99 posts categorized "South Dakota"

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.

Ninth District businesses remain optimistic

There has been a fair amount of attention given to the possibility of an economic slowdown in 2014. While only a small anecdote in the volume of economic data, a recent survey still suggests a positive outlook in 2014 for the Ninth District economy.

The Federal Reserve Bank of Minneapolis conducted an ad hoc survey of 135 Ninth District firms and asked them about their outlook for 2014 (see methodology). Over 80 percent expressed optimism for their community’s economy over the next 12 months. This is comparable to the 74 percent of respondents to the November 2013 fedgazette Business Outlook Poll. Results by sector show that construction respondents were the most positive with 9 out of 10 reporting optimism, followed by manufacturing (87 percent), professional services (80 percent) and finance, insurance and real estate (79 percent).

“Seeing improved trends,” said a Minnesota banker, reflecting the overall mood of respondents; 53 percent expect increased sales for their operations compared with only 9 percent that expect decreased sales. Part of the sales increase is due to higher productivity, which 65 percent said occurred at their firm over the past 12 months. Higher sales expectations are partially reflected in the 39 percent of businesses that expect to increase prices, while 8 percent expect to lower prices.

More companies also plan more capital investment—30 percent expect an increase over last year’s spending, while 12 percent predict a decrease. Companies are having a better time financing these capital expenditures through better access to bank credit; 19 percent reported improved access, while only 5 percent noted deteriorated access.

More companies are hiring, too, with 34 percent expecting more employment and only 9 percent expecting less. Firms are facing some challenges; 44 percent noted that securing workers was a challenge, and over half reported that complying with government regulation was a challenge. FIRE respondents, at 69 percent, reported the most concern about complying with regulations.

Ad hoc survey methodology: On Feb. 10, an email was sent to 1,000 business contacts from various sectors around the Ninth District. By 5 p.m. on Feb. 12, 135 responses were received, representing a 13.5 percent response rate. The largest number of respondents came from finance, insurance and real estate (44 percent), professional services (24 percent), manufacturing (14 percent) and construction (10 percent). The disproportionate number of FIRE responses could have some unknown influence on results.

Ninth District states grew faster than nation last year

When the Census Bureau released its 2013 population estimates this week, they showed that southern and western regions of the country grew at the fastest pace. But Ninth District states held their own.

North Dakota ranked first in the nation in state population growth. South Dakota (6th), Montana (15th) and Minnesota (22nd) also grew faster than the national average, and only Wisconsin (37th) grew slower than the nation (see table).

Some of the population growth occurred from natural increases—the number of births outweighed the number of deaths. Natural population increase was relatively consistent; all district states saw an increase of between 0.3 and 0.6 percent in its population by natural means. For Minnesota and Wisconsin, it was by far the largest growth factor.

The other factor in population change is migration; 37 percent of U.S. population growth occurred from international migration. International migration was a significant factor in the population increases for Minnesota and Wisconsin.

States can also gain (or lose) population by migration between states (see chart). Montana and the Dakotas gained considerable population from people moving into the state from other parts of the country. Almost 17,000 people migrated to North Dakota from other states, most of them headed for the many job opportunities in the Bakken oil fields. Net state migration was negative in Minnesota and especially Wisconsin. 

District population 2013 -- 1-24-14

District crop production suffered in 2013

It’s no secret that last year was a tough one for district farmers. As discussed in the Minneapolis Fed’s most recent Survey of Agricultural Credit Conditions, the weather last year was difficult, beginning with heavy rains that delayed or prevented planting in some areas and giving way to drought later in the summer.

Earlier reports from the USDA gave indications that the weather had taken a substantial toll. The agency recently released its annual crop production summary, and final numbers show that while the weather did have an impact, it wasn’t the same across Ninth District states.

Take corn, for example. While overall production fell slightly from a year earlier as expected in Minnesota and North Dakota, it increased in Wisconsin and especially in South Dakota, though the increase is due more to a drought-ravaged 2012 than stellar production in 2013 (see Chart 1).

Crop production CH 1-2 -- 1-17-14

That wasn’t the case for soybeans or wheat, however, both of which saw lower overall production in the district, although South Dakota also had a strong year in soybeans compared with 2012 (see Charts 2). While crop acreage shifted somewhat, output changes among district states (both higher and lower) were due mostly to changes in yields. For example, corn acres harvested increased slightly last year in North Dakota, but production declined because yields fell about 10 percent. Conversely, higher corn production in South Dakota and Wisconsin was due to higher yields. For soybeans, both acreage and yields were down.

Wheat is a different story altogether (see Chart 3). The drop in wheat output was due almost entirely to lower acreage, thanks in part to the lingering effects of the 2012 drought, which led to a dramatic decrease in winter wheat plantings (which occur in the fall of the year prior to harvest).

It was also a tougher year for crop prices. For example, the price farmers received for corn at the end of 2013 was 37 percent lower than a year earlier, according to the USDA. Lower prices and poorer yields have meant lower income for many farmers. USDA data on state farm income will not be released until next month, but 48 percent of respondents to the ag credit survey expected lower farm income in the fourth quarter of 2013, compared with 16 percent expecting an increase.

Crop production CH 3 -- 1-17-14

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.

 

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