95 posts categorized "South Dakota"

Businesses expect hiring to continue in 2014

There are renewed signs that the Ninth District economy continues to grow based on a recent poll of more than 100 business contacts from around the district (see methodology).

Businesses are expecting to expand; 41 percent plan to increase employment at their firms, and 58 percent of these firms cited expected high sales growth as the most important factor. Only 9 percent plan to decrease employment. In the same survey a year ago, 40 percent planned to increase employment and 7 percent planned to cut jobs (see chart).

Other important factors cited for new hiring were overworked staff, the need for additional skills, and improved financial condition of firms. The vast majority of respondents plan to use current employee referrals, word of mouth and advertising to get new employees. Twenty-two percent plan to use a recruiting firm, and only 8 percent plan to raise starting pay.

For those respondents not planning to hire additional people this year, most reported that finding skilled candidates is hampering hiring, or they wanted to keep operating costs low or expected sales growth to be low.

Ad hod survey chart -- 1-14-14

Methodology: On Jan. 13, the Minneapolis Fed invited, via email, about 500 Beige Book contacts from around the Ninth District to answer the special question in a web-based survey. By Jan. 14, 104 contacts had filled out the survey. The respondents come from a variety of industries (see table).

Ad hod survey table -- 1-14-14

Help wanted: Limited hours and benefits

It’s widely perceived that the post-2009 employment recovery has been dominated by temporary and part-time jobs that typically have fewer health and retirement benefits. The data show there is some truth to this perception, but only by a matter of degree.

During the recession, for example, part-time jobs rose in the U.S., but have been mostly flat in Minnesota. However, the number that were part-time for economic reasons (in other words, they wanted full-time work but accepted part-time) has risen considerably both nationwide and in Minnesota, while part-time jobs held for noneconomic reasons fell (see Chart 1). Though the trend has leveled off, a quick return to pre-recession levels doesn’t appear likely.

Part-time jobs CH1-2

Still, despite the increase, the share of part-time workers has risen only marginally in the Ninth District and the nation (see Chart 2). The part-time share of employment in the Ninth District historically has been higher than the national average, in part, because district states have generally higher workforce participation rates, especially among young workers age 16 to 19 (almost 50 percent in Minnesota, versus the U.S. rate of 35 percent), as well as higher rates of workers with more than one job. Both factors are correlated with a higher incidence of part-time employment.

Temporary jobs also have grown considerably since the end of the recession. But they still make up about 2 percent (and often much less) of total nonfarm employment in Ninth District states (see earlier blog post for more on temp jobs).

A greater share of jobs today do not have health or retirement benefits. In Minnesota, for example, the number of available jobs offering health benefits has slowly eroded over the last decade, bottoming out below 50 percent before rising this year in quarterly job vacancy surveys by the Minnesota Department of Employment and Economic Development (see Chart 3). Federal data also show that the percentage of jobs with pension plans in district states has fallen slightly from 58 percent in 2006 to 56 percent in 2012, but 2012 actually saw a notable gain of almost 1.5 percentage points.

Part-time jobs Ch3

DEED’s job vacancy surveys also show that the share of part-time and temporary or seasonal vacancies has been volatile since the recession, but the trend line for both has gradually ticked higher (see Chart 4). That’s not likely to change quickly. Online job ads tracked by the Conference Board through October 2013 show that ads for part-time jobs continue to rise in Ninth District states (see Chart 5).

Part-time jobs Ch4-5

Dulguun Batbold, research assistant, contributed data for this post.

Temp jobs on the rise in Ninth District

It’s been a roller coaster ride for the temporary help services sector over the past decade, but the industry is on the rise after a harrowing plunge.

The sector includes those employed by staffing agencies to work temporarily at client firms, as well as the permanent employees at staffing firms placing individuals in temp jobs. In 2006, after several years of steady growth, total employment in the temporary help sector was at almost 110,000 in Ninth District states (including all of Wisconsin, only the northwestern one-third of which is technically in the Ninth District. The Upper Peninsula of Michigan is not included in these figures).

By 2009, at the height of the Great Recession, temporary employment had bottomed out at about 80,000, according to data provided to the fedgazette by Economic Modeling Specialists Intl. EMSI estimates use composite employment data from more than 90 sources, including an enhanced, unsuppressed version of quarterly BLS surveys, which allows it to estimate temporary employment in smaller states like the Dakotas.

Since 2009, the industry has witnessed strong growth, with every state save for Montana regaining the number of temp jobs it lost during the recession, and then some. With slow overall job growth in most states, temp employment is slowly increasing its total share of employment (see chart, at bottom). Minnesota is tops in the district, at 2.2 percent of total nonfarm employment, higher than the national average. But every district state has seen this share increase since bottoming out in 2009.

However, the Dakotas and Montana have historically had a much smaller share of total employment in temp jobs compared with Minnesota and Wisconsin—a trend that held both during the recession and after it (see chart). It’s difficult to say why exactly this is the case. One possible explanation is the lower proportion of manufacturing jobs in these smaller district states compared with Minnesota and Wisconsin, because manufacturing is a major employer of temp workers. However, this doesn’t fully explain the lower proportion of temp jobs in the South Dakota economy, where manufacturing makes up 10 percent of jobs, which is close to Minnesota’s 11 percent.

For its part, North Dakota has seen remarkable growth in total temp jobs, more than doubling since 2009 to 4,500 jobs in 2013, according to EMSI; however, the proportion of temp jobs to overall employment has not gone up significantly because of strong job growth throughout the state’s economy over this period.

Watch for the forthcoming January issue of the fedgazette, which takes an in-depth look at temporary jobs and the staffing services industry.

Temp penetration rates -- 1-2-14

Sound the retreat? Credit scores for refinancing home loans come down a bit

As the mortgage refinancing boom ebbs, the refi market is shifting toward borrowers with less than stellar credit, according to new data from the Federal Reserve Bank of Minneapolis.

As the housing market tanked in 2008, average credit scores for those interested in refinancing their mortgage rose significantly, and until recently scores remained elevated, reflecting the stricter credit standards lenders used to reduce their exposure to the struggling sector (see chart). But in recent months, those credit scores have fallen noticeably—to 2010 levels for loans from the Federal Housing Administration and Veteran’s Administration and to 2009 levels for conventional loans. The trend is apparent nationwide and in the Ninth District, although the level of average refinance credit scores is a bit higher in the district.

The reasons for this shift are hard to pinpoint with certainty, but could indicate a combination of some relaxation of high credit standards by lenders, growing awareness and ability to respond to refinance opportunities among consumers with lower scores, or relatively sated demand for refinancing among consumers with high scores. For example, rising home prices in the Ninth District may have made it easier for consumers with somewhat lower credit scores to qualify for refinancing. Any expansion in the range of consumers qualifying for refinances would have helped boost the volume of refinancings in early 2013 or have moderated the decline in volume in the second half of the year.

These and other housing trends can be found on the Minneapolis Fed’s Housing Market and Mortgage Conditions web page, which gathers data on housing originations, mortgage performance and prices.

Credit scores refinance -- CD 12-18-13
Source: Federal Reserve Bank of Minneapolis staff calculations based on data provided by Lender Processing Services (LPS)

Mixed results on 4th and 8th grade assessments in district states

Recently available scores from the National Assessment of Educational Progress (NAEP) showed mixed results in district states on fourth and eighth grade assessments from 2011 to 2013 (see Chart 1).

In Minnesota, fourth graders made notable gains in both math and reading assessments. In fact, the remainder of assessments are rather sobering, declining a majority of the time across both reading and (especially) math for most district states, except Wisconsin, which saw test scores remain essentially level.

NAEP scores CH1 -- 12-11-13

Minnesota now ranks among the nation’s higher scoring states in fourth grade math and reading. In fourth grade math, Minnesota’s average score is higher than 48 states and is tied, or within the margin of error, with two states. (See Charts 2 and 3, which show the number of states that have higher scores than the district state, lower scores and scores that fall within the margin of error and therefore are not considered statistically different.) Minnesota’s fourth grade math average scores consistently ranked in the nation’s top 10 highest-scoring states over the past 10 years; however, Minnesota’s fourth grade reading scores were more sporadic during this time. For example, in 2011, Minnesota’s fourth grade reading assessment reliably outscored only 15 other states, while in 2013, it outscored 30 other states.

Although assessment score rankings in other district states generally slid slightly from 2011 to 2013, district rankings were either close to the middle (ranking 25th) or higher in most categories. However, assessment score rankings were below the middle in South Dakota’s fourth grade scores, particularly so in reading.

NAEP scores CH2-3 12-11-13

The NAEP assessments are part of a congressionally authorized project within the U.S. Department of Education. The reading assessment measures reading comprehension by having students read selections and answer questions based on what they read. The mathematics assessment measures grade-appropriate knowledge and skills in number properties and operations, measurement, geometry, data analysis and algebra.

Bank on it: Ninth District banks continue to improve

Rome wasn’t built in a day, and neither is bank health after a financial crisis. But Ninth District banks are continuing their slow ascent to better bottom-line health, according to the third quarter report on banking conditions by the Federal Reserve Bank of Minneapolis.

Overall, some performance metrics continue to be poorer than historical norms, but most are improving. Problem loans, for example, continue to be elevated, but declined again in the third quarter. Profits were flat this quarter, but strong gains were seen in loan growth. Bank performance among district states generally mirrored district results.

Minnesota: Overall improvement “remains steady but slow,” according to the report. Minnesota banks had slightly better performance this quarter than last. Banks continued to reduce problem loans and saw higher loan growth, and general banking conditions in the state “compare well to the nation as a whole.”

Montana: For the second consecutive quarter, Montana banks “demonstrated improvement through reduced problem loans, increased loan growth and improved earnings,” which put the state near or above national performance for these key measures. Loan growth was particularly notable, seeing year-over-year growth of 3.2 percent after seeing slightly negative growth both in the previous quarter and one year ago.

North Dakota: The state’s banks turned in strong third quarter results, with improvements in loan growth, profitability and problem loans—all three of which are considerably better than national levels. For example, the percentage of noncurrent loans decreased by 39 basis points to 5.01 percent, less than half the national level of 10.22 percent. Median return on average assets increased slightly to 1.22 percent, well above the national median of 0.86 percent. At the same time, activity is moderating somewhat, the report said. “Relative to last year, performance in the third quarter is less stellar on some dimensions for the median North Dakota bank, but remains far superior to the U.S. as a whole.”

South Dakota: The state’s 70 banks “are already strong,” but turned in significant gains in performance compared with the rest of the country. Loan growth, for example, was almost 10 percent on a year-over-year basis, nearly 4 percentage points higher than the previous quarter. Problem loans, at just 4.29 percent, is tops in the Ninth District, and about 60 percent better than the national figure.

Upper Peninsula of Michigan: It was a mixed bag for the 21 U.P. banks, with reduction in (median) problem loans and positive loan growth in the third quarter. However, profits fell, and all three measures are significantly worse than the median U.S. bank. Problem loans, for example, saw a substantial reduction, falling 3.74 percentage points to 19.39 percent in the third quarter. But that’s almost twice the national level. Loan growth fell slightly over the past year (-0.39), but that rate was an improvement over the previous quarter by 90 basis points.

Wisconsin: The 55 banks in the western part of Wisconsin that fall within the Federal Reserve’s Ninth District had mixed results in the third quarter. Problem loans fell and earnings were steady, but loan growth was weak and fell further in the third quarter. Problem loans and loan growth in this region were poorer than in other district states (save for the U.P.) and the nation. Year-over-year loan growth declined by almost 1 percentage point to 0.13 percent, compared to the national median of 3.28 percent.

Unemployment insurance: Slowly mending in most district states

While unemployment rates continue to fall, if slowly, employers in many states are still grappling with higher tax rates for unemployment insurance (UI), which fund unemployment benefits in each state. Recent data from the U.S. Department of Labor suggest a mixed bag of improvements this year among Ninth District states.

Employers pay UI taxes for every covered worker on payroll, but every state does things a little differently. For example, the amount of income subject to UI taxes varies widely among states. In Michigan, employers pay UI taxes only on the first $9,500 of wages paid. In Wisconsin, it’s $14,000, and in North Dakota, almost $32,000 (see Chart 1). As a result, UI tax rates tend to be inversely related to how much income is subject to UI taxes, with Michigan’s rate the highest and North Dakota’s the lowest (see Chart 2). Higher UI rates tend to reflect benefit generosity as well.

But the direction of UI rates are heavily influenced by each state’s economy, and the Great Recession gave UI systems in most states a one-two punch: It put many out of work, thus greatly increasing unemployment benefit spending; it also lowered overall employment, which lowered the amount of UI taxes coming into UI trust funds (which pay unemployment benefits). As a result, UI tax rates on covered employees had to go up for most UI systems to maintain adequate cash flow during the recession and subsequent recovery.

The greatest increases in UI tax rates came between 2009 and 2011, once the full effects of the recession had settled in and states had exhausted their UI trust funds. Since then, average UI tax rates have moderated; half of district states saw a slight decline in 2013 as a percentage of taxable wages, and the other half increased, with Michigan seeing a significant rise (see Chart 2).

In the Dakotas, strong economies and high job growth, coupled with low unemployment and modest jobless benefits, have pushed UI tax rates to exceedingly low levels (see Chart 2). Wisconsin’s rate has also started to bend lower. But rates for Minnesota, Montana and especially Michigan have continued to increase. (Technically, only the northwestern portion of Wisconsin and the Upper Peninsula of Michigan are in the Ninth District, but the whole of both states are included in this analysis.)

UI rate charts 1-2

In some ways, the ultimate cost of UI taxes to state businesses is easier to see as a percentage of total wages. Here, the rank among district states still generally holds, but the Dakotas set themselves off even further for the low cost of their UI programs, while other district states bunch more tightly together (see Chart 3).

There are other good-news stories outside of the Dakotas. While Minnesota’s UI rates have continued to increase in 2013, the state has managed to wipe out a $770 million loan from the U.S. Treasury that it needed to keep paying unemployment benefits a few years ago. Wisconsin has done that one better: UI rates inched down this year, and though the state UI trust fund still has a $300 million loan with the federal government, that’s down from $1.4 billion just two years ago.

(Update: On Tuesday, November 19, the Minnesota Department of Employment and Economic Development announced that UI rates will drop in 2014, thanks to growth of the state UI trust fund to $1.2 billion. It's  estimated the move will save state businesses almost $350 million in UI taxes.)

UI rate charts 3


Housing vacancy rates (mostly) falling in the Ninth District

After seeing some of the highest rates in recent memory, housing vacancy in the United States and most of the Ninth District has steadily fallen in recent years, according to data from the Census Bureau.

Separate measures are available for housing units that are “vacant for rent” and “vacant for sale.” For rental units nationwide, the vacancy rate for year-round units fell from a peak of 11.2 percent in the fourth quarter of 2009 to 8.2 percent in the second quarter of 2013 (see Chart 1). Homeowner vacancies also fell.

Ninth District states are seeing a similar trend for rental vacancies (see Chart 2). But there are some methodological quirks. For example, smaller samples at the state level make these data noisier and less reliable. In some cases, the results are counterintuitive. North Dakota is in the midst of a housing crunch given its robust economy, yet rental vacancy rates are on the rise, according to Census data. But the Census defines a housing unit as vacant if it is occupied entirely by people who have a usual residence elsewhere. As a result, the state’s rising vacancy rate is likely the result of high numbers of out-of-state workers renting temporary housing near the oilfields.

Housing vacancy CH 1-2 -- 11-6-13

An alternative way to analyze this trend is to look at the data on vacant addresses from the U.S. Postal Service, which has an agreement with the Department of Housing and Urban Development to provide quarterly updates on the number of addresses it identifies as vacant. An address is deemed vacant if mail is not collected for more than 90 days. According to this much larger data set, there has been some decrease in the share of vacant residential addresses in most district states over the same period, though it is much less pronounced (see Chart 3; Montana and Wisconsin saw rates tick up slightly).

An interesting twist: For units vacant for less than one year, vacancy rates declined nationwide and among all district states during this period (see blue bars in Chart 3). In contrast, rates for properties vacant for more than one year increased across the board (see orange bars on Chart 3), and much of the rise came from units vacant for more than three years.

Housing vacancy CH3 -- 11-6-13

District businesses expect to increase capital spending in 2014

Capital spending is an important benchmark for the economy and its expected trajectory going forward. In the Ninth District, a recent survey suggests a positive outlook.

The Federal Reserve Bank of Minneapolis conducted an ad hoc survey of 153 Ninth District firms (see methodology) and asked them about capital spending plans. About half noted no change for 2014, but 31 percent expect capital spending to increase compared with 19 percent who expect decreases.

Financial and health services respondents are the most optimistic, with more than 40 percent anticipating capital expenditure increases next year. In contrast, 44 percent of manufacturers expect cuts in cap ex, while a third expect increases in 2014 over 2013.

Firms that are expanding capacity are most often facing capacity constraints. The most common reason given for expansion was that current capital equipment is not well suited to future needs (42 percent), followed by 40 percent who said current capacity is already stretched too thin. One-third of the positive respondents noted improved sales prospects. Respondents could choose more than one reason.

Of those who expect to cut capital expenditures, the most common reason cited (by about half of respondents) was reduced sales, while 31 percent mentioned cost increases as a limiting factor, and current excess capacity was blamed by 23 percent of the respondents. Again, respondents could choose more than one reason. Other reasons given were uncertainty in health care costs and government funding and a changing environment. Uncertainty about the future is curtailing capital spending now, according to 53 percent of respondents.

The number one issue respondents cited for why there is uncertainty is the strength of the overall recovery (73 percent) followed by uncertainties regarding health care reform (57 percent). Only 7 percent noted weakness abroad as an uncertainty issue. Examples given in written comments include interest rates, lack of political leadership and government policy.

Survey methodology: At 8 a.m. on Thursday, Oct. 31, an email was sent to 1,000 business contacts from various sectors around the Ninth District. By 4 p.m. Friday, Nov. 1, we received 153 responses, representing a 15 percent response rate. The largest number of respondents came from professional services (21 percent), financial services (18 percent), manufacturing (14 percent) and government (11 percent).

After snowstorm, ranchers still surveying damage

Ranchers in the western Dakotas who were hit hard by a freak fall blizzard got some welcome news Tuesday—they can get some assistance from the federal government while they wait to find out if more aid is on the way.

For readers who are unfamiliar with the story, a little background: In early October, Winter Storm Atlas dumped several feet of snow on some parts of South Dakota, North Dakota, Montana and Wyoming. The storm came on the heels of heavy rains that left grazing lands a muddy mess, and many cattle were left exposed to a quick freeze and extremely high winds before they had a chance to grow thicker winter coats.

Reliable estimates of the number of cattle killed due to freezing, drowning or trampling aren’t available yet, but early estimates suggest that the number is easily in the tens of thousands. Anecdotal reports indicate that the devastation varied widely; some ranchers were barely affected, while others may have lost their entire herds.

The damage assessment itself has been complicated and delayed by muddy conditions created by melting snow. Immediately after the blizzard, South Dakota Gov. Dennis Daugaard announced an executive order waiving the standard requirement that ranchers dispose of carcasses with 36 hours under normal conditions. That waiver was set to expire on Friday, but was extended this week until the end of November.

Ranching is big business in the region—South Dakota is the nation’s fifth largest beef producer, and the state has five cattle for every one person. Grown cattle sell for $1,400 to $2,000. Added to cattle losses are the cost of cleanup and losses due to animal injury or sickness, all which will have a major economic impact on the state.

The other tough part about the timing of the storm is that it came during the federal government shutdown, delaying any action on a possible disaster declaration. In addition, funding for livestock disaster relief programs has expired because of the holdup over the passage of a federal farm bill.

However, on Tuesday USDA Under Secretary Michael Scuse announced that ranchers can apply for assistance under the Environmental Quality Incentives Program, a conservation subsidy that will help them pay for carcass removal and infrastructure repair.

This story will continue to develop as the extent of the destruction becomes clearer. The fedgazette Roundup will be following it, so expect updates in the future.


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