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October North Dakota Moody's Report

October North Dakota Moody's Report

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Published by Rob Port
October North Dakota Moody's Report
October North Dakota Moody's Report

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Published by: Rob Port on Nov 20, 2013
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ANALYSISSTRENGTHS & WEAKNESSESCURRENT EMPLOYMENT TRENDS
RELATIVE EMPLOYMENT PERFORMANCE (1998=100)
FORECAST RISKS
SHORT TERMLONG TERM
EMPLOYMENT GROWTH RANK
Best=1, Worst=54
2012-2014
VITALITY
2012-2017
COST OF DOING BUSINESS
INDEX
U.S.=100%Highest=1, Lowest=51
RANKINDEX RANK
RISK EXPOSURE
2013-2018
U.S.=100% Best=1, Worst=51Highest=1, Lowest=51
MOODY’S ANALYTICS / Précis U.S. State / Midwest / October 2013 31
 2006 2007 2008 2009 2010 2011 2012 INDICATORS 2013 2014 2015 2016 2017
 25.2 26.4 28.6 29.5 31.6 34.1 38.7
Gross state product (C$B)
 40.9 43.1 44.9 46.3 47.4 352 358 367 367 376 397 430
Total employment (000)
 445 460 472 482 488
2.2 1.7 2.4 -0.1 2.6 5.5 8.4 % change 3.5 3.4 2.6 2.0 1.2
3.2 3.1 3.2 4.1 3.8 3.5 3.1
Unemployment rate
 3.1 3.3 3.3 3.1 3.0 4.6 10.5 14.0 -1.0 9.6 10.9 18.7
Personal income growth
 4.4 8.1 8.5 7.2 5.9 649 653 658 665 674 685 700
Population (000)
 714 726 736 744 752 0.8 0.3 1.2 3.8 5.8 6.7 11.7
Net migration (000)
 11.1 8.5 7.3 4.8 4.4 2,297 2,194 1,888 1,704 2,084 2,913 4,540
Single-family permits
 4,358 4,421 3,700 2,836 2,455 1,232 1,166 945 1,491 1,749 3,288 5,800
Multifamily permits
 7,396 5,553 3,293 2,019 1,864 230 241 249 253 256 265 281
House price index (1980Q1=100)
 306 330 342 348 352 1,778 2,047 2,065 3,011 2,728 2,560 1,762
Mortgage originations ($ mil)
 2,282 1,827 2,034 1,956 1,988 25.1 26.9 25.7 22.4 27.7 35.6 39.5
New vehicle registrations (000)
 46.0 52.1 51.6 47.4 45.8 711 1,147 1,307 1,528 1,582 1,222 945
Personal bankruptcies
 785 851 866 947 1,064
% CHANGE YR AGO, 3-MO MA Dec 12 Apr 13 Aug 13
Total 7.0 4.4 2.8Construction 11.1 4.6 5.2Manufacturing 5.3 -0.9 0.9Trade 8.0 5.4 1.7Trans/Utilities 17.2 7.6 2.1Information -2.4 -1.4 -0.5 Financial Activities 4.8 5.2 6.6Prof & Business Svcs. 10.7 9.6 7.0Edu & Health Svcs. 3.0 1.6 -0.0Leisure & Hospitality 8.3 4.2 -0.6Other Services -0.2 -2.1 -3.9 Government 0.9 0.5 1.4
U.S.ND9010011012013014015016098990001020304050607080910111213F14F15F16F17F
NORTH DAKOTA
Recent Performance.
North Dakota’s economic expansion is the strongest in the nation thanks to a historic boom in energy exploration. Te pace of  job growth has plateaued just below 3% year over year, after cooling from a high of nearly 10% in mid-2012. Tis is still nearly twice the national av-erage, despite having already added nearly 80,000  jobs to prerecession peak levels. Personal income growth has similarly decelerated dramatically in re-cent months but remains roughly twice the nation-al average. Falling agricultural prices are largely to blame, pulling down growth in farm proprietors’ income from 150% to 5% year over year, in a mat-ter of just two quarters.
Energy.
Te state’s historic oil boom will un-derpin above-average growth throughout the fore-cast. Te use of new technologies to unlock ND’s long-sought-after shale formations has been a game changer for the economy. After years of unprec-edented growth, the energy industry is making the transition from booming exploration phase to a less labor-intensive long-term production phase. Conse-quently, well numbers and production continue to rise, but hiring has trailed off. Mining and natural resources are still generating a significant number of high-paying jobs, but growth is the slowest in nearly three years. Tis has particularly weakened the pace of expansion in the state’s rural areas, shifting focus to the more service-dependent metro areas.
Strained resources.
Downside risk is present in the long-term forecast because of the state’s over-matched transportation and utility infrastructure. Insufficient pipeline infrastructure requires much of the oil produced to be transported to refineries out of state by truck or rail. Tis problem will be lessened in the near future, assuming new refinery capacity comes on line as scheduled. Furthermore, transportation of drilling supplies and equipment is eating up roads in the western part of the state, resulting in dangerous conditions and at times tempering the pace of overall growth. Housing shortages also remain prevalent throughout much of ND, posing an impediment to an already-inade-quate local labor force. Te state has already invest-ed well over a billion dollars in updating oil patch infrastructure, but wisely facilitating growth in the  western portion of ND will be a serious long-term challenge for local policymakers.
Federal uncertainty.
Federal uncertainty will re-main the only real drag on job and income growth throughout the forecast. Tis effect will be felt most in the northern portions of the state, thanks to a heavy reliance on Minot and Grand Forks Air Force bases. Te fiscal drag as a result of the fed-eral government shutdown amounted to roughly a third of a percentage point from annualized fourth quarter growth. Tis was material, but not greater than the national average.Long term, however, defense operations in the state will likely suffer less than other defense-reliant areas from impending cuts. Te Pentagon has made it clear that the Air Force and Navy will likely have fewer long-term reductions than the Marines or  Army. Within Air Force operations, ND is also well-situated, thanks to relatively high-priority unmanned aerial vehicle research being performed in state.
North Dakota is in an enviable position and  will outperform the U.S. for the next several  years thanks to its booming energy industry. High prices and new technologies will support oil production, accompanied by growth in aux-iliary industries throughout the state. Whether ND can adequately update insufficient transpor-tation and utility infrastructure in its western oil patch will ultimately determine the long-term durability of the energy expansion.
Dan White October 2013
STRENGTHS
 
Rapid growth of energy exploration in the Bakken Shale formation. 
Major producer and exporter of several important agricultural commodities. 
Stable state fiscal situation. 
Location along a key trade corridor and proximity to Canada and major interstates.
WEAKNESSES
 
Lack of strong growth drivers outside energy and agriculture.
UPSIDE
 
Continued increases in energy and agricultural commodity prices boost incomes further. 
Western infrastructure is updated fast enough to accommodate rapid growth in the energy industry.
DOWNSIDE
 
 Additional federal budget cuts hit defense employment and incomes. 
Recurring flooding along the Missouri, Souris and Red rivers hurts crop cycles.
76%2
1st quintile
7
1st quintile
      X X
88%454812
2nd quintile
 
EMPLOYMENT & INDUSTRYMIGRATION FLOWSMERCHANDISE TRADEHOUSE PRICES
INDUSTRY EMPLOYMENTLOCATION QUOTIENTS
INCOMEINCOME TAX DISTRIBUTION
Relative to U.S.
TOP EMPLOYERSPUBLICINDUSTRIAL DIVERSITYEMPLOYMENT VOLATILITY
Sector NAICS Industry Location Quotient
Most Diverse (U.S.)Least Diverse
Due to U.S. fluctuations
MiningConstructionManufacturing
 Durable Nondurable
Transportation/UtilitiesWholesale TradeRetail TradeInformationFinancial ActivitiesProf. and Bus. ServicesEduc. and Health ServicesLeisure and Hosp. ServicesOther ServicesGovernment
EXPORTS BY DESTINATION
 Exports Share TotalCountry ($ mil) Exports %
EXPORTS BY COMMODITY
 Exports Share TotalCommodity ($ mil) Exports %
U.S.
Median HouseholdPer Capita
Not due to U.S.Due to U.S.
Source: FHFA, 1996Q1=100, NSA
MOODY’S RATING
 
Sources: IRS (top), 2010; Census Bureau, 2012 Source: Census Bureau - Foreign Trade Division, 2012 2012 Sources: Census, 2011 (household); BEA, 2012 (per capita)Source: Internal Revenue Service, 2011Percent of total employment, 2012 Source: Moody’s Analytics, 2012 
32 MOODY’S ANALYTICS / Précis U.S. State / Midwest / October 2013
02,0004,0006,0008,00010,00012,00014,00009101112
 
55,76651,01754,87143,735
 
37.2%3.2%10.4%10.9%14.5%23.9%
NDU.S.
80100120140160180200220980104071013
NDU.S.
100119
0%20%40%60%80%100%
54%
NET MIGRATION, ND
0.000.200.400.600.801.00
0.51
Aa1
AS OF DEC 16, 2010
INTO NORTH DAKOTA NUMBER OF MIGRANTS
Minnesota 5,627South Dakota 1,225Montana 930Texas 926California 816Colorado 758Wyoming 580Florida 577 Arizona 545Washington 542
Total In-migration 20,333
FROM NORTH DAKOTA
Minnesota 5,124South Dakota 1,183Texas 996Montana 729California 667Colorado 583 Arizona 570Florida 473Washington 469Wisconsin 333
Total Out-migration 17,468 
Net Migration 2,865
Federal 9,433State 24,742Local 45,342
213 Support Activities for Mining 15.51486 Pipeline Transportation 3.20484 Truck Transportation 3.01212 Mining (except Oil and Gas) 2.81237 Heavy & Civil Engineering Constr. 2.69
 ND U.S.
 5.7% 0.6% 6.9% 4.2% 5.9% 8.9%
 67.2% 62.6% 32.8% 37.4%
 5.7% 3.7% 5.9% 4.2% 11.0% 11.1% 1.6% 2.0% 5.1% 5.8% 7.6% 13.4% 13.5% 15.2% 8.9% 10.3% 3.7% 4.1% 18.5% 16.4%
World 4,308.7 100.0
Canada 3,086.2 71.6Mexico 282.5 6.6 Australia 124.4 2.9Belgium 77.3 1.8Russian Federation 55.4 1.3
World 4,308.7 100.0
Oil & gas extraction 1,190.8 27.6Machinery manuf. 1,157.1 26.9Crop production 508.9 11.8Food manufacturing 357.8 8.3Chemical manuf. 336.0 7.8
ND
Sanford Health 6,739Minot Air Force Base 4,533University of North Dakota 4,206 Altru Health System 3,762North Dakota State University 2,339St. Alexius Medical Center 2,215Grand Forks Air Force Base 1,800Noridian/Blue Cross Blue Shield 1,345Innovis Health 1,285Wal-Mart Stores Inc. 1,075Case New Holland Corp. 1,055U.S. Bank Service Center 975Microsoft Business Solutions 870Fargo VA Medical Center 870MDU Resources Group Inc. 816Concordia College 733Valley Memorial Home 700John Deere Electronic Solutions 657Phoenix International Corp. 634 Aetna Inc. 600
Source: Combined Lists
 
MOODY’S ANALYTICS / Précis U.S. State / Midwest / October 2013 33
NORTH DAKOTA
8010012014016018010111213
Core Crop Prices Beginning to Falter…
Crop prices, 2010=100
Sources: USDA, Moody’s Analytics
SoybeansWheat All food commodities3453653854054254454650607080910111213
More Workers From Out of State
Employment, ths
Sources: BLS, Moody’s Analytics
Household surveyPayroll survey-400408012016010111213
…Causing Dramatic Income Growth Slowdown
Farm proprietors’ income, % change yr ago
Sources: BEA, Moody’s Analytics
North DakotaU.S.204060801001200910111213
New Refineries Will Help Reduce Spread
Sources: EIA, St. Louis Fed, Moody’s Analytics
West Texas IntermediateNorth Dakota crude first purchase price
Price of crude oil, $ per barrel
Te retrenchment in core crop prices will constrain farm proprietorsincome over the near term, but long-term prospects remain upbeat. ND farm incomes will still outperform the national average by a sig-nificant margin throughout the forecast, owing largely to the state’s  well-diversified crop portfolio. Tis has helped buffer incomes from outright declines in the face of falling wheat and soybean prices. Te oil boom to the west will also push land prices higher for the foresee-able future, benefiting farm balance sheets and helping to expand existing operations. In addition to its blossoming oil industry, ND will remain reliant on agriculture for growth and stability throughout the forecast. Te state has benefited greatly in recent years from historic price gains among some of its core crops, most notably wheat and soybeans. Te gains have reversed over the past three to nine months, largely because of the alleviation of some geopolitical pressures overseas and a rebound in U.S. yields following drought conditions across much of the Farm Belt last year. Te state’s historically tight labor market will require stronger in-migration to fuel job gains. On a percentage basis, ND’s in-migration is the strongest in the country. However, the state’s labor force is still having difficulty keeping up, requiring many firms to import workers from out of state to expand operations. Tis is most evident when comparing the household and establishment employment surveys. Te establishment survey, which better captures nonresident work-ers, has vastly outperformed its counterpart since the onset of the oil boom.New local refinery capacity scheduled to come on line slowly over the next few years will narrow the historic spread between ND crude oil and benchmark West exas Intermediate. A diesel facility being built outside Dickinson is the first expected to come on line, though at a reduced capacity, by the end of next year. In addition to the price benefits to producers of lower transportation costs, the increased diesel capacity will also reduce local fuel costs. Tis will be highly beneficial given the massive increase in diesel usage accompa-nying the state’s oil boom.

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