105 posts categorized "Wisconsin"

Mixed year for district mid-cap stocks in 2014

Stocks of mid-cap companies in the Ninth District had a lackluster year in 2014, closing the year with a less than 1 percent overall gain, following a 29 percent increase in 2013. Meanwhile, the benchmark S&P MidCap 400 Index increased 8 percent in 2014. Despite the 2014 performance, the longer-run trend in the district index remains broadly consistent with that in the larger S&P MidCap 400 Index (see Chart 1).

9th Dist stock index CH1 -- 1-26-15

Performance was mixed across companies in the index with gains in half almost offset by losses in the other half. The top performer was C. H. Robinson Worldwide, a freight transportation and logistics company based in Eden Prairie, Minn., which saw its market cap increase by $2.1 billion (24 percent) in 2014. Stratasys, a manufacturer of 3D printers also based in Eden Prairie had the largest loss at $2.3 billion (36 percent) of its market value.

In terms of sector composition, Ninth District companies in the services, basic materials and consumer goods sectors posted overall gains in market value (see Chart 2). The services sector had a particularly strong year in 2014, adding $4.9 billion in market cap. Notable performers in this category include the Buffalo Wild Wings restaurant chain (24 percent increase in market value), SuperValu, a food retail company (32 percent), and Patterson Cos., a medical equipment wholesaler (14 percent). Together, these performers added $1.9 billion in market capitalization to the sector total.

9th Dist stock index CH2 -- 1-26-15

In all other sectors, district mid-cap stocks posted overall decreases in market values. After Stratasys, worst performers included MDU Resources Group, a diversified utilities company based in Bismarck, N.D., whose market capitalization decreased by $1.2 billion (21 percent); Donaldson Company, a Minneapolis-based manufacturer of filtration systems, which dropped by $1.1 billion (17 percent); and Raven Industries, a diversified machinery producer based in Sioux Falls, S.D., with a $0.5 billion (36 percent) decline in market value.

The Ninth District Mid-Cap Stock Index applies a methodology similar to the one used by the S&P Midcap 400 Index to track changes in market valuations of mid-sized publicly traded companies headquartered in the district. For more details, see the index methodology.

Beige Book recap: Modest growth in Ninth District

Over the past two months, the Ninth District economy has seen modest growth, according to the latest Beige Book information released by the Federal Reserve Bank of Minneapolis. Increased activity was noted in consumer spending, professional services, manufacturing and non-energy mining. Activity was level in tourism and mixed in commercial construction, commercial real estate and agriculture. Energy, residential real estate and residential construction were down. Labor markets continued to tighten since the previous report. While overall wage increases remained modest, there were examples of steeper increases in some regions and industries.

Consumer spending and tourism: Consumer spending increased moderately. Mall and retail representatives across district states reported solid traffic and sales. Overall tourism was about level with a year ago, according to a variety of sources. Construction and real estate: Construction activity was mixed in the district’s larger cities. In Sioux Falls, S.D., the value of November commercial permits increased from a year ago, but fell in Billings, Mont.

Residential construction: Activity was mostly lower. In the Minneapolis-St. Paul area, the value of December residential permits decreased 9 percent from a year earlier and also dropped in the Bismarck, N.D. area (November data). Residential activity was stronger in Billings and Sioux Falls, however. Home sales were generally lower from a year earlier (in November). In the Sioux Falls area, home sales were down 12 percent, inventory increased 1 percent and the median sales price increased 6 percent relative to a year earlier. Sales were also down in northwestern Wisconsin, and the median sales price was 6 percent lower. Minnesota home sales were down 13 percent, inventories of homes for sale increased 5 percent and the median sales price rose 3 percent. Home sales in the Bismarck area were about level with last year.

Manufacturing: Activity increased slightly. A manufacturing index increased in December from the previous month in Minnesota and South Dakota, but fell slightly in North Dakota. However, the index pointed to continued expansion in all three states. Through October, manufactured exports in district states were up 1 percent compared with the same period a year earlier.

Energy and mining: The energy sector slowed slightly in response to lower output prices. Oil and gas exploration activity decreased in late December compared with a month earlier in Montana and North Dakota. Mining activity increased slightly. District iron ore mines were operating at or near capacity, with November production slightly higher than a year earlier.

Agriculture: Conditions remained mixed, with livestock and dairy producers faring better than crop farmers. A Minneapolis Fed third-quarter survey found that a majority of farm incomes had fallen from a year earlier and that capital spending also decreased. The fourth quarter outlook was also weaker, according to the survey. Prices received by farmers in December decreased from a year earlier for corn, soybeans, wheat, hay and milk; prices increased for cattle, hogs, eggs and poultry.

Employment and wages: Labor markets continued to tighten since the previous report. Overall wage increases remained modest, but there were examples of steeper increases in some regions and industries. Some construction firms in the Minneapolis-St. Paul area noted that labor costs have increased recently. In addition, some managers at Minneapolis-St. Paul area restaurants indicated that they were increasing wages to attract employees.

See the full Beige Book report for more details on the national and Ninth District performance.

Historic preservation: This old tax credit

Historic renovation activity over the past few years in Minnesota and Wisconsin points to the power of income tax incentives to spur rehabilitation of old buildings.

By defraying renovation expenses, historic rehabilitation tax credits are intended to save culturally significant structures that would otherwise deteriorate and eventually fall to the wrecking ball. Property owners can apply for a federal income tax credit worth 20 percent of the cost of restoring income-producing buildings, and in many states, state income tax credits that can be combined with the federal credit.

In 2013, the National Park Service accepted applications for renovation projects in Ninth District states (excluding Michigan) eligible for over $60 million in federal and state historic preservation tax credits, most of it in Minnesota and Wisconsin.

An unknown share of projects that received credits likely would have occurred without credits, or with the federal credit alone. In some cases, credits may serve to increase profits rather than provide the minimum return on investment necessary to make the project worthwhile. But data on historic rehab tax credit projects in Minnesota and Wisconsin indicate that more hammers swing on renovation projects when tax incentives increase.

In 2010, the Minnesota Legislature enacted a 20 percent historic preservation tax credit to match the federal credit, which was enacted in the 1970s. In subsequent years, the number of historic renovation projects applying for a tax credit (federal and/or state) rose sharply (see chart), although some of the increase was likely due to improved economic conditions in the wake of the Great Recession. Total estimated renovation costs also jumped.

In Wisconsin, historic tax credit projects surged last year after the state raised its modest 5 percent credit to the same level as Minnesota’s. From 2013 to 2014, estimated costs of active renovation projects swelled sevenfold to over $260 million, according to the Wisconsin state historic preservation office.

This apparent tax credit effect doesn’t necessarily mean that income tax credits are the best mechanism for fostering historic preservation. South Dakota has no historic preservation tax credit, but the state offers to freeze property tax assessments on rehabilitated buildings for eight years. In Minnesota, consumers support historic preservation through sales taxes allocated to arts and cultural heritage programs.

Other forms of financial support for historic preservation in the district and nationwide include rehabilitation grants funded by gaming revenue, the purchase of historic façade easements by cities and tax-deductible private donations.

Historic preservation

Sure it’s cold, but we’re upwardly mobile

If you live in a Ninth District state, which do you prefer, moving out or moving up? Probably the former if you don’t like the cold, but likely the latter in most other cases. And while Ninth District states have cold winters, so too do they offer better upward income mobility than the nation overall, according to data from a team of researchers from Harvard and UC-Berkeley.

The research project, dubbed Equality of Opportunity, collected income data on millions of parents in the last half of the 1990s. It then tracked how kids from low-income families in this sample fared in 2011 and 2012, when they were in their early 30s. (For more information on the study’s methodology, go here.)

The study split the country into more than 700 commuting zones, which are rough approximations of local economies (urban and rural). It then ranked commuting zones for absolute upward mobility—roughly, the average national income rank of a child from low-income parents in the commuting zone.

The data show that Ninth District states stand out for high absolute upward mobility. The distribution of scores for commuting zones in every district state (including the combined region of northwestern Wisconsin and the Upper Peninsula of Michigan) skewed higher than scores for all other commuting zones not in the Ninth District (see charts below).

For more data and discussion on this topic, see the October fedgazette for in-depth articles on both high income mobility and low income mobility in the Ninth District.

  Absolute income distribution 9th states -- 11-13-14

A summer of steady growth in the Ninth District

The Ninth District economy continued to show signs of steady growth through the summer months, characterized by job growth, decreases in unemployment rates and gains in home building.

As of August, nonfarm employment in district states was up 1.8 percent relative to a year ago, posting a net increase of about 122,000 jobs. North Dakota reported the strongest employment growth among district states, accounting for about one in every six jobs added in the Ninth District over the past 12 months despite the state’s workforce comprising only 7 percent of the district total. Employment growth in other district states was largely in line with the national trend (up 1.8 percent), except in South Dakota, where nonfarm employment growth was 0.7 percent.

The district unemployment rate dropped to 4.7 percent over the same period, down 0.8 percentage points from a year ago. The spread in unemployment rates among district states has narrowed over the past 12 months. Regions with relatively high unemployment rates, such as the Upper Peninsula of Michigan, Wisconsin and Montana, posted larger year-over-year declines than Minnesota and the Dakotas, where unemployment rates started out much lower last year.

Manufacturing wage growth in the district slowed to 1.4 percent during the three-month period ending in August, compared with a growth rate of 2.5 percent during the same period a year earlier. With the exception of North Dakota and Wisconsin, growth in manufacturing wages in district states was below the national average of 1.6 percent. Montana’s manufacturing workers reported the lowest year-over-year growth rate in hourly earnings among district states, which barely reversed the flat or declining trend in manufacturing wages in the state for much of 2013 and early 2014.

During second quarter 2014, personal income growth (adjusted for inflation) across district states was positive, posting a 2.2 percent overall increase relative to a year ago for the district. Except for North Dakota, all district states posted lower personal income growth rates relative to the national average of 2.4 percent, while South Dakota’s state ranking in growth was near the bottom.

New housing authorizations for the three-month period ending in August were up 8.2 percent in district states; however, rates varied widely among district states. Montana and South Dakota posted year-over-year declines of over 20 percent in new housing authorizations, while North Dakota showed a 42 percent increase over the same period. Housing authorizations in Minnesota and Wisconsin were up 5 percent and 10 percent, respectively, closer to the national average of 7.7 percent.

Home prices continued to show increases in several district cities. During the second quarter of 2014, home prices were 7.4 percent higher than a year ago in Bismarck, N.D., 6.7 percent higher in Minneapolis-St. Paul, 3.2 percent higher in Fargo, N.D., and 2.6 percent higher in Sioux Falls, S.D. Nationally, home prices increased by 4.4 percent during the same period.

For current and historical data on the economic indicators referenced here, see the “Monthly Summary” spreadsheet, along with other Ninth District data that are updated regularly.

Minnesota: The land of 10,000 deep-fried things

The annual Minnesota State Fair finished on a high note this year, setting an attendance record of 1.82 million. The state’s fair is known for its unusual popularity compared with fairs of other states, and it is the second-largest state fair in the nation, second only to Texas.

The fair’s popularity has continued to grow slowly and steadily over time, with only occasional and modest declines in annual attendance (see chart). One of the reasons for this steady attendance pattern likely has something to do with simple population growth. Since 1990, the Minnesota State Fair has typically attracted the equivalent of about one of every three residents (fluctuating modestly between about 31 percent and 36 percent of the state population in a given year). As the population has grown, so too has State Fair attendance.

That doesn’t, however, explain why the Minnesota State Fair is popular to more of its residents than those of other states. For example, attendance at the Wisconsin State Fair represents fewer than one in five state residents. The State Fair of Texas attracts about 2.8 million visitors (over 24 days, compared to Minnesota’s 11 days). Still, that works out to barely one in 10 residents of the Lone Star State.

State Fair attendance -- 10-15-14

Farmland sales down in Ninth District

After several years of big increases, there are mounting indications that farmland prices have started to moderate. The change in the quantity of farmland bought and sold can offer added insight into what’s going on in that market.

The volume of farmland sales is harder to verify because no central agency tracks land sales nationally. Further, there are relatively few transactions, and individual pieces of land don’t change hands very frequently, often less than once a generation. For instance, in Minnesota, one of the only states for which a detailed record of land transactions is available, just under 120,000 acres were sold in 2013, out of 26 million farm acres in the state.

For this reason, the Minneapolis Fed’s second quarter (July) Survey of Agricultural Credit Conditions asked lenders a special question on land sales: “How does the volume of farmland sales this year compare to last year in your area?” As the chart shows, most respondents reported that the number of sales was down.

Farmland sales -- 9-24-14

A Minnesota lender said that the “land market is really a big guess, as very little [is] selling,” adding that the expectation was for “prices to decline as grain prices fall.”

These findings suggest that falling crop prices are helping to lower demand among farmland buyers, causing farmland values to level off (as economic theory would imply). Fewer farmland sales also imply that rather than selling into a plateauing market, farmers appear to be holding tight to their land at the moment.

Metro GDP: Move over Bismarck; Billings is top performer

The Bureau of Economic Analysis recently released estimates of 2013 gross domestic product for metropolitan statistical areas. Ten of the 15 Ninth District MSAs beat the national MSA average of 1.7 percent growth.

Billings was the top-ranked MSA in the Ninth District, at 7.1 percent, 11th best out of the 381 U.S. MSAs in growth rate, followed closely by Bismarck at 6.9 percent. However, not all metros are seeing strong growth. Both Great Falls and Missoula lost GDP in 2013 when compared with 2012, and three others failed to match the modest national average for MSAs.

MSA growth also has varying influence on state economies because output concentration differs across district states. Minnesota MSAs, for example, account for 84 percent of the total output for the state, while Montana MSAs account for only 38 percent of total output.

MSA GDP table -- 9-22-14

Farmland values still soaring? Not so fast

In early August, the USDA released its annual estimates of farmland values, showing an increase of 7.6 percent for U.S. cropland in 2014 over a year earlier. Values in the district were up even more; South Dakota saw the biggest increase in the country at 20.8 percent (see table). This was something of a surprise, given results from the Minneapolis Fed’s second-quarter survey of agricultural credit conditions, which indicate that farmland price growth has slowed and even decreased in some cases.

USDA table -- 8-28-14

One reason for the discrepancy is obvious—the numbers come from different surveys. The Fed survey covers lenders, while the USDA’s covers landowners themselves and is also much larger and more thorough. But another reason USDA land values showed a bigger jump this year goes back to June, when earlier USDA estimates of 2009-13 land values were revised. In most states, earlier values were revised down, which makes the increase in 2014 look bigger than it otherwise would have.

For example, the USDA estimated that Minnesota cropland sold for $4,850 an acre when it released its summary in August 2013. Last June, it revised that estimate down to $4,050 an acre, 9.5 percent less than the earlier estimate. The newly released 2014 Minnesota estimate of $4,870 is nearly unchanged from the earlier 2013 number, so much of the apparent jump this year reflects a downward revision of last year’s statistics (see chart).

Given the larger sample size and rigorous methodology, the USDA survey is a better indicator than the Fed’s. But the revisions suggest that land prices may not have grown as much in 2013 and earlier years as initially thought.

USDA farmland chart -- 8-28-14

Business survey: Ninth District should continue to grow

Results from a Federal Reserve Bank of Minneapolis ad hoc survey of 603 Ninth District firms (see methodology) reveals that economic activity at firms across industry sectors increased over the past four quarters and should continue over the next four quarters (see table).

Looking back: Firms across industries reported increased sales revenue, profits, productivity and employment. The availability of labor decreased, especially in the construction sector, where the majority of respondents reported a lack of available labor. Respondents from most sectors reported increases in selling prices and input costs. Wage and benefit increases were moderate. They also noted an uptick in availability of financing.

Looking forward: Respondents are more optimistic for the next four quarters, as a higher proportion of respondents reported expectations for increased sales revenue, profits, productivity and employment. The availability of labor is expected to continue to decrease. Respondents expect to raise prices and pay more for inputs. However, wage and benefit increases are expected to be moderate.

State economic outlook: Respondents expect their state economies to grow as well. Employment, consumer spending and profits are all expected to increase. However, the vast majority of respondents across industries expect inflation to increase.

August ad hoc table -- 8-21-14

Ad hoc survey methodology: On Monday, August 18, an email was sent to 5,000 contacts (not a random sample) from various sectors around the Ninth District. By 12 noon Wednesday, August 20, 603 responses were received, representing a 12 percent response rate. The largest number of responses came from finance (24 percent), professional services (20 percent), manufacturing (15 percent), real estate (13 percent), construction (8 percent) and nonprofits (7 percent).