53 posts categorized "Michigan"

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

 

All fall down: Rising mortgage rates and the refi crunch of 2013

The mortgage refinance business headed into 2013 on the upswing, but the pendulum swung swiftly in the other direction by year’s end. And this reversal included borrowers across the credit-score spectrum.

According to figures from Black Knight Financial Services (BKFS), which typically represent 60 percent to 70 percent of the mortgage market, the number and dollar volume of refis in the United States and Ninth District trended up in the second half of 2012, reaching a two-year high in the fourth quarter of 2012. Activity remained high in January 2013, when BKFS reported over 7,800 new refis worth almost $1.4 billion in the Ninth District.

But then refi activity began a steep slide (see Figure 1). Between January 2013 and January 2014, activity reported by BKFS fell by almost 80 percent, to about 1,600 new Ninth District refis worth less than $285 million. Most of the decline occurred after May, when mortgage interest rates began moving up from about 3.5 percent to a range of 4.2 percent to 4.5 percent in the second half of the year. By January 2014, Ninth District refi activity was at its lowest level in the past 10 years of BKFS data, even weaker than during the refinance bust of 2008 at the height of the Great Recession.

Refi Figure 1

The sensitivity of refi activity to interest rates is easy to understand, since obtaining a lower rate is one of the main motives for refinancing. Big surges in refi activity have long tended to follow drops in mortgage rates, and just the reverse when mortgage rates rise.

However, grouping borrowers into low, medium and high credit score categories suggests that movements in housing prices have also influenced refi activity over the past 10 years (see Figure 2). For example, borrowers with low credit scores (below 660) have accounted for less than 10 percent of BKFS’s Ninth District refi dollar volume since the housing bust, but represented as much as a third of market volume during the housing boom (2004-06). Rising home prices at the time boosted borrowers’ home equity and made refinancing low-score borrowers seem safe to lenders and attractive to these borrowers, for whom cash-out refinancing (i.e., borrowing more than the former mortgage balance) was a cheap and accessible form of liquidity. When home prices fell and credit standards tightened after 2006, refi activity by low-credit-score borrowers crashed and has generally remained much lower.

Refi Figure 2

By contrast, borrowers with high credit scores (780 or more) appear to refinance mostly to obtain lower mortgage rates. Since 2009, refi activity by these borrowers has accounted for about one-third to one-half of the value of Ninth District refinancings, a marked increase compared to the group’s share during the housing boom (less than 16 percent ), when the rate on 30-year conventional mortgages was trending up. As mortgage rates trended down over the next six years, and especially when they dipped abruptly, high-score mortgagors took advantage of these opportunities to lower their financing costs by elevating their refi activity.

Borrowers in the middle, with credit scores between 660 and 779, dominate the refi market, accounting for half to two-thirds of the value of Ninth District refinancings reported by BKFS since 2009 (compared to 65 percent to 70 percent a decade ago). These borrowers seem to have been sensitive to both interest rates and home prices. Like the low-score borrowers, their refi activity was on average higher during the housing boom than afterward. But, like the high-score borrowers, middle-score borrowers have refinanced fairly aggressively in response to post-boom interest rate dips.

Despite their varying refinance motives over the past decade, Ninth District mortgagors in all three credit score categories cut back sharply on refinancing in 2013. By January of 2014, the dollar volume of refi activity was down from January 2013 by 68 percent among low-score borrowers, 77 percent among middle-score borrowers and 85 percent among high-score borrowers. For all three groups, this represents the steepest 12-month fall over the past decade. The large scale and relative uniformity of the decline across credit score categories suggests that last year’s big rise in mortgage interest rates was indeed the main factor behind the refi crunch of late 2013.

Higher ed endowments rebound in 2013 in district states

Higher education budget officials got a bit of good news this year as endowments at many universities posted strong gains in assets in 2013, according to an annual report from the National Association of College and University Business Officers (NACUBO) and Commonfund Institute.

Nationwide, assets in 835 endowments tracked by the report grew by 12 percent to almost $450 billion. Assets declined slightly in 2012.

There are 40 higher education endowments of at least $20 million in Ninth District states. In 2013, their combined assets grew by 14 percent to $10 billion. Sixty percent of these endowments benefit private institutions, but they hold of minority (40 percent) of assets. The two biggest, by a considerable margin, support the University of Minnesota ($2.8 billion) and the University of Wisconsin ($2 billion). Both had strong results in 2013, but Minnesota’s assets leapt by more than 21 percent (see Chart 1).

Endowments typically grow by both investment returns and donations, though the NACUBO report does not detail these different asset streams. Growing endowments mean more resources for universities because IRS regulations require that foundations disburse at least 5 percent of assets annually—a minimum of $500 million this year alone from endowments in Ninth District states. This disbursement rule is also one reason some endowments have struggled to return to prerecession levels.

The strong asset increase last year at the University of Minnesota (which, technically, is two separate endowments) belies a long road to asset recovery, as asset levels are still slightly below their peak 2007 levels (see Chart 2).

Most other endowments have been doing better. Among 24 other foundations (with available figures from 2007), assets grew 15 percent over this period. Three endowments saw zero or negative growth, but 10 had asset growth of 20 percent or more since 2007, including those benefiting the University of Wisconsin and the College of St. Scholastica, a small private college in Duluth, Minn., which saw its endowment nearly double over this period to $54 million.

Endowments -- 4-9-14

Correct me if I’m wrong: State corrections spending up

States will spend $40 billion to incarcerate and supervise offenders in fiscal year 2014, according to a new report by the National Conference of State Legislatures. That’s 2.5 percent higher than the previous fiscal year, but there is a wide divergence in corrections spending among states.

North Dakota, for example, is seeing the second-highest spending increase this year among states, at 8.2 percent (see Chart 1), according to the NCSL report. South Dakota and Minnesota were other district states that saw costs rise faster than the national average.

Corrections CH1 -- 4-1-14

The reason for North Dakota’s big increase is largely tied to its booming economy, which is drawing many new people to the region, especially among a demographic (younger males) more prone to have run-ins with the law.

Data on prison population and other corrections activity are not as up to date as budget figures. But leading up to this year, North Dakota’s corrections system was seeing increased pressure. The state saw its prison population increase 25 percent from 2003 to 2009, a trend that has subsided somewhat more recently, rising 3.5 percent from (fiscal years) 2011 to 2013, according to the state’s Department of Corrections. But the number of offenders on parole or probation (and needing supervision) has risen 12 percent from June 2011 to June 2013 (see Chart 2).

The mix of inmates housed has also changed, with a sharp rise in violent offenders and an increase in sex offenders, while the number of inmates with drug offenses has declined considerably (see Chart 3; 2012 data are the most recent available). Among drug offenders, the number incarcerated for drug dealing has risen slightly (8 percent), while the number in prison for simple possession has been cut almost in half.

Corrections CH2-3 -- 4-1-14

Then and now: Labor markets in Ninth District counties

Unemployment rates in the majority of District counties were higher in 2013 compared with 2007, the year before the Great Recession (see map). Unemployment rates in several counties in the eastern and western parts of the district were more than one percentage point higher in 2013 compared with 2007. Meanwhile, most counties in western North Dakota benefiting from the energy boom posted decreases in unemployment rates.

County unemployment map -- 3-24-14

Overall performance can also be seen in Charts 1-6, which compare 2013 unemployment rates with rates in 2007. Dots above the 45-degree line indicate the unemployment rate in 2013 was higher than prior to the recession in 2007. Dots below the 45-degree line indicate that the unemployment rate in 2013 was lower than the rate in 2007. In each figure the respective state’s counties are highlighted in red.

North Dakota has the largest share of counties with lower unemployment rates in 2013 than in 2007. Meanwhile, unemployment rates in Upper Peninsula of Michigan counties were all higher in 2013, and have been generally higher during this period than most other district counties.

County unemployment charts 1-6 -- 3-24-14 -- 3-24-14

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

Foreign students helping to meet demand for STEM graduates

Nationwide and in the district, there’s widespread concern that colleges and universities aren’t producing enough STEM (science, technology, engineering and mathematics) workers.

Whether or not the district faces a STEM crunch—an inadequate supply of STEM graduates to meet employer demand—students from other countries account for a significant and rising share of STEM degrees awarded by higher education institutions in the region.

In 2012, about 7 percent of bachelor’s degrees awarded by district institutions in STEM fields such as computer science and engineering went to international students, according to the National Center for Education Statistics (see chart). There was marked variation among states, with North Dakota posting a foreign-awards rate almost five times higher than South Dakota's. The U.S. average was 5 percent.

The share of STEM bachelor’s degrees earned by international students has increased since the Great Recession, outpacing overall growth in foreign four-year degrees. The proportion of STEM master’s degrees and doctorates earned by foreign students is much higher—about 40 percent districtwide—but has declined slightly over the past decade.

International college enrollment has risen in the district since the mid-2000s, slowed only briefly by the recession. Many foreign students, including those from countries such as China and Korea that score high in math and science on international tests, opt to pursue STEM majors. U.S. students are less likely to declare majors in STEM fields—hence, efforts by educators, employers and others to increase the number of homegrown STEM graduates.

For much more on STEM education and international students, watch for the upcoming April issue of the fedgazette.

Foreign STEM degrees -- 3-12-14

March madness: ACA enrollments racing to sign-up goal

The March 31st deadline to sign-up for private health insurance plans as part of the Affordable Care Act is fast approaching, and enrollments in some states are sprinting toward their projected goals while others are lagging, according to data released last week by the U.S. Department of Health and Human Services.

As of March 1, enrollments in Michigan and Wisconsin are at 90 percent of enrollments projected by HHS before the new law’s launch (see chart). In contrast, fewer than 7,000 people have enrolled in South Dakota, or just 36 percent of its 19,000 projection. Minnesota is the only district state that constructed its own health plan exchange (all others are using the federal healthcare.gov exchange). Enrollment in private plans to date through the MNsure exchange was just 48 percent of the goal of 67,000.

States and the federal government are also keeping a close eye on the number and proportion of young people signing up. For health insurance markets to work efficiently, the number of younger (and healthier, actuarially speaking) enrollees has to balance out the number of older, less healthy enrollees. It was originally estimated that 18 to 34 year olds would make up 35 to 40 percent of all enrollees. So far, it’s just 25 percent, and has remained fairly consistent in monthly reports. Among district states, only about one in five Wisconsin enrollees are in this young age bracket, while South Dakota has one of the highest rates, at 29 percent.

ACA March update -- 3-17-14

Stop being so negative: Rising prices help underwater mortgages

Last year is generally regarded as a strong year for housing, with improved activity in starts for new single-family units, higher sales of existing homes and rising prices. Those rising prices are good not only for sellers, but for existing homeowners with a mortgage, because rising prices mean more equity.

Last year saw a dramatic drop in the percentage of mortgages with negative and near-negative equity, according to CoreLogic, a property information, analytics and services company. Negative equity is when the balance of the mortgage is more than the value of the home; near-negative equity has a loan-to-value ratio of between 95 percent and 100 percent. Nevada, for example, saw a 41 percent decline in negative and near-negative equity in 2013. The bad news for Nevada is that its final rate of 33.5 percent was still the highest in the country (see chart).

Ninth District states fare comparatively well on mortgage equity measures. North Dakota not only has the lowest rate of mortgages with negative and near-negative equity, it has held the top spot for two consecutive years. Montana holds the fourth-best ranking, and both states saw small improvements in 2013. Minnesota ranks 21st in the country and saw the percentage of underwater and nearly underwater mortgages drop from 21.5 percent to 13.2 percent. Wisconsin’s 2013 rate is still comparatively high and saw only modest improvement over 2012. While Michigan continues to have one of the highest rates in the country, it saw the fourth-best improvement of any state in 2013. No data were available on South Dakota.

Negative equity -- 3-13-14

Student loan defaults widespread, and rising

First, the good news: According to the National Association of Colleges and Employers, U.S. firms expect to hire almost 8 percent more class of 2014 grads than they hired from the class of 2013.

The bad news: It can’t come fast enough for many attending college, because many are facing unsustainable debt and defaulting on their student loans.

Nationwide, the student loan default rate jumped this year to 14.7 percent (for those starting loan repayments in fiscal year 2010), a significant increase from 13.4 percent (for those starting repayment in 2009; for default rate background and methodology, see description at the end). Every district state saw its cumulative default rate also increase for the 2010 cohort group, though rates are typically much lower than the national average (see table, left). North Dakota’s rate of 5.6 percent for the 2010 cohort group is a small fraction of the national rate and has risen comparatively little over the past two years.

But other district states have witnessed large jumps in their default rates, and all but North Dakota are now above or approaching 10 percent, led by South Dakota’s 13 percent. Higher default rates are widespread among institutions; for the roughly 250 district schools with students in the 2010 repayment cohort, 182 saw their default rate rise; for 110 schools, it grew by 2 percentage points or more.

In most states, proprietary and two-year schools are bearing the brunt of higher default rates. In Minnesota, for example, default rates have gone up across the board, but the increase and overall rates at four-year public and private universities are a fraction of those seen among public two-year and private, proprietary schools (see chart, right).

Student loan defaults -- 2-20-14

Default rate description and methodology: Student loan defaults at the institutional level are tracked and released annually in the fall by the U.S. Department of Education. Data were gathered for 273 higher education institutions in Ninth District states, including all of Wisconsin. The agency uses a three-year default rate, which tracks those entering repayment (whether graduated or not) at any point during a federal fiscal year (Oct. 1 to Sept. 30) and defaulting by the end of the third fiscal year. Student loans are not in default until they are 270 days late. In essence, default rates measure those ex-students who have fallen more than nine months behind in loan repayments at some point within 24 to 36 months (depending on how close to the end of the fiscal year they started repaying loans). The agency also tracks two-year default rates, but will be phasing this measure out in favor of the three-year default rate.