16 posts categorized "Small Business"

Robert Frost redux: Levees make good neighbors, especially in Velva

The city of Minot and surrounding region is still recovering and rebuilding from last summer’s devastating floods, when a raging Souris River damaged more than 4,700 residential, commercial, farm and public properties. A recent report by the U.S. Army Corps of Engineers put total structural damage at nearly $700 million.

But the floods would have exacted an even larger toll without emergency levees that were hurried into place when it became known that the region was in eminent danger of historic flooding. Though there was not enough time to build levees high enough to avoid catastrophic flooding in many places, the Corps estimates that an additional 1,500 structures would have been damaged, to the tune of more than $200 million, had no levees been erected (see table at bottom).

The tiny community of Velva, population 1,100, was the biggest beneficiary of emergency levees. A total of 29 homes and 5 businesses were damaged by the flood, totaling about $1 million. But emergency levees protected almost 500 structures, preventing $88 million in damage.

Minot and Burlington were the hardest hit, and the least saved, in a proportional sense. Minot suffered structural damages estimated at $577 million, while levees saved further damage to about 800 structures and $105 million in additional costs. Neighboring Burlington was barely spared; it suffered $32 million in property damage, and levees prevented just $94,000 in additional damage.

Total flood recovery costs also exceed these damage figures. Minot Mayor Curt Zimbelman recently told a U.S. Senate Budget Committee field hearing that the city’s unmet needs for flood recovery total almost $1 billion, about half of which is for a flood control project that would protect the city from a similar event in the future.

Minot-Souris River table -- 4-6-12

Flood affects business, banking in the Ninth District

Many communities in the Ninth District were hard hit by flooding this past year (see past reports in the fedgazette). But banks in district states report that, in general, the impact on local economies will be modest overall, according to a fall survey by the fedgazette.

A total of 86 banks responded to the (nonscientific) survey, including 52 from the Dakotas and Montana, which saw the worst flooding. In terms of their local economies, bankers reported that agriculture and retail sectors in general have been hit the hardest. For example, 15 of 25 Montana bankers reported adverse flood impacts on agriculture, and 44 percent of North Dakota bankers said retail has been negatively affected, along with about one-third of bankers in North and South Dakota regarding the transportation sector. Construction saw a mixed response, with roughly equal (and small) numbers of bankers stating there were negative and positive effects from flooding.

But those difficulties were not necessarily flowing through to bank business to the same degree. A large majority of respondents across district states said that loan repayments from existing clients have not been negatively affected across major portfolio areas (construction, agriculture, commercial and industrial, and commercial real estate; see Chart 1). Agriculture saw the highest reports of repayment problems (36 percent in Montana; 24 percent in North Dakota). Among the minority of banks reporting repayment issues with any loans (about one in three), many said they restructured loans or made other accommodations in loan terms.

Flood bank charts 1&2 -- 12-8-11

Maybe more importantly, bankers said they expected little change in future loan repayments (see Chart 2). Agricultural loans were again the area of biggest concern. In terms of loan demand, most banks reported no flood-related changes; in fact, slightly more banks saw an increase in loan demand related to the floods compared with those reporting a decrease.

The survey was conducted in cooperation with state banking associations, who passed the survey along to an estimated 750 members. While overall results appear modestly positive under the circumstances of widespread flooding this summer, results likely vary significantly among individual communities, given the different localized effects of flooding.

And now for something completely different (and positive?) on employment

You have to look long and hard to find positive employment news these days. But there appears to be some good news lurking outside the spotlight of the traditional job market you typically hear about in regular government reports.

Much of the state and national information on employment comes from the Quarterly Census of Wage and Employment (QCEW), a state-administered survey whose information is then passed up the ladder to the federal Bureau of Labor Statistics. The QCEW counts employment in sort of a round-about fashion: Companies with at least one paid employee must register with their home state’s unemployment insurance (UI) system and then regularly report their company’s employment levels, and these reports are the basis of the QCEW.

While the large majority of workers are covered by the UI umbrella, there is nonetheless a hole in the employment doughnut because workers in some occupations or industries are exempt from UI. There are no official government counts of this so-called noncovered worker population, and it’s a hard group to measure.

For starters, states have different exemptions to UI. There are more than 30 UI exemptions in Minnesota alone, for example, including (among others) self-employed workers, some farms, insurance and real estate salespeople who work on commission, most religious personnel and all elected public officials. Some of these categories, like the self-employed, are particularly difficult to measure (and is the focus of the cover article in the January fedgazette.)

Private firms have begun to reverse-calculate these figures through a complicated process that uses employment and income data from the likes of the Bureau of Economic Analysis, which goes to great lengths to identify income-producing jobs. Estimates are then developed for jobs not typically covered by UI.

Economic Modeling Specialists, Inc., for example, is an economics and labor market consulting firm in Moscow, Idaho. It shared its estimates on noncovered workers with the fedgazette, as well as its methodology, “quite a bit (of which) is based on the BEA's much-appreciated work in this area,” said Jared Miller, an EMSI data analyst.

Unlike the population of covered workers, which has taken a big and well-publicized drop during the recession, EMSI’s data show steady, if modest, growth among noncovered workers in every district state, as well as the nation as a whole (see chart).

 Noncovered Chart 1 -- 11-29-11

There are also a couple of important caveats to acknowledge that might well take some of the shine off this seemingly good news. For starters, the noncovered population is a count of jobs, not employed individuals, which means there are multiple plausible interpretations for job trends. From an optimistic standpoint, a growing number of noncovered jobs might mean there are more employed individuals in this gray area of employment. However, a growing number of noncovered jobs might also be indicative of growing part-time jobs and outsourced labor in the form of independent labor contracts. Were this the case, total noncovered workers could well be stagnant or even falling as they take on more of these jobs to make ends meet.

Secondly, noncovered job counts cannot distinguish employment duration; in many cases, someone self-employed for a single month would count the same as a year-long job, whereas QCEW is more precise, reporting monthly job counts as well as quarterly and annual averages.

Community orgs report struggles among low and moderate income

The current state of the economy is a daily topic of discussion on the news and at dinner tables across the country. Of particular importance to Community Development offices within the Federal Reserve System is the economic state of low- to moderate-income (LMI) communities.

Existing government data provide some insight into how these communities are faring. However, many of the factors that play an important role in their economic health, such as job training opportunities, the availability of affordable rental housing or business owners’ ability to access credit, are not measured well through existing data sources.

To provide a more comprehensive read on LMI community conditions in the Ninth District, the Minneapolis Fed’s Community Development department has launched Community Insight, a semi-annual survey of community development and service organizations that serve LMI communities. The survey is designed to capture their perspectives on changes in local employment, housing, consumer finance and business conditions.

According to the survey, most Ninth District LMI communities experienced deteriorated economic conditions in the second quarter of this year compared to 12 months prior. The most pervasive signs of economic stress among LMI communities were increased demand for financial counseling, decreased availability of affordable rental housing and reduced access to credit for business owners (see Charts 1-3 below).

Survey responses also revealed some positive signs, including increased homeownership opportunities for LMI buyers with good credit and an increase in the number of micro-businesses.

The baseline survey conducted during the months of May and June 2011 contains responses from 335 organizations representing more than 180 cities and townships across the Ninth District. For more on the survey and its findings, view the full Community Insight report.

Community Insight charts -- 10-27-11

A state of entrepreneurship: Careful what you wish for

The entrepreneur is widely lauded for the innovation and energy he or she brings to the economy. States desperately hope to be the seedbed of the next Google, Apple or even Applebee’s these days. States often take great effort to be (or at least appear) entrepreneur-friendly and worry when they perform poorly in any nationwide ranking.

The Kauffman Foundation, the largest foundation in the world dedicated to entrepreneurial research, comes out with an annual index of entrepreneurial activity. The index captures new business owners in their first month of significant business activity and then tabulates a score based on a state’s adult population.

The bad news for several district states is that annual scores have fallen considerably since 2006. Minnesota, South Dakota and Wisconsin all slipped below an index value of 0.2, while the national average crept up slightly and finished at 0.34 during this period (see Chart 1). North Dakota held its ground; Montana’s rate fell significantly, but from very high levels.

Entrepreneur chart 1 -- 5-13-11 
Woe is the Ninth District entrepreneur? Not necessarily. Entrepreneurship encompasses many things, running the gamut from those working out of a basement or back of a truck to a sophisticated high-tech startup. For its index, Kauffman uses consecutive-month reports from the Current Population Survey from the U.S. Census Bureau. It flags people who report working for themselves for at least 15 hours per week during the past month (and, importantly, not doing so in the month before that).

It’s difficult to know the direct relationship between the recession and self-employment. But those looking for work often make ends meet by doing informal side jobs, and recessions create conditions that likely increase the amount of entrepreneurship done out of necessity rather than opportunity or desire.

Coincidence or not, high-unemployment states tend to rank high in Kauffman’s index. The states with the three highest average scores from 2008 to 2010—Arizona, Georgia and California—all have unemployment rates considerably above the national average of 9 percent in April (see Chart 2). California is world-renowned for its entrepreneurial culture, à la Silicon Valley; less known might be the fact that its 11.9 percent unemployment rate is the second highest in the country.

Entrepreneur chart 2 -- 5-13-11 
In the most recent single-year ranking (2010), Louisiana and Nevada joined Georgia as the top-ranked entrepreneurial states in the country. Nevada currently has the nation’s highest unemployment rate at 12.5 percent. Louisiana’s is better, at 8.1 percent, but the state would not be mistaken for an economic hotbed.

In the Ninth District, Montana has consistently scored high in Kauffman’s index—its average from 2008 to 2010 was second nationwide—and has long had a reputation for bootstrapping small businesses. But it also happens to have the highest unemployment rate in the district (tied with Wisconsin) and does not rank particularly well on income, poverty and other economic measures that might suggest a high ranking comes with big economic benefits.

Even acknowledging the methodological shortcomings, low-ranking district states don’t have much to brag about, either. The lowest ranking states—Alabama, Pennsylvania and West Virginia—don’t offer much explanatory bravado for Minnesota or Wisconsin, two states that have seen their scores drop to similar levels.

In the end, it appears there might be something of a Goldilocks effect here—not too high, not too low, but just right … in the middle. North Dakota, for example, has had one of the best economies over the past few years, and its index score has remained steady, generally hovering in the middle of the index range.

Additional research on establishment trends and entrepreneurship will be featured in the July issue of the fedgazette.

A deadly recession for many Wisconsin businesses

Wisconsin business, we barely knew ye.

That might be the funeral theme for many businesses that were incorporated—and subsequently unincorporated—in the land of cheese during the past four years. Those interested in starting a business must register with their home state under a variety of legal classifications (corporation, limited liability, partnership, etc.).

Few states track the active status of registered businesses over time. Wisconsin is one exception. Statutes allow the state to administratively dissolve entities that fail to file their required annual report, and it has an ongoing program to do just that, according to a state source.

Figures from the Department of Financial Institutions (provided at paid request), show a huge spike since 2007 in the number of mergers, dissolutions and otherwise defunct business registrations taken off state books (see Chart 1). This is particularly the case with corporations and LLCs, which make up the large majority of business registrations.

WI small biz -- 5-12--11 

The recession had the opposite effect on new business registrations. The annual number of new LLCs, for example, skyrocketed from the late 1990s until about 2006 (see Chart 2), due largely to changes in Wisconsin law (and laws in many other states) giving greater legal protection and tax advantages to sole proprietors and others organized as LLCs. But by 2007, LLC registrations leveled off and subsequently fell. The number of corporation filings also fell, but that merely continued a trend started well before the recession (see Chart 2).

WI small biz CH 2 -- 5-12--11 

On net, the state witnessed an 8 percent decline in the annual number of registered businesses from 2008 to 2010—the first such decline in at least a decade, and likely much longer given the general strength of the economy in the 1990s.

Much more research on birth and death trends among businesses across the Ninth District will be published in the July issue of the fedgazette.