97 posts categorized "Wisconsin"

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).

Health insurance premiums vary widely for state workers

Health insurance for employees is a major expense for state governments, but costs vary widely across the nation and Ninth District, particularly for premiums involving workers and their families, according to a new report this week by the Pew Charitable Trusts.

Monthly, employer-paid premiums for employees (only) are relatively similar among Ninth District states, from a low of $427 in North Dakota to a high of $587 in Wisconsin, which is also the only state whose employees share in the premium cost, at $97 per worker. Montana state employees, on average, receive a small credit of $21, according to Pew.

Much bigger differences occur in state health care coverage for workers and their dependents. South Dakota actually spends slightly less (per month, per worker) on family coverage ($493) than on single coverage ($496), and the state also requires a considerable cost share of $183. State-based costs for families in North Dakota are twice as high as in its southern neighbor, and South Dakota workers pay nothing. Premium costs in Minnesota and Wisconsin are higher still. With a total monthly premium of almost $1,700, Wisconsin has the second-highest health care premiums for state workers with dependents in the country, behind only New Hampshire.

State helath care premiums -- 8-13-14

Homeownership rates continue to dip

Several years after the biggest housing bust in memory, and with several years of renewed (if modest) growth, many believe the housing market is on the path to recovery. Homeownership rates, however, have yet to reverse their downward trend.

Since 2005, homeownership rates have seen a steady and comparatively steep decline, from 69 percent to less than 65 percent in the second quarter of this year. The annual trend has been more volatile in Ninth District states, but is generally following the same downward pattern, especially in Minnesota and Wisconsin (see charts). Only South Dakota is anywhere near its peak in homeownership rate over the past decade.

Homeownership -- 8-4-14

Made in (but not owned by) the USA

Investment is typically seen as a sign of economic strength, as people and financial entities put their money where they believe it can be most productive and profitable. Foreign direct investment (FDI) tracks the amount of money international firms invest in the United States, and a recent report on the matter by the Brookings Institution shows that it’s growing in the Ninth District, but not as fast as it is elsewhere in the country.

In 2013, for example, companies invested $1.46 trillion in locations outside their home country, and the United States is the single largest destination of that capital, receiving $193 billion, according to the report. This investment manifests itself in many forms: spreading technology, facilitating the exchange of knowledge and inducing new trade.

It also employs millions of people, which the Brookings report investigated more closely. Among Ninth District states, the trends are somewhat diverging. In five Ninth District states (cumulative), total employment at foreign-owned establishments (FOEs) grew by about 50 percent from 1991 to 2011, and the share of total private employment at FOEs increased as well (see Chart 1). The growth in this share of employment tended to be modest—about one-half of a percentage point—with the exception of North Dakota, whose share of FOE employment tripled over this period, most likely as a result of foreign firms investing resources in (and hiring workers for) the Bakken oil patch.

However, across the board, district states have a lower share of FOE employment than the national average and (with the exception of North Dakota) saw less growth in the share of FOE employment. As a result, most distrct states fell in ranking among their peers in FOE’s share of total private employment (see table embedded in Chart 1).

One caveat to FDI trends: Much of this investment is the result of acquisitions or mergers of U.S. companies by international firms. So a considerable amount of the resulting “growth” in FOE employment is a methodological quirk—namely, a shift in the nationality of the parent company. This was particularly the case in North Dakota. Among district states, only Wisconsin was close to the national average in the share of FOE employment growth coming from new openings (see Chart 2).

FDI Ch1-2

Personal income weak across Ninth District in first quarter

Personal income in all Ninth District states grew less than the national average in the first quarter of 2014, according to just-released figures from the Bureau of Economic Analysis.

Quarterly personal income in North Dakota fell at an annualized rate of 2.9 percent, the worst of any state (see chart). Personal income in both North Dakota and South Dakota fell two quarters in a row.

Personal income chart -- 6-25-14

The subpar economic performance is almost wholly due to huge reductions in farm earnings, which were steepest in North Dakota (see table). Crop prices for most of the district crop commodities fell, while many input costs rose. This put downward pressures on farm earnings. However, Wisconsin saw gains in farm earnings, possibly attributable to dairy, whose output prices remained firm as feed input costs decreased.

In that light, economic conditions are not as dire as they might seem. Almost all the industry groups experienced some gains in income in the first quarter. Oil production is still growing in North Dakota, as the mining industry (which includes oil production) grew by an annualized 8 percent in the first quarter after rising over 7 percent in the fourth quarter of 2013.

Personal income table -- 6-25-14

More big farms, but not everywhere

The United States has been losing farms for the better part of 90 years, the result of slow, steady consolidation of farms into bigger operations thanks to increased mechanization and other productivity enhancements that bring increasing returns to scale. The most recent agricultural census shows that this consolidation is still ongoing, but comes with some interesting caveats.

The census, done every five years and most recently in 2012 (with data just now coming available), shows that the overall number of farms declined by almost 5 percent nationwide, or about 95,000 farms, since 2007. However, total farm acreage dropped by less than 1 percent.

The drop in farm numbers was even more accelerated in Minnesota and Wisconsin, where farms declined by about 9 percent and 13 percent, respectively. The two states also lost a combined 3.5 percent of farmland acreage. Farms were lost in virtually all categories of size, from very small to quite large. However, there is growth among the very largest farms—those over 2,000 acres—both in the United States and in Minnesota and Wisconsin (see Chart 1).

The Dakotas and Montana, on the other hand, are seeing very different farm trends; overall loss of farms is much smaller, ranging from 5.4 percent in Montana to a 3.3 percent drop in North Dakota. South Dakota actually saw total farms increase by 2.6 percent. Total farm acreage in these states dropped by 1.6 percent—more than the national average, but less than half the rate in Minnesota and Wisconsin. The Dakotas and Montana are also seeing growth in very small farms—those under 100 acres—and a decline in large farms (with a small exception of South Dakota’s largest farms; see Chart 2).

Farms by size & revenue Ch1-2 -- 6-20-14

It’s difficult to say exactly what’s behind this trend. While organic and other small-farm operations are growing, this is also likely a function of more small hobby-farm residences, as well as an increase in hunting properties being bought with growing income in the region, but kept (and rented out) as farm property.

While the number of small farms grew in Montana and the Dakotas, all three states are nonetheless dominated by large-revenue farms, where between 32 percent (Montana) and 42 percent (South Dakota) of farms have revenues exceeding $1 million. That compares with about 20 percent nationwide, and just 18 percent in Wisconsin and 29 percent in Minnesota (see Chart 3).

Farms by size & revenue Ch3 -- 6-20-14

Head of the 2013 class (again): North Dakota

North Dakota is like the kid at school who gets all the awards. She can’t help it. Everyone else tries hard, but she’s just that good.

The Bureau of Economic Analysis came out with its most recent estimates on state gross domestic product for 2013. Several Ninth District states were well above average, with Montana and South Dakota both cracking 3 percent and Minnesota not far behind at 2.8 percent.

But North Dakota was running laps around most states at 9.7 percent growth last year. It beat the next closest state (Wyoming) by two full percentage points (see Chart 1).

Those following economic activity in the Ninth District know that North Dakota’s performance is no fluke, the result of a sustained oil boom that started in the early part of the last decade. Since 2003, the state has seen its economy grow at an annual compound rate of 6.6 percent (adjusted for inflation). That's double the growth rate of all but four states over this period.

To put that in context, the state’s economy has roughly doubled since 2003 (inflation-adjusted) to $56 billion in annual output. By comparison, the Montana and South Dakota economies have also done very well among states over this period, ranking among the top quarter in annual growth. Considerably smaller in output compared with Montana and South Dakota in 2003, North Dakota easily leapt over both in total output over the past decade (see Chart 2).

2013 state GDP Ch1

2013 state GDP Ch2

 

Growth in student debt slows, but will it last?

For much of the past decade, student debt has grown rapidly on two margins—the share of consumers affected and the amount owed by each debtor—and has generated considerable concern over the attendant pressure on household budgets and rise in delinquencies. But growth in both measures has slowed recently in the Ninth District.

In the Ninth District in early 2005, about 15 percent of consumer credit files included some form of student debt, with a median balance owed of about $7,000, according to the Federal Reserve Bank of New York/Equifax Consumer Credit Panel. By early 2011, the share of district files with student debt grew to over 20 percent and the median balance owed by those with student debt rose to over $11,750. The prevalence and median balance for most other forms of consumer debt grew much more moderately or even contracted over the same period (see Figures 1a and 1b).

Student debt ch1-2 6-5-14

However, since 2011, the two measures of student debt are no longer growing rapidly in tandem. Growth in the share of district residents with student debt slowed first. This share grew by just 0.2 percentage points per year between the first quarter of 2011 and the first quarter of 2014, compared with 0.9 percentage points per year between the first quarters of 2005 and 2011. The median student loan balance among district residents with student debt climbed rapidly until more recently, rising by 6 percent from early 2011 to early 2012 and by a further 9 percent by early 2013. However, it has been nearly flat since, rising just 0.2 percent from the first quarter of 2013 to the first quarter of 2014.

It is premature to say that the period of rapid growth in student debt is over. As seen in Figure 2, both measures are volatile from quarter to quarter and even year to year. For example, although generally slow since 2011, growth in the share of district residents with student debt rebounded after a dip in 2012, and by late 2013 this share reached 21 percent for the first time. Still, for those concerned about the burden of student debt, these recent data show at least a pause in its previous rapid, two-edged pace of growth.

For further details on student debt and general consumer credit conditions in the Ninth District and the nation, see the Consumer Credit Conditions web page.

Student debt Ch3-- 6-5-14

All fall down: Rising mortgage rates and the refi crunch of 2013

The mortgage refinance business headed into 2013 on the upswing, but the pendulum swung swiftly in the other direction by year’s end. And this reversal included borrowers across the credit-score spectrum.

According to figures from Black Knight Financial Services (BKFS), which typically represent 60 percent to 70 percent of the mortgage market, the number and dollar volume of refis in the United States and Ninth District trended up in the second half of 2012, reaching a two-year high in the fourth quarter of 2012. Activity remained high in January 2013, when BKFS reported over 7,800 new refis worth almost $1.4 billion in the Ninth District.

But then refi activity began a steep slide (see Figure 1). Between January 2013 and January 2014, activity reported by BKFS fell by almost 80 percent, to about 1,600 new Ninth District refis worth less than $285 million. Most of the decline occurred after May, when mortgage interest rates began moving up from about 3.5 percent to a range of 4.2 percent to 4.5 percent in the second half of the year. By January 2014, Ninth District refi activity was at its lowest level in the past 10 years of BKFS data, even weaker than during the refinance bust of 2008 at the height of the Great Recession.

Refi Figure 1

The sensitivity of refi activity to interest rates is easy to understand, since obtaining a lower rate is one of the main motives for refinancing. Big surges in refi activity have long tended to follow drops in mortgage rates, and just the reverse when mortgage rates rise.

However, grouping borrowers into low, medium and high credit score categories suggests that movements in housing prices have also influenced refi activity over the past 10 years (see Figure 2). For example, borrowers with low credit scores (below 660) have accounted for less than 10 percent of BKFS’s Ninth District refi dollar volume since the housing bust, but represented as much as a third of market volume during the housing boom (2004-06). Rising home prices at the time boosted borrowers’ home equity and made refinancing low-score borrowers seem safe to lenders and attractive to these borrowers, for whom cash-out refinancing (i.e., borrowing more than the former mortgage balance) was a cheap and accessible form of liquidity. When home prices fell and credit standards tightened after 2006, refi activity by low-credit-score borrowers crashed and has generally remained much lower.

Refi Figure 2

By contrast, borrowers with high credit scores (780 or more) appear to refinance mostly to obtain lower mortgage rates. Since 2009, refi activity by these borrowers has accounted for about one-third to one-half of the value of Ninth District refinancings, a marked increase compared to the group’s share during the housing boom (less than 16 percent ), when the rate on 30-year conventional mortgages was trending up. As mortgage rates trended down over the next six years, and especially when they dipped abruptly, high-score mortgagors took advantage of these opportunities to lower their financing costs by elevating their refi activity.

Borrowers in the middle, with credit scores between 660 and 779, dominate the refi market, accounting for half to two-thirds of the value of Ninth District refinancings reported by BKFS since 2009 (compared to 65 percent to 70 percent a decade ago). These borrowers seem to have been sensitive to both interest rates and home prices. Like the low-score borrowers, their refi activity was on average higher during the housing boom than afterward. But, like the high-score borrowers, middle-score borrowers have refinanced fairly aggressively in response to post-boom interest rate dips.

Despite their varying refinance motives over the past decade, Ninth District mortgagors in all three credit score categories cut back sharply on refinancing in 2013. By January of 2014, the dollar volume of refi activity was down from January 2013 by 68 percent among low-score borrowers, 77 percent among middle-score borrowers and 85 percent among high-score borrowers. For all three groups, this represents the steepest 12-month fall over the past decade. The large scale and relative uniformity of the decline across credit score categories suggests that last year’s big rise in mortgage interest rates was indeed the main factor behind the refi crunch of late 2013.

 

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