The biggest trophy: Out-of-state hunters and anglers

A new U.S. Fish and Wildlife survey shows that district states have a unique profile when it comes to wildlife recreation, particularly when it comes to economic activity resulting from the great outdoors.

The survey, conducted every five years, measures participation in and expenditures for hunting, fishing and wildlife watching (observing, photographing and feeding wildlife; includes those who do it from home or nearby). Almost across the board, Ninth District states have higher than average rates than the nation as a whole—maybe not surprising given the natural assets and wide-open spaces in each state (see Chart 1).

Those activities bring with them considerable revenue, and the more who come for the outdoors, the higher the returns. Spending per participant in most district states is very consistent with the national average of about $1,500. But South Dakota and (especially) Montana are exceptions, seeing significantly higher spending by participants (see Chart 2, right bars). With high participation and high average spending by those participants, those states see almost quadruple the in-state spending on a per capita basis (see Chart 2, left bars).

 

The large majority of those revenues are generated by hunters and anglers, despite the fact that there are considerably more wildlife watchers in most states (Minnesota and South Dakota are exceptions). Across district states, the average hunter/angler spends two to five times more than the average wildlife watcher (see Chart 3, at bottom).

But more fundamentally, high participation rates and expenditures are driven by nonresidents, who tend to spend more money than residents on travel, accommodations, food, equipment and other needs. For example, Montana has high rates of nonresident hunters (31 percent) and anglers (30 percent) who come to find big game and to fish world-famous trout streams in the Rocky Mountains. Montana also sees much higher spending from nature watchers—double the average of most other district states—again, often attracted from other states to the natural splendor of the Rockies.

South Dakota has exceptionally high rates of nonresident hunters (53 percent) and anglers (42 percent) as well, many of whom come to hunt pheasants throughout the state and to fish walleyes and other species in the cavernous Missouri River reservoir system, among the largest freshwater bodies in the world. Though the state has the highest rates of nonresident participation in the district, the relative accessibility of good hunting and fishing spots in South Dakota likely helps keep a lid on nonresident spending, at least compared with a trip to Montana’s Rockies.

The survey is done to benefit natural resource and conservation agencies, academic researchers and wildlife related recreation industries, which use the information to estimate demand and identify recreation trends. The methodology used for this survey changed from previous versions, according to the agency, making current results incomparable with previous surveys.

Makin’ power while the wind (subsidy) is still blowin’

Like a nice, steady breeze, the nation’s wind power capacity has been expanding, with Ninth District states making a major contribution. But whether that arc of increase continues could well depend on what Congress decides regarding an expiring tax credit.

After five years of strong growth, the United States now trails only China in installed capacity (47 to 62 gigawatts, respectively) and has 1.5 times the wind-generating capacity of Germany and seven times that of France, according to a comprehensive August report by the U.S. Department of Energy. Wind still makes up a small portion of domestic power generation, at 3.3 percent, but that’s a fourfold increase just since 2006.

Texas is the leader in wind development, and by a wide margin (see Chart 1). But Minnesota and North Dakota are in the top 10 in wind capacity. Minnesota installed as much new wind capacity last year—542 megawatts (MW)—as many states have in sum. South Dakota also made its mark. It has almost 800 MW of wind capacity, virtually all of it installed since 2007, and representing almost all of the state’s increase in power generation over this period. Wind’s share of electricity capacity in the state leapt from less than 2 percent in 2007 to 22 percent, the highest rate in the country (see Table 1).

But the industry is nervously awaiting congressional action on a federal wind energy production tax credit of 2.2 cents per kilowatt hour—currently equal to more than $1 billion annually and set to expire at the end of the year. The credit was created two decades ago and has been extended numerous times or reborn after being allowed to expire. Its renewal is questionable this time around given sentiment in Congress about budget deficits.

The credit's expiration could affect not only future wind power generation in district states, but also district employment at a fair number of manufacturing facilities that supply the various components and services for wind farm development (see map).

Already there have been rumblings, according to local news reports. Otter Tail Corp., of Fergus Falls, Minn., has announced plans to sell DMI Industries, a maker of wind towers in West Fargo, N.D., with the eventual fate of 216 employees unknown. St. Paul-based WindLogics, a wind forecasting company, recently cut 10 employees because development work has stopped.

Officials with Mortenson Construction, one of the largest wind farm builders in the country and located in Golden Valley, Minn., said several hundred jobs could be eliminated if the tax credit expires. In Aberdeen, S.D., officials at the Molded Fiber Glass plant have reportedly put on hold a plan to add 100 to 200 jobs in light of the tax credit limbo.

 Source: U.S. Department of Energy

Wisconsin ratepayers hot over staying cool

In a summer with record heat, Wisconsin residents and businesses are finding out firsthand the high cost of keeping things cool inside. In fact, they are paying more than most for that comfort, according to a June energy assessment by the Public Service Commission of Wisconsin. But that wasn’t the case just a decade ago.

Back in 2002, retail power prices for residential, commercial and industrial customers were average to below average compared with neighboring states and the nation. Over the next eight years, Wisconsin’s electricity rates for all types of customers went up steadily. The state now has the highest, or nearly the highest, electricity rates among neighboring states across all three customer categories. It also has higher rates than the national average for residential and industrial power, and very similar rates for commercial power (see chart).

Among several drivers behind these rate increases, like higher costs for input fuels and spot-power purchases, the report offers some historical context, attributing the state’s rising prices mostly to its position in the long construction cycle for new power generation and transmission, and the subsequent timing of two recessions.

Improvements to electricity infrastructure to meet future power demand and service reliability needs are years—even decades—in the making for utilities. Wisconsin’s economy was quite strong in the 1980s and 1990s and, as a result, “Wisconsin entered the (electricity) construction cycle earlier than other states in the Midwest.” Utilities that built new generation facilities in the 1990s and early 2000s were entitled to recover those costs, which led to higher rates as the state’s economy—and particularly its power-hungry manufacturing base—started to struggle even before the official start of the 2001 recession.

The state’s economy has yet to regain strong footing, and the most recent recession compounded cost-recovery efforts by utilities because many saw a decline in electricity sales (and thus revenue) from the economic slowdown and increased energy conservation efforts. Still, because of their special regulated status, some utilities were allowed to raise rates again.

Even the commission acknowledged the irony, saying that “rate increases during a general usage downturn are confusing to customers … (m)any ratepayers have expressed their anger and frustration publicly and directly to the Commission about utilities raising rates during a time when they are using less in order to reduce their energy costs.”

The report notes, however, that all is not lost for ratepayers in Wisconsin. Having made the investments in new generation, if the economy ever returns to robust growth—and electricity use—“new cost-competitive plants will be positioned to potentially sell any additional energy into the wholesale market benefitting retail customers, because such revenues are directly credited to a utility’s expected revenue requirement during a rate proceeding, reducing the amount of money to be collected from ratepayers.”

REOs: A speedwagon in Minnesota and Michigan

The sluggish housing story is by now an old one, but there continue to be perplexing elements. Data recently released by the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, offer one such nugget.

The latest FHFA report on home foreclosure mitigation efforts by the two government enterprises shows that Michigan leads all states in the number of homes owned by Fannie Mae and Freddie Mac as a result of foreclosure (so-called real estate owned, or REO, in banking parlance). The two agencies held more than 20,000 REOs in Michigan at the end of March, the result of an economy decimated by the recession. The good news is that the state’s economy has been rebounding, and the number of REOs there fell by almost 1,700 just since the end of December.

Maybe more surprising, Minnesota ranks sixth nationwide in REOs, at about 8,500—ahead of states with much bigger populations (New York), those more negatively affected by the housing collapse (Arizona, Nevada) or those with seemingly weaker economies (Ohio). California, with seven times the population of Minnesota and an epicenter of the housing crisis, has merely twice the number of REOs. The Gopher State has more than twice as many REOs as neighboring Wisconsin (about 4,000), despite the fact that Fannie and Freddie hold similar portfolios in the two states.

As a percentage of total loans held by Fannie and Freddie, the rate of REOs in Michigan and Minnesota are tops in the country (2 percent and 1.3 percent, respectively; see chart) and almost double the rate of all but six states. The feeder system to REOs—delinquent loans—is not particularly out of whack in either Michigan or Minnesota. The number and rate of seriously delinquent loans (90 or more days past due) are elevated in those two states but well below the national average (see chart) and ranking (positively) in the top half of states.

There appear to be few easy answers behind REO rankings. Queried by the fedgazette, officials with FHFA could not pinpoint reasons for Minnesota's high rank, but indicated that elevated loan delinquency rates, a high incidence of both negative home equity and adjustable-rate mortgages, and even fraud might all be involved (a late-June release of the Mortgage Fraud Index ranked Minnesota third-highest in the country).

Another possible reason is regulatory in nature, as Minnesota and Michigan have longer-than-average redemption periods during the foreclosure process. The right of redemption gives an owner a window of time to completely pay off house-related debt (including fees and other costs) and reclaim the house from foreclosure. Typically, the redemption period begins after the foreclosure sale, according to a Fannie Mae handbook on REO sales, during which time the property cannot be marketed, which “puts most of the sales activities on hold” until the redemption period expires.

Currently, only 15 states have any redemption period, and those for Michigan and Minnesota happen to be the longest, running between six and 12 months, depending on the size of parcel. Redemption periods of one to four months are most common; only three states have redemption periods of six months, and the two of them are North and South Dakota, two states that have had neither the economic nor the housing problems seen in the rest of the country.

In the state-economy race, it’s North Dakota, and everyone else

Everyone loves a good race, except when it’s a runaway, a laugher. In the case of gross domestic product at the state level, nobody’s much enjoying the race, save for North Dakota.

In recent data published by the Bureau of Economic Analysis, North Dakota had easily the highest gross state product in the country, at 7.6 percent, almost 3 percentage points higher than next-place Oregon. Among Ninth District states, Michigan’s economy appears to be finding some footing, thanks to a resurgent auto industry, ranking sixth in the country last year at 2.3 percent (see Chart 1). No other district state managed to outperform the national average of 1.5 percent.*

Maybe more impressive has been the Peace Garden state’s economic stamina. Since 2008, the state has seen its economy grow by 19.7 percent. Only one other state (Louisiana, at 11.9 percent) saw a growth rate even half as fast as North Dakota’s over this period.

There was also some shuffling among district states in their economic performance over this longer period. For example, Minnesota and Wisconsin economies both outperformed the national average since 2008, while Michigan went from the top quintile last year to bottom quintile for this longer period (see Chart 2).

*One methodological note: U.S. GDP values listed here may differ from the National Income and Product Account (NIPA) values because of revisions to both NIPA values and GDP-by-state accounts, which exclude federal military and civilian activity located overseas, which cannot be attributed to particular states.

 

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).

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.

 

Minneapolis Fed regional forecasts: Not a bull’s-eye, but on target

Every December the Minneapolis Fed releases a Ninth District economic forecast for the upcoming year. This past December the forecast predicted moderate economic growth for 2012.

But as with any regular projection, it’s useful to know how accurate past forecasts have been. A review of Minneapolis Fed forecasts going back to 1998 shows that they’ve been pretty good, but have some soft spots that are inherent in current forecast models. That is, economic forecasting is not an exact science.

The Minneapolis Fed’s regional models forecast nonfarm employment growth, unemployment rate, personal income growth and housing units authorized growth for states in the Ninth District. Research department staff use a technique called Bayesian vector autoregression (BVAR). The forecasting models base projections on historical trends and recent movements in each of the data series combined with a BVAR forecast for the national economy.

This forecasting technique shares an unfortunate feature common to all forecasting models—they don’t predict turning points (i.e., recessions) very well. For example, in Chart 1 the forecast error, or difference between the forecast and actual data, in nonfarm employment for Minnesota was much larger during the recession periods when economic growth dipped. The forecasting model either didn’t anticipate the drop, as during the 2001 recession, or didn’t anticipate the size of the decrease, as during the 2007-09 recession.

A similar picture is found in Chart 2 for the unemployment rate. Here the forecasts for Minnesota also didn’t anticipate increases during recessions; forecast errors grew.

Table 1 shows that the 12-month unemployment rate forecast is within 0.7 percentage points on average from the actual unemployment rate. Meanwhile, the 12-month nonfarm employment growth forecast is within 1.3 percentage points of actual employment figures. As the time period between the forecast and the actual data narrows, forecast errors decrease since the models have more contemporary data on which to base the forecast; the exception is housing forecasts (see Table 1). (For those interested in technical details, the BVAR models calculate a confidence interval to estimate a range in which 70 percent of the expected outcomes would fall. You can see these ranges in the most recent forecast table.)

Forecasts for personal income growth and especially housing units authorized have larger errors. (Housing units authorized is the total number of units authorized in permits for single- and multi-unit housing projects.) The vigorous climb in housing units authorized prior to the recent recession and subsequent steep drop were difficult for forecasting models to account for as authorizations in Minnesota and Wisconsin dropped below levels observed over 30 years ago. Meanwhile, personal income growth is often affected by volatile levels of farm income, particularly in North Dakota. In Table 1, North Dakota is removed due to volatile changes in farm income; average errors would be about 1 percentage point higher with North Dakota in the mix.

Given the uncertainty, the Minneapolis Fed doesn’t rely only on forecasting models, but also conducts surveys of business and community leaders throughout the year to hear what they expect at their own companies and communities going forward. To learn more about surveys and other data collected by the Minneapolis Fed, go to our district data web page.

Banking conditions improve, but still spotty

Banking conditions continued to improve with the overall economy in the final quarter of 2011, as they did through much of the entire year. But like the economy, improvements were modest, and some weakness remains in the industry, according to a quarterly update of banking conditions just released by the Federal Reserve Bank of Minneapolis. The survey looks at 367 commercial banks headquartered in the Ninth District.

Overall asset quality showed strong improvement in 2011, fueled by continued improvement in commercial and other real estate loans. Profitability improved, but not to the same extent. Liquidity and capital both improved over the year, though neither has been a particular challenge for most banks, even in the depths of the recent crisis. Overall loan growth in 2011 was negative, but even here there are some positive signs; the decline was not as steep as the previous year-over-year results, and this metric improved throughout the course of 2011.

Also for the first time, the Minneapolis Fed released a banking forecast for 2012 for three basic metrics: profits, loan growth and asset quality. The forecast projects the coming year to be much like last year—continued improvement, but with geographic differences. For example, conditions are expected to strengthen in the Dakotas, where banks are already on very solid footing. The forecast for these measures at Minnesota and Montana banks is also positive, but less so, and levels are expected to remain below precrisis levels.

For a recap of 2011 banking conditions in the Minneapolis Fed's Ninth District, see the video below. Those also interested in a recap of the 2012 forecast can download a summary video here.

 

A brave new ethanol world?

The past decade or so has been manic-depressive for ethanol producers. The fuel went from a niche market to being praised as the savior of rural America and a key to breaking the U.S. addiction to foreign oil. Then, seemingly overnight, it became reviled for its inefficiency and was blamed for higher prices at the grocery store and food riots in the developing world.

Popular or not, ethanol has become big business in the Ninth District. In addition to the many corn producers growing the primary feedstock for ethanol, the district is home to some 43 ethanol plants, mostly in Minnesota and South Dakota (see map). Together they produce almost 2.5 billion gallons a year, according to the Renewable Fuels Association.

Critics of ethanol have charged that the industry is dependent on subsidies. Meanwhile, producers and advocates have shot back that improvements in technology and increasing oil prices mean that ethanol is now competitive without subsidies. This theory is now being subjected to a real-world test.

That’s because the primary ethanol subsidy, the federal Volumetric Ethanol Excise Tax Credit, ended on Jan. 1. The credit (45 cents per gallon, most recently) went to blenders who mixed ethanol with gasoline. In addition, a 54-cent per gallon tariff on imported ethanol also expired at the end of 2011. Even though the tax credit, which had been in effect for more than 30 years, went to blenders, it had always been an indirect subsidy to ethanol distillers and feedstock farmers.

All of this has some district corn growers and distillers worried about the impact of removing subsidies. They can take heart from a pair of studies that estimate the impact will be minor. An analysis by the Center for Agricultural and Rural Development at Iowa State University focused on how much blame ethanol deserved for the surge in corn prices from 2006 to 2009. They did this by creating a model of the corn market and then running simulations in which various economic factors and policies were removed. It turned out that while ethanol was responsible for a large share of the rise in corn prices, most of that increase was due to demand-driven factors; only 8 percent of the price increase was due to direct ethanol subsidies.

A June forecast by the Food and Agricultural Policy Research Institute at the University of Missouri suggested that the effects of removing the blender’s credit and the tariff will be modest—a reduction of average corn prices over the next 10 years by 18 cents per bushel, less than 4 percent. An earlier analysis found that removing the tariff had a more substantial impact than removing the subsidy.

One reason the impact of removing subsidies and tariffs is less dramatic than might be expected is because there are still federal and state mandates for ethanol use. In addition, last January the Environmental Protection Agency approved a 15 percent ethanol blend (up from 10 percent) for cars made in 2001 and later. So there are other demand-drive government policies to support the ethanol market.

Driver’s seat: District car owners pay less for insurance

Nobody likes paying for things that might not get used, which is one of the reasons auto insurance doesn’t rank real high on people’s most-loved purchases. But drivers in the Ninth District pay a lot less for the comfort of knowing they are protected when the inevitable fender-bender occurs.

The National Association of Insurance Commissioners released a report this month outlining average premium costs for drivers across the country. It shows that average annual premiums in the district (for 2009, the most recent data available) are considerably lower than the national average (see chart). In fact, North Dakota, South Dakota and Wisconsin rank two-three-four in the country for cheapest car insurance (Iowa ranked first, by margin of $20).

The exception is Michigan, where insurance premiums are easily the highest of any district state, and 14 percent above even the national average. It’s possible that drivers in the Upper Peninsula (who live in the Ninth District) pay lower rates than peers in lower Michigan (technically outside the district) given different underwriting factors like population density, which push premiums higher. But NAIC’s report does not split out such in-state differences.

A NAIC source also pointed out that state insurance regulations—like required coverage and coverage levels—play a big role in average premiums, which might also explain why Minnesota drivers pay more than Wisconsin drivers, and Montana drivers pay significantly more than drivers in the Dakotas.

One other notable trend is that average auto insurance premiums—including liability, collision and comprehensive coverage—are getting cheaper (see box within chart). Since 2005, every district state has seen average premiums decline, led by Minnesota and the Dakotas, all of which saw a price drop of at least 10 percent.