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Federal Reserve balks at Moody’s declaration of ND in recesssion

BISMARCK -- Moody's Analytics has declared North Dakota in recession, but Minneapolis Federal Reserve officials aren't taking predictions that far. "I think our forecast for North Dakota is for moderate growth over the coming year, but I don't th...

BISMARCK -- Moody’s Analytics has declared North Dakota in recession, but Minneapolis Federal Reserve officials aren’t taking predictions that far.

“I think our forecast for North Dakota is for moderate growth over the coming year, but I don’t think the outlook right now is for severe contraction for the state overall,” said Joe Mahon, regional outreach director for the Minneapolis Fed.

Though Mahon does leave the caveat that the picture is not nearly as rosy for those in the oil industry.

“North Dakota has joined its fellow natural resource states in recession thanks to the extraordinary declines in oil prices over the past several quarters," the Moody's report reads. "Investment in western North Dakota’s energy boom has flagged significantly since the end of 2014, and the large inflows of workers and capital have turned to outflows. However, the state’s metro areas have proven resilient in the wake of lower oil prices and are continuing to expand, though at a slower rate than during the energy boom."

Moody’s says the pace of job gains in North Dakota is the lowest it has been in half a decade and underperformed the rest of the country in May for the first time since 2005. The economic analysis firm points to a “lack of strong growth drivers outside energy and agriculture” as a weakness for the state.

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Some firms may point to any period of gross domestic product shrinkage that lasts more than two quarters as a decline, according to Mahon, who said the Minneapolis Fed looks to the National Bureau of Economic Research for an official declaration of recession.

North Dakota saw a reduction in employment in the past year, largely due to oil layoffs, he said. According to U.S. Bureau of Labor Statistics preliminary estimates, employment dipped by nearly 19,000 jobs from 2014 to 2015.

“There’s definitely been a contraction in North Dakota, particularly if you look at employment,” said Mahon, adding that the labor market is still strong.

Unemployment remains low as a lot of those people laid off had been transplants to the state in the first place and have likely left, Mahon said.

The Minneapolis Fed’s regional economic forecast on minneapolisfed.org , which is based on historical movement of economic indicators, calls for a rebound in employment in North Dakota this year. Mahon said that could be affected by the strong growth in the state since 2009.

“I think that’s an over-optimistic projection,” he said.

Based on a survey of businesses in the state, more than 50 percent said they were optimistic about the economy for 2016, Mahon said. But 45 percent had a negative outlook on the year, which is a larger percentage of pessimism than was seen in neighboring states, including Montana, Minnesota and South Dakota.

Anecdotally, Mahon said his contacts in the oil industry are more concerned now than they were a year ago. The thought was things would bounce back. Some welcomed the slow down as a chance to catch their breath from the rapid growth that marked the boom.

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“Those satisfied with the slow growth pace are now scared this could be another bust,” Mahon said.

In spite of the slowdown in oil and weakness in agriculture, overall, the state seems to be growing, driven by major metropolitan areas, Mahon said.

Mahon said there was a misconception that all of the growth in the state was driven by the oil boom: “Actually Fargo is a really strong community economically. I think you can see that more now.”

So, it’s a positive outlook overall but weaker than earlier boom years.

“We don’t expect employment to fall but also aren’t expecting it to grow gangbusters,” Mahon said.

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