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Recession or recovery? Economists say ND may be at turning point

GRAND FORKS — It's still an applicant's market when it comes to jobs in North Dakota.

Despite continued challenges to the state's leading energy and agricultural commodities, the unemployment rate was about 2.7 percent as of April, according to Job Service North Dakota. The jobs data, which coincides with spring thawing, might hold some answers for more than just job-hunters. Unemployment rates are being closely watched by economists tracking the fortunes of North Dakota, looking for signs of recession or growth.

As they look to the numbers, some of those professionals are drawing different conclusions while attempting to answer the question of just how to classify the state's current economic position.

The state is, overall, weathering a recession caused by losses in its energy and agricultural sectors, said Dan White, a Moody's Analytics director and senior economist who compiles reports for North Dakota. That said, things might be starting to look a little brighter.

White said his data for April indicate an increase in year-over-year, statewide employment for the first time in almost two years.

"Payroll (employment numbers) has been flat since last June, which seems to be when things bottomed out," White said. "We've been waiting since last year for things to turn up."

Much of that improvement is due to steady increases in rig counts in North Dakota's western Oil Patch. Though the count is still far below its all-time high, White said the gains are a good sign of life. Away from energy, he added that wheat prices are rebounding and ag commodities are generally performing at stronger levels than in the recent past.

White believes North Dakota is still in a recession, but he described the economy as having "turned a corner." If the stronger numbers seen in April are sustained as a trend over at least the next three to four months, White says he'd be comfortable saying the state has moved on from its sluggish post-oil-boom period.

Defining our fortunes

University of North Dakota professor David Flynn, chair of the university's economics department, has been researching North Dakota's economy much as Moody's has. In fact, Flynn has taken aim in the past at the firm's forecasting and the reports it has delivered to state lawmakers attempting to predict revenues while commodities were flagging.

He's more hesitant than White to definitively answer whether North Dakota is in recession. The question is "one I've been struggling with for quite some time," Flynn said.

That's partly due to the demographics of North Dakota. He also chalks it up to what he views as a lack of precision in defining an economic recession.

"There are everything from precise, quantitative definitions to loose, more wordy definitions," Flynn said, characterizing the "official," nationwide designation as falling into the latter category.

That national definition, which he says is informed by the National Bureau of Economic Research, basically outlines recessions as a sustained combination of negative economic growth and a "significant decline in economic activity."

That decline is measured by several factors—such as unemployment rates, gross domestic product and real income—and would be required to last for at least a few months.

The NBER definition is pretty vague as far as Flynn is concerned, though he agrees North Dakota "absolutely, without hesitation" fits its criteria of recession. However, as he unpacks state-specific context, Flynn said he's more unsure if the label fits.

North Dakota isn't immune from quarters of poor or negative GDP growth, but Flynn said it's not common to see two of those quarters consecutively. More often, he said, the state economy might alternate between better and worse showings.

"All of this is also with the backdrop that labor markets haven't shown significant kind of effects you'd expect from recession," he said, meaning that even when the state experiences negative GDP growth, those losses are moderated by persistently low rates of unemployment.

Both economists point to those jobless rates as an important means of explaining the North Dakota economy. Across the state, the unemployment rate sits well below the national unemployment level of about 4.4 percent, a 10-year low for that statistic.

In North Dakota, the maximum unemployment rate in the past five years has hovered at about 3.5 percent and has dipped as low as almost 2.5 percent, Flynn said.

"We jump from say 2.7 percent state unemployment to 3.1 percent ... and technically that's a 25 percent increase, so it seems big," he said. "But there are any number of states around the country saying, 'That's your recession? We'll gladly take that,' because they've been dealing with high unemployment rates for a long time."

The low rates of unemployment enjoyed by North Dakota are believed by both men to be largely a product of the state's demographics and a flexible pool of migratory workers.

White said the state is "blessed or cursed, depending on your perspective," with a tight labor market, meaning that the economic limitations might be set more by scarcities of workers than shortages of jobs.

Staffing up across the state

At least in Grand Forks, employers might be finding it easier now to maintain a full staff.

Keith Reitmeier, leader of the Grand Forks office of Job Service North Dakota, said the county as a whole was down about 300 job openings from April 2016 to the same month this year. Grand Forks County isn't alone in that, Reitmeier said, pointing out year-to-date declines in Cass County and elsewhere in the state.

That's not to say people aren't looking for work. Reitmeier saw about 600 job-seekers at a recent employment fair and, according to a post-fair survey completed by a minority of the employers at the event, more than 80 attendees were hired as a direct result of showing up.

Reitmeier is optimistic about the regional employment offerings despite the drop in offerings since last year.

"Things can flow in pretty large numbers when ... primary-sector employers are in a hiring cycle," he said. Employers, particularly those in the manufacturing or construction sectors, have told him the "bar has been raised" in terms of their standards for a new hire.

Job Service data show that unemployment rates remain low in most counties. Though some more-rural counties are showing rates higher than the national average as of May 22, Grand Forks County posted an unemployment rate of 2.2 percent and Cass County saw a similar level. Pembina County had the highest unemployment rate in the state's northeast corner with a level of 4.2 percent.

In the Oil Patch, unemployment numbers maintained that low bar. McKenzie County, which includes Watford City, had a rate of 2.9 percent. Williams County, home of Williston, saw 3 percent.

Again, the economists say this is due at least partly to demographics.

"You need to take into context the fact that you had a lot of labor migrate in to meet incredible demand during the boom," Flynn said. "Short-term people had an easy out of leaving, departing when the oil economy peaked and started its decline."

He said the flexibility of that migrating labor helped the state avoid a "hangover" that might have contributed to higher rates of unemployment and other negative economic metrics.

"We don't get that high, excess, unused labor which could have depressed income and labor—rather, we have that ability to move on and get forward," he said.

Migration within the state also helped cushion the potential impact of lost jobs in the oil fields. White said declines in the west helped businesses in the east.

"Labor markets in Grand Forks and Fargo were so tight," during the boom, he said. "They had openings for workers and needed prospects to fill them."

The population exchanges between east and west might not have kept both sides of the state fully staffed at all times, but they did help North Dakotans find jobs where they needed them—particularly when workers were leaving the oil fields in 2015-16 for comparably greener, cheaper pastures in Fargo and Grand Forks.

The labor flows are set within what White calls the "two stories" of the North Dakota economy as of late. He says the two major Red River Valley population centers have generally been "humming along with a relatively steady pace" even as plunging commodity prices hit other regions of the state. He attributes that to diversified local economies which are less dependent on energy and ag production.

That's not to say the two cities haven't felt the impacts of those hard knocks. Both Fargo and Grand Forks are in major agricultural zones. Both of their economies, diversified as they might be, are tied to some degree to the health of local commodities. And both have seen declines in the number of available state-funded jobs as the North Dakota government absorbs major budget reductions brought on by slashed state revenues.

Still, according to White, the relative independence from commodities in the cities' economies meant they never really went into recession at all, at least as far as his data is concerned.

"It's kind of a microcosm for North Dakota versus the rest of the country, and it's one of the reasons why North Dakota has done more poorly than Colorado, Texas and some of the other production states," he said. "For the majority of the state, it just doesn't have that diversified economy."

Andrew Haffner

Andrew Haffner covers higher education and general assignment stories for the Grand Forks Herald. He attended the University of Wisconsin in Madison, where he studied journalism, political science and international studies. He previously worked at the Dickinson Press.

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