It is a fun time to be an economist with an interest in data, and it has nothing to do with election policies because, as we all know, those have nothing to do with data anyway (zing!). The Bureau of Economic Analysis released its GDP by Metro Area report this week (available here). The first question many would have is: why do we care about a report that covers 2015, that is in the past?
Fair enough, but with the volatility in the state economy since the end of 2014 data releases like this are good for providing benchmarks about what was actually going on in the economy. The state budget situation dominated the economic news for much of late 2015 and early 2016, and the general impression it gave many was that the state was spiraling down towards disaster. The truth is more complicated.
I am not suggesting that the budget situation was a small issue. However, my assessment of that situation and the revisions to revenue forecasts suggest, among many things, the following:
- the mechanics of revenue forecasting in the state are poorly understood,
- how oil activity contributed to sales tax collections was the worst structured part of the analysis, and
- the budget process needs a radical rewrite of the method by which it incorporates forecast information.
I am going to stop there since I do not want this piece to devolve into a forecasting rant. Time enough for that later. However, anecdotal and statistical evidence focused mostly on the oil industry impacts on state revenues. Fine. Good. Clearly oil impacts on tax revenues explain a good deal of the ride up, and are also responsible for a significant amount of the ride down. But what of the rest of the state economy?
Peak oil occurred in December 2014 according to the Director’s Cut publication from the ND state Department of Mineral Resources. Said another way, we were below peak oil production, but actually not below peak, for all of 2015. In fact as I discussed in this post oil production was down only 16% with approximately 85% fewer rigs doing the producing. This is a big hit to employment and would explain a great deal about the decline in taxable sales (though models should have accounted better for likely declines in taxable sales anyway even if oil production remained high).
Now I long viewed increased oil activity as a potential constraint to growth in a community like Grand Forks. There were many people looking to relocate to the oil patch, add contracts for services in the oil patch, and so on. Good for them. They should, but this has to come at a cost to Grand Forks unless we had significant labor resources sitting around unused, or were able to replace/supplement for the ones with a western focus. The graph below certainly does not demonstrate any consistent growth for employment in Grand Forks until you hit 2015. This is the LAUS series for Grand Forks from the Bureau of Labor Statistics.
As the West peaked, and started a decline you see an increase in Grand Forks employment, essentially a reversal of the process that took hold as the oil patch activity increased. Turn now to the new data point of metro area GDP.
The three North Dakota metro areas Bismarck, Fargo, Grand Forks, saw 2015 metro area real GDP increase over 2014 by 5.7%, 1.3%, and 3.0%, respectively. The national average for metro areas was an increase of 2.5%. Collectively the ND metro areas increased by 2.79% from 2014 to 2015, as measured by real GDP.
I find important consistency in this report. The oil patch activity declined, allowing the metro areas to grow again. Grand Forks seems to most likely to have a chance to make gains in this situation and they were above the national average. It also reminds us the state economy is not solely oil. There are other aspects and regions and harder economic times for the oil industry and region create opportunities elsewhere.
There are still economic headwinds to manage. The two key sectors for the state, oil and agriculture, are both hitting harder economic times, with important consequences for the state economy. However, the state was not devoid of all economic opportunity and any economic growth during 2015 and we need to keep that in mind from a policy perspective as we get ready for a new legislative session.