ANALYSIS STRENGTHS & WEAKNESSES

CURRENT EMPLOYMENT TRENDS
RELATIVE EMPLOYMENT PERFORMANCE (1998=100)
FORECAST RISKS
SHORT TERM LONG 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
RANK
INDEX RANK
RISK EXPOSURE
2013-2018
U.S.=100% Best=1, Worst=51 Highest=1, Lowest=51
MOODY’S ANALYTICS / Précis U.S. State / Midwest / June 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$B) 41.0 43.2 45.0 46.5 47.6
352 358 367 367 376 397 430 Total employment (000) 446 460 474 485 491
2.2 1.7 2.4 -0.1 2.6 5.5 8.4 % change 3.8 3.2 2.9 2.3 1.3
3.2 3.1 3.2 4.1 3.8 3.5 3.1 Unemployment rate 3.4 3.7 3.4 3.1 2.9
4.1 10.6 13.7 -2.6 9.4 12.8 12.4 Personal income growth 7.5 8.1 7.8 6.7 5.4
649 653 658 665 674 685 700 Population (000) 715 728 739 748 756
0.8 0.3 1.2 3.8 5.8 6.7 11.7 Net migration (000) 12.3 9.4 8.0 5.5 5.1
2,297 2,194 1,888 1,704 2,084 2,913 4,540 Single-family permits 3,623 2,563 1,807 1,654 1,351
1,232 1,166 945 1,491 1,749 3,288 5,800 Multifamily permits 6,085 5,540 3,263 1,542 823
230 242 249 253 256 266 281 House price index (1980Q1=100) 300 314 327 339 350
1,778 2,047 2,065 3,011 2,728 2,560 1,760 Mortgage originations ($ mil) 2,243 1,792 2,094 2,086 2,223
25.1 26.9 25.7 22.5 27.8 35.7 39.6 New vehicle registrations (000) 47.2 52.2 53.1 49.2 47.6
711 1,147 1,307 1,528 1,582 1,222 945 Personal bankruptcies 893 801 763 803 887
% CHANGE YR AGO, 3-MO MA
Sep 12 Jan 13 May 13
Total 8.6 6.3 3.7
Construction 19.6 10.1 3.6
Manufacturing 7.9 3.0 0.0
Trade 7.8 7.8 4.6
Trans/Utilities 26.0 13.4 6.2
Information -2.8 -2.8 -1.0
Financial Activities 3.0 5.3 5.1
Prof & Business Svcs. 7.9 10.9 8.2
Edu & Health Svcs. 2.9 2.5 1.4
Leisure & Hospitality 7.8 7.7 2.5
Other Services 4.1 -2.1 -2.1
Government 1.2 0.9 0.5
U.S. ND
90
100
110
120
130
140
150
160
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F 16F 17F
NORTH DAKOTA
Recent Performance. North Dakota’s economy
is expanding, but growth has cooled to a more
sustainable pace. Employment growth has slowed
and is roughly one-third its peak pace. Te biggest
cooling has been amongst goods producers, partic-
ularly in rural areas. Private services have taken on
a larger role in supporting job gains, shifting the
onus back to the state’s three metro areas. Elevated
oil and agricultural prices are preventing slower
job growth from translating into weaker income
growth. Personal income has had double-digit in-
creases in eight of the last nine quarters, and it rose
more than twice the national average in 2012.
Energy. Te state’s historic oil boom will be
the underlying driver of growth throughout the
forecast. 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 un-
precedented growth, the energy industry is making
the transition from booming exploration phase to
a less labor-intensive long-term production phase.
Consequently, well numbers and production con-
tinue to rise, but hiring has trailed of. Mining is
still generating a signifcant number of high-pay-
ing 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 service-dependent metro areas.
Ofce space. Professional and administrative
service jobs will be in high demand over the next
12 to 18 months. Firms serving the energy in-
dustry are already setting up shop in established
ofce centers in Fargo and Bismarck, where cheap
business costs and relative proximity to the oil
patch have been key. Such high-paced growth is
beginning to result in a shortage of available of-
fce space, which will keep spurring frms to build
new capacity in an efort to meet demand. Tis
augments a robust outlook for the construction.
Capacity in construction is already strained to
update outdated transportation and utility infra-
structure in the oil patch. In the meantime, ofce
rents are rising but remain very competitive by
national standards.
Federal uncertainty. Despite the state’s envi-
able outlook, some downside developments will
modestly temper the pace of growth. Te largest
came in the form of a full sequester, after President
Obama and Congress were unable to cut it back as
part of a continuing budget resolution to fund the
rest of fscal 2013. Te previous baseline forecast
assumed that half of this year’s sequester would be
clawed back as part of that negotiation. However
the full sequester took efect March 1 and has been
incorporated into the baseline forecast. Employ-
ment and wage growth will sufer in the areas sur-
rounding Minot and Grand Forks Air Force bases
as a result. Previously the White House had indi-
cated that full sequestration would result in fur-
loughs for about 2,000 civilian defense employees
at a cost of nearly $8 million in pay. Operations at
the state’s Air Force bases would also be cut by an
additional $20 million through September. Expan-
sion in the second and third quarters of 2013 will
be weaker as a result.
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. Te un-
employment rate will fall below 3% in 2016.
Whether ND can adequately update insufcient
transportation and utility infrastructure in its
western oil patch will ultimately determine the
long-term durability of the energy expansion.
Dan White
June 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%
1
1st quintile
3
1st quintile
X X
85% 49
48
10
1st quintile
EMPLOYMENT & INDUSTRY MIGRATION FLOWS
MERCHANDISE TRADE HOUSE PRICES
INDUSTRY EMPLOYMENT
LOCATION QUOTIENTS
INCOME
INCOME TAX DISTRIBUTION
Relative to U.S.
TOP EMPLOYERS
PUBLIC
INDUSTRIAL DIVERSITY EMPLOYMENT VOLATILITY
Sector
NAICS Industry Location Quotient
Most Diverse (U.S.)
Least Diverse
Due to U.S. fluctuations
Mining
Construction
Manufacturing
Durable
Nondurable
Transportation/Utilities
Wholesale Trade
Retail Trade
Information
Financial Activities
Prof. and Bus. Services
Educ. and Health Services
Leisure and Hosp. Services
Other Services
Government
EXPORTS BY DESTINATION
Exports Share Total
Country ($ mil) Exports %
EXPORTS BY COMMODITY
Exports Share Total
Commodity ($ mil) Exports %
U.S.
Median Household Per Capita
Not due to U.S. Due to U.S.
Source: FHFA, 1996Q1=100, NSA
MOODY’S RATING
Under 25k
25-50k
50-75k
75-100k
100-200k
>200k
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, 2011
Percent of total employment, 2012
Source: Moody’s Analytics, 2012
32 MOODY’S ANALYTICS / Précis U.S. State / Midwest / June 2013
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
09 10 11 12
Net Migration, ND
56,361
50,054
51,893
42,693
Under 25k
25-50k
50-75k
100-200k
75-100k
200k
37.2%
3.2%
10.4%
10.9%
14.5%
23.9%
ND U.S.
80
100
120
140
160
180
200
220
98 01 04 07 10 13
ND U.S.
100
94
0%
20%
40%
60%
80%
100%
60%
NET MIGRATION, ND
0.00
0.20
0.40
0.60
0.80
1.00
0.51
Aa1 AS OF DEC 16, 2010
INTO NORTH DAKOTA NUMBER
OF MIGRANTS
Minnesota 5,627
South Dakota 1,225
Montana 930
Texas 926
California 816
Colorado 758
Wyoming 580
Florida 577
Arizona 545
Washington 542
Total In-migration 20,333
FROM NORTH DAKOTA
Minnesota 5,124
South Dakota 1,183
Texas 996
Montana 729
California 667
Colorado 583
Arizona 570
Florida 473
Washington 469
Wisconsin 333
Total Out-migration 17,468
Net Migration 2,865
Federal 9,433
State 24,742
Local 45,342
213 Support Activities for Mining 15.54
486 Pipeline Transportation 3.13
484 Truck Transportation 3.01
212 Mining (except Oil and Gas) 2.79
237 Heavy and 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 4,287.6 100.0
Canada 3,063.2 71.4
Mexico 282.5 6.6
Australia 124.4 2.9
Belgium 77.3 1.8
Russian Federation 55.4 1.3
World 4,287.6 100.0
Oil and gas extraction 1,182.8 27.6
Machinery manuf. 1,154.9 26.9
Crop production 504.1 11.8
Food manufacturing 357.5 8.3
Chemical manuf. 334.3 7.8
ND
Minot Air Force Base 5,337
University of North Dakota 5,200
MeritCare Health System 3,691
Altru Health System 3,250
Grand Forks Air Force Base 2,480
Medcenter One Health Systems 2,200
North Dakota State University 2,127
St. Alexius Medical Center 2,001
Microsoft Business Solutions 1,245
Bobcat/Ingersoll-Rand (Melroe Manufacturing) 1,006
Hugo’s 900
LM Glassfber 883
MDU Resources Group Inc. 822
U.S. Bank Service Center 770
Noridian/Blue Cross Blue Shield 719
Wal-Mart Stores Inc. 700
Case New Holland Corp. 672
James A. Haley Veterans Hospital 655
Aetna Inc. 635
Phoenix International Corp. 597
Source: Combined Lists
MOODY’S ANALYTICS / Précis U.S. State / Midwest / June 2013 33
NORTH DAKOTA
FROM MOODY’S ECONOMY.COM 1 FROM MOODY’S ECONOMY.COM 1
125
175
225
275
325
375
10 11 12 13
Core Crop Prices Outperform…
Crop prices, 2000=100
Sources: USDA, Moody’s Analytics
Soybeans
Wheat
All food commodities
FROM MOODY’S ECONOMY.COM 3 FROM MOODY’S ECONOMY.COM 3
90
95
100
105
110
115
120
11 12 13
Private sector
Federal Government Only Real Drag
Government employment, Jan 2011=100
Sources: BLS, Moody’s Analytics
Federal
State and local
FROM MOODY’S ECONOMY.COM 2 FROM MOODY’S ECONOMY.COM 2
-20
0
20
40
60
80
100
11Q1 11Q3 12Q1 12Q3
…Boosting Farm Incomes Higher Than Average
Farm proprietor income, % change yr ago
Sources: BEA, Moody’s Analytics
North Dakota
U.S.
FROM MOODY’S ECONOMY.COM 4 FROM MOODY’S ECONOMY.COM 4
95
100
105
110
115
120
125
130
135
140
11 12 13
Construction Constrained by Labor Force
Construction employment, Jan 2011=100
Sources: BLS, Moody’s Analytics
U.S.
North Dakota
Agriculture’s largest contribution to growth will come from gains in
income. A resurgence in core crop prices over the past two years has
been key to a rebound in farm-proprietor income, which is signif-
cantly outperforming that of the U.S. ND has been relatively im-
mune from the severe drought conditions that have plagued much of
the Midwest, and incomes are very healthy as a result. Furthermore,
the state’s oil boom has pushed land prices higher, benefting farmers’
balance sheets and helping them expand operations.
In addition to its blossoming oil industry, ND will remain reliant on
agriculture for growth and stability throughout the forecast. Te state
has made great strides in diversifying its crop portfolio in recent years,
adding stability to farm incomes. ND’s fortunes still largely rest on
core crops such as wheat and soybeans. Fortunately, core crop prices
are signifcantly outperforming those of food commodities as a result
of decreased supply due to persistent drought conditions throughout
much of the Midwest.
ND’s public sector will be the only source of weakness throughout
the forecast. Tus far the state has experienced signifcant cutbacks
from the U.S. Postal Service. Its large area coupled with a small
population will continue to make the state an easy target for ofce
closures, particularly in eastern rural areas. Tis weakness will be ex-
acerbated by cuts to defense spending at the state’s Air Force bases, an
ongoing area of concern because of the current federal fscal outlook.
Construction will play a large role in ND’s expansion. However, the
pace of employment growth has considerably slowed recently but
because of a shortage of labor rather than a reduction in demand.
More North Dakotans are fnding higher-paying jobs in the oil
felds, leaving builders struggling to fnd workers. Persistent increases
in demand and in-migration will help support job growth in the
quarters ahead, but near-term growth will remain tepid. Industry
wages on the other hand will push higher.
MOODY’S ANALYTICS / Précis U.S. State / Midwest / June 2013 45
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