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
MOODYS ANALYTICS / Prcis 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 2.8
Construction 11.1 4.6 5.2
Manufacturing 5.3 -0.9 0.9
Trade 8.0 5.4 1.7
Trans/Utilities 17.2 7.6 2.1
Information -2.4 -1.4 -0.5
Financial Activities 4.8 5.2 6.6
Prof & Business Svcs. 10.7 9.6 7.0
Edu & Health Svcs. 3.0 1.6 -0.0
Leisure & Hospitality 8.3 4.2 -0.6
Other Services -0.2 -2.1 -3.9
Government 0.9 0.5 1.4
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 Dakotas 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 states historic oil boom will un-
derpin above-average growth throughout the fore-
cast. Te use of new technologies to unlock NDs
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 of. Mining and natural
resources are still generating a signifcant number of
high-paying jobs, but growth is the slowest in nearly
three years. Tis has particularly weakened the pace
of expansion in the states 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 states over-
matched transportation and utility infrastructure.
Insufcient pipeline infrastructure requires much
of the oil produced to be transported to refneries
out of state by truck or rail. Tis problem will be
lessened in the near future, assuming new refnery
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 efect 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 fscal 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 sufer 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 insufcient 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
XX
88% 45
48
12
2nd 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. uctuations
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
MOODYS 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: Moodys Analytics, 2012
32 MOODYS ANALYTICS / Prcis U.S. State / Midwest / October 2013
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
09 10 11 12
Net Migration, ND
55,766
51,017
54,871
43,735
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
119
0%
20%
40%
60%
80%
100%
54%
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 15.51
486 Pipeline Transportation 3.20
484 Truck Transportation 3.01
212 Mining (except Oil and Gas) 2.81
237 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 71.6
Mexico 282.5 6.6
Australia 124.4 2.9
Belgium 77.3 1.8
Russian Federation 55.4 1.3
World 4,308.7 100.0
Oil & gas extraction 1,190.8 27.6
Machinery manuf. 1,157.1 26.9
Crop production 508.9 11.8
Food manufacturing 357.8 8.3
Chemical manuf. 336.0 7.8
ND
Sanford Health 6,739
Minot Air Force Base 4,533
University of North Dakota 4,206
Altru Health System 3,762
North Dakota State University 2,339
St. Alexius Medical Center 2,215
Grand Forks Air Force Base 1,800
Noridian/Blue Cross Blue Shield 1,345
Innovis Health 1,285
Wal-Mart Stores Inc. 1,075
Case New Holland Corp. 1,055
U.S. Bank Service Center 975
Microsoft Business Solutions 870
Fargo VA Medical Center 870
MDU Resources Group Inc. 816
Concordia College 733
Valley Memorial Home 700
John Deere Electronic Solutions 657
Phoenix International Corp. 634
Aetna Inc. 600
Source: Combined Lists
MOODYS ANALYTICS / Prcis U.S. State / Midwest / October 2013 33
NORTH DAKOTA
80
100
120
140
160
180
10 11 12 13
Core Crop Prices Beginning to Falter
Crop prices, 2010=100
Sources: USDA, Moodys Analytics
Soybeans
Wheat
All food commodities
345
365
385
405
425
445
465
06 07 08 09 10 11 12 13
More Workers From Out of State
Employment, ths
Sources: BLS, Moodys Analytics
Household survey
Payroll survey
-40
0
40
80
120
160
10 11 12 13
Causing Dramatic Income Growth Slowdown
Farm proprietors income, % change yr ago
Sources: BEA, Moodys Analytics
North Dakota
U.S.
20
40
60
80
100
120
09 10 11 12 13
New Refineries Will Help Reduce Spread
Sources: EIA, St. Louis Fed, Moodys Analytics
West Texas
Intermediate
North Dakota crude first
purchase price
Price of crude oil, $ per barrel
Te retrenchment in core crop prices will constrain farm proprietors
income over the near term, but long-term prospects remain upbeat.
ND farm incomes will still outperform the national average by a sig-
nifcant margin throughout the forecast, owing largely to the states
well-diversifed crop portfolio. Tis has helped bufer 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, benefting 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 benefted 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 states historically tight labor market will require stronger in-
migration to fuel job gains. On a percentage basis, NDs in-migration
is the strongest in the country. However, the states labor force is still
having difculty keeping up, requiring many frms 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 refnery capacity scheduled to come on line slowly over
the next few years will narrow the historic spread between ND
crude oil and benchmark West Texas Intermediate. A diesel facility
being built outside Dickinson is the frst expected to come on line,
though at a reduced capacity, by the end of next year. In addition
to the price benefts to producers of lower transportation costs, the
increased diesel capacity will also reduce local fuel costs. Tis will be
highly benefcial given the massive increase in diesel usage accompa-
nying the states oil boom.
MOODYS ANALYTICS / Prcis U.S. State / Midwest / October 2013 45
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