59 posts categorized "Economic Development"

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).

Start me up: Tech start-ups in the Midwest

In recent years, tech start-ups have made big headlines for massive rounds of funding by venture capitalist firms looking to invest in the next Facebook or Twitter. In a geographic sense, Silicon Valley receives by far the most start-up funding, according to data from PricewaterhouseCoopers and the National Venture Capital Association.

But the Midwest has two metro areas—Chicago and Minneapolis-St. Paul, Minn.—with considerable start-up funding. Comparing the tech start-up financing in these two regions shows that Chicago has a considerable lead over the Twin Cities in an absolute sense, with more than $3 billion in start-up funding from 2010 to 2013, according to local sources in each region (see Chart 1).

However, viewed on a per-capita basis, there is more balance (see Chart 2). While Chicago still holds a considerable edge, Minneapolis-St. Paul has been slowly gaining some momentum in start-up funding over this period. Much of Chicago’s funding in 2011—easily the largest annual gap between the two metros—is also due to a single start-up, when Groupon raised $972 million.

Tech startups -- 8-19-14

Head of the 2013 class (again): North Dakota

North Dakota is like the kid at school who gets all the awards. She can’t help it. Everyone else tries hard, but she’s just that good.

The Bureau of Economic Analysis came out with its most recent estimates on state gross domestic product for 2013. Several Ninth District states were well above average, with Montana and South Dakota both cracking 3 percent and Minnesota not far behind at 2.8 percent.

But North Dakota was running laps around most states at 9.7 percent growth last year. It beat the next closest state (Wyoming) by two full percentage points (see Chart 1).

Those following economic activity in the Ninth District know that North Dakota’s performance is no fluke, the result of a sustained oil boom that started in the early part of the last decade. Since 2003, the state has seen its economy grow at an annual compound rate of 6.6 percent (adjusted for inflation). That's double the growth rate of all but four states over this period.

To put that in context, the state’s economy has roughly doubled since 2003 (inflation-adjusted) to $56 billion in annual output. By comparison, the Montana and South Dakota economies have also done very well among states over this period, ranking among the top quarter in annual growth. Considerably smaller in output compared with Montana and South Dakota in 2003, North Dakota easily leapt over both in total output over the past decade (see Chart 2).

2013 state GDP Ch1

2013 state GDP Ch2

 

New businesses: The young and the (hopefully) established

Research has shown that young firms are an important source of economic activity and innovation. While their numbers took a beating during the recession, there are signs of life in Minnesota for new establishments. Unfortunately, employment at these businesses has not yet rebounded.

The Bureau of Labor Statistics tracks the annual number of establishments by age, as well as employment at these businesses. In Minnesota, total establishments less than one year old tended to run around 10,000 annually—give or take—until the recession, when they plunged to a low of 7,300 in 2009 (see chart). They have rebounded modestly in recent years, including 9,500 in 2012.

Survival rates of these young establishments have also faltered, though this trend got started before the recession. From 1994 to 2003, new establishments had an average five-year survival rate of almost 56 percent. Survival rates for the 2004 cohort group—those still around in 2009—fell below 50 percent and got as low as 44 percent before rebounding to 49 percent for the most recent 2008 cohort group.

But one important measure has yet to recover: jobs. Since 2001, employment at these young businesses has fallen steadily, getting cut in half to 40,000 as recently as 2011—with most of the loss coming during and subsequent to the recession (see chart). While there has been a small bounce over the last two years, young establishment employment is still well below prerecession levels.

  Establishments -- 4-25-14

Per capita income race: It’s North Dakota by a length

Personal income growth slowed last year for many states. And then there is North Dakota.

Nationwide, personal income increased by 2.6 percent last year, down from 4.2 percent in 2012, according to estimates from the U.S. Bureau of Economic Analysis. While every state saw total personal income rise at least 1.5 percent, North Dakota was doing laps around the rest of the field with 7.6 percent growth, almost double the next fastest rate (Utah, 4 percent). Among Ninth District states (highlighted in dark red in the chart), South Dakota saw the smallest increase, at 1.8 percent.

In fact, North Dakota has been among the leaders in income growth for more than a decade. From 2003 through 2013, personal income in the state has risen at a compound annual rate of 6.8 percent (not adjusted for inflation), according to BEA figures. That’s 50 percent faster than the next closest state (Louisiana, 4.45 percent). Other district states saw annual compound growth of between 2.3 percent (Michigan) and 3.9 percent (South Dakota). Over this period, North Dakota has climbed from 37th in per capita income in the country to third ($57,000), behind only the District of Columbia and Connecticut.

BEA personal income 2013 Ch1

Black fiscal gold: North Dakota oil taxes expected to keep pumping

In the midst of a federal government shutdown over raising the debt ceiling, it’s hard not to stop and gawk at North Dakota’s fiscal position stemming from rapidly rising oil and gas production in the western part of the state.

As recently as the 2003-05 biennium, oil and gas production taxes totaled just $120 million. A decade later, this tax revenue is expected to hit $5.2 billion in the current biennium through fiscal year 2015.

Comparatively little of that money—$300 million, by state statute—goes to the state general fund for lawmakers to spend as they please. Property tax relief has also been championed in recent budgets, but allocations for this priority remained unchanged at $342 million despite the rise in oil and gas tax revenue.

North Dakota has taken the unique step of funneling a significant amount of oil and gas taxes to permanent trust funds. This biennium, the state expects to divert $2 billion toward the Legacy and the Common Schools trust funds and does not include several hundred million in expected royalties from production on state lands that will also go to the school trust. (For more background and discussion on permanent trusts in North Dakota and other top energy producing states, see the recent fedgazette article, “Saving for a rainy, oil-free day.”)

But there was still plenty left over to finance new roads, schools and other infrastructure to deal with breakneck development across the Bakken oil-producing region. But rather than dramatically increase departmental budgets, the state has preferred to allocate money to special-use funds (which can be tapped for a variety of purposes), and to send more money directly to local governments to deal with local needs. These allocations also saw the largest increases in the current state budget. (For more on the fiscal trends among North Dakota local and state governments, see “Congratulations on your oil boom” in the July fedgazette.)

This tax revenue shows little sign of slowing. In late September, Department of Mineral Resources Director Lynn Helms told an audience of industry and local government officials that he expects the state’s daily oil production will double to 1.6 million barrels by 2017.

Oil & gas allocations -- 10-8-13

Little GDP engines that could: District metros see strong growth

Metropolitan regions now account for more than 90 percent of the nation’s gross domestic product (GDP), according to the Bureau of Economic Analysis. Given their economic and geographic diversity, metros offer a more detailed look at growth across states and the nation—one which shows that metros in the Ninth District are generally seeing faster growth.

Nationwide, 305 of 383 metropolitan regions (80 percent) saw economic growth in 2012. In the Ninth District, 13 of 15 metros grew last year, or almost 87 percent, and two of three district metros beat the national average of 2.5 percent (see left chart). A large region encompassing much of the lower half of Minnesota—including the Twin Cities, St. Cloud, Rochester and Mankato metros—saw growth over 3 percent (see map, at bottom).

But as has become the norm, North Dakota metros were leading the metro pack, with Bismarck at the top at 8.5 percent growth last year, one of the top rates in the country. The region is seeing spillover effects from strong growth in the Bakken oil shale region to the west. Other shale regions are also seeing explosive growth; in the Eagle Ford oil shale region of Texas, the metros of Midland and Odessa both saw growth of 14 percent.

There were two district metros whose economies shrank last year: Duluth, Minn., and Great Falls, Mont. The source of contraction is hard to determine exactly. In the case of Duluth, the city and broader region experienced a major flood in June, which likely dampened economic activity, particularly tourism; the previous two years it had experienced annual growth near 3 percent.

Last year’s growth among district metros continued a general trend in outperforming metros elsewhere. Over the previous three years, 11 of the district’s 15 metros had faster annual growth than the national average (see right chart).

GDP of metros -- CH1-2

GDP metro MAP - 9-18-13

West-central Minnesota is manufacturing strong job growth

While pundits and policymakers loudly mourn the general loss of manufacturing jobs, the west-central region of Minnesota has quietly enjoyed robust job growth in this sector.

From 1990 to 2012, the nation saw a continuation of the downward trend in manufacturing jobs. That trend was exacerbated by the Great Recession, which hit manufacturing states like Minnesota and Wisconsin hard. Minnesota has experienced a small uptick in manufacturing jobs in recent years, but not nearly enough to offset the losses just from the Great Recession.

But a nine-county region in west-central Minnesota—a federally designated economic development planning district bureaucratically referred to as Minnesota EDR4—has seen job growth above and beyond the recession’s downturn. These nine counties (Becker, Clay, Douglas, Grant, Otter Tail, Pope, Stevens, Traverse and Wilkin) have seen their manufacturing job base increase by 53 percent from 1990 to 2012. That contrasts with a national decline of 33 percent over the same period (see Chart 1).

Much of that growth occurred during the 1990s; in Minnesota, manufacturing jobs grew by almost 60,000 during the decade, and the “R4” region similarly grew by about 2,500 jobs, hitting close to 10,000. But over the next decade-plus, Minnesota manufacturing saw a steady decline, shedding about 95,000 jobs—about one in four—by 2012. But the R4 region grew another 15 percent over the same period.

Wages have also grown in the region, though their performance is less compelling. Since 1990, average weekly (inflation-adjusted) manufacturing wages have grown by about 36 percent both nationwide and for the R4 region (see Chart 2). However, there remains a considerable gap in actual weekly pay in the region compared with the national average for manufacturing workers.

West-central MN manufacturing jobs CH 1-2 -- 9-3-13

What makes for this island of good manufacturing activity? There are likely many reasons, including industry composition, available labor, transportation access and prevailing wage scales, which are lower in the region compared to the national average.

West Central Initiative (WCI), a nonprofit organization that provides financial support for worker training in the region, credits part of the success to intensive workforce development and training by employers. Regular surveys on business outcomes from employee training are conducted in the region by an independent firm and facilitated by Enterprise Minnesota, a manufacturing consulting organization and one of 59 federal Manufacturing Extension Partnership affiliates. These surveys suggest that training efforts often paid off for companies. Another recent study of labor turnover from 2006 to 2011, commissioned by WCI, also found that average labor turnover among regional firms participating in training programs was lower and statistically significant in 22 of 23 quarters studied. Sources in the region credit organic growth as well as growth from acquisition.

WCI identified about 30 companies with 100 or more employees in the region, and that size has allowed some to grow by acquisition.

“Growth accelerates with growth,” according to Bill Martinson, a business development adviser with Enterprise Minnesota. “As companies get bigger, they accumulate more human and capital resources with which to do things. A big boost is the ability to do acquisitions. We didn’t see acquisitions until the last few years.” Martinson added that many of the companies are now supplying multinational corporations, “which makes them less susceptible to a weakened U.S. economy.”

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.

County maps highlight the boom in the Bakken

The Minneapolis Fed’s Bakken Oil Boom web page features articles and data that describe the rapid expansion of economic activity in western North Dakota and eastern Montana. A recent addition to the site highlights changes in the region’s unemployment rates and employment growth rates during the boom relative to surrounding counties and to counties a few hundred miles away.

For example, in April 2004, just before horizontal drilling and hydraulic fracturing started to move into the area, unemployment rates in the Bakken already had relatively low unemployment rates (see counties in black outlines). The new online feature allows users to click through the maps and see how county unemployment rates have changed over time.

County maps Bakken 2013 (1) -- 8-13-13

After the recession ended in June 2009 and during the early part of the recovery, unemployment rates were relatively low in the Bakken area, while unemployment rates exceeded 7 percent in the western and eastern part of the Ninth District. Led by the Bakken region, North Dakota as a whole was an oasis of economic activity, while most other states were digging out of a hole. By April 2013, unemployment rates in most Bakken counties were below 3 percent.

While unemployment rates also decreased in other areas, the Bakken is unique in its concentration of low county unemployment rates. The exception in the Bakken is Roosevelt County, with an unemployment rate of almost 7 percent in April 2013. Roosevelt County has a lower share of oil production compared with many other Bakken counties and includes the Fort Peck Indian Reservation, which has relatively higher unemployment.

A similar story emerges with employment growth. In fourth quarter 2004, employment growth was mixed in the Bakken, with four of the 12 counties posting decreases. By fourth quarter 2010, employment in the Bakken was growing briskly in almost all of its counties, while employment levels were also decreasing in many areas outside the Bakken. Strong growth has continued in the Bakken through the fourth quarter of 2012. County maps of employment change over time are similarly available on the Bakken website (scroll toward the middle of the page).

Previous analysis by the fedgazette looked at the relationship between unemployment rates and wages in the Bakken relative to unemployment rates and wages in counties 100 miles to 400 miles away (see Bakken activity: How wide is the ripple effect?). Counties within 100 miles of the Bakken showed lower unemployment rates than those counties farther away, and counties within 100 miles to 200 miles of the Bakken saw higher unemployment than those within 100 miles, but lower unemployment than those beyond 300 miles.

See these trends by scrolling through the county maps. Since 2009, the counties directly surrounding the Bakken had relatively low unemployment rates, with the Bakken counties having the lowest rates. There is a similar pattern for employment growth in recent years, with relatively solid growth surrounding the oil patch but the strongest growth in Bakken counties.

 

fedgazette Roundup Contributors

Recent fedgazette Articles