -- 2-5-13

A long road back for wood products firms

There’s good news for the Ninth District’s wood products industry: After years of retrenchment caused by the housing collapse and subsequent recession, the bleeding appears to have stopped.

Sawmills and manufacturers have reported increased output and revenues this year as the U.S. economy slowly improves, increasing demand for construction lumber and other wood products. After bottoming out in 2010, industry employment in Minnesota, Wisconsin, South Dakota and Montana rose slightly last year, according to government labor figures (see chart).

Wood products Ch 1 10-18-12

The bad news is that the industry has a way to go to recover thousands of jobs lost over the past decade. Montana saw the steepest drop in wood manufacturing jobs; employment fell by more than half between 2001 and 2010. The state’s sawmills were already in decline before the housing crisis, due to rising operating costs and log prices.

Employment in Minnesota and Wisconsin followed a similar downward path after the housing crash as demand sagged for oriented strand board, paperboard and office paper. Wood products workers in South Dakota fared better; during the housing downturn, many firms shifted their focus to the home remodeling market, shoring up sales and preserving jobs. But wood products manufacturers in the state still shed about 250 jobs over the past decade.

It’s questionable whether wood products employment will ever return to the levels seen at the height of the housing boom. In recent years, rising productivity has reduced the number of workers needed to run sawmills, paper mills, particle board plants and other forest products operations. Neiman Enterprises, a large sawmill operation in the Black Hills of South Dakota, has ramped up its lumber production since 2010. But over the same period, investments in automation have allowed the firm to reduce its headcount, said resource manager Dan Buehler.

And in western Montana and the Black Hills, a persistent infestation of mountain pine bark beetles has killed millions of pine trees, threatening to restrict future log supplies. (For much more on the impact of the pine beetle outbreak on the wood products industry, watch the fedgazette website for the upcoming article, “The beetle and the damage done.”)

Research Assistant Dulguun Batbold contributed to this Roundup post.

 

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