Has North Dakota’s Economy Peaked?

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Today the North Dakota House and Senate appropriations committees are holding a joint session to discuss the state’s new budget forecasts, so it’s timely that we discuss what’s happening with the state’s economy.

After a couple of years of growth so rapid it overran housing supplies and infrastructure needs, the state’s growth seems to be plateauing. It’s not a bust, but there’s a definite slow down as this chart from Derek Thompson at The Atlantic shows:

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After a major spike, housing development has gone back to a more moderate sort of growth:

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The evidence for a plateau, and perhaps even a slow down, is all around us. Here in Minot, on the edge of the Bakken oil fields, it was all but impossible to get a hotel room a year or so ago. Now occupancy rates are around 80%, according to city officials I’ve spoken with, and the common view is that the new hotels still being built are probably going to turn out to be bad investments.

So why is the state peaking? There are probably a lot of reasons. It could be the markets. It could be fear over what new regulations might come down from the federal government in President Obama’s second term. Or it could just be that the oil industry is transitioning from the drilling phase of the Bakken oil boom to the production phase.

But whatever the reason, the state’s economy is peaking, and there are some take-aways from that reality for our state’s leaders.

First, the exponential growth we’ve enjoyed in state tax revenues probably isn’t going to last much beyond this coming biennium. We should be budgeting accordingly.

Second, we should be cautious about any further incentives for development from the state and from local governments, up to and including incentives for housing, in the oil fields. Those policies always put us at a risk of a development bubble in the oil patch, and now that we’re at the point of a slow down, the risk is even more real.

Third, it’s a good thing we didn’t listen to voices such as former Democrat gubernatorial candidate Ryan Taylor who were clamoring to slow down the oil boom. Can you imagine what the impact would be of their tax and regulatory policies now that the boom is slowing on its own?

Update: According to Bismarck Tribune reporter Nick Smith, OMB Director Pam Sharp told legislators today that state revenue will see a small decline in the next biennium:


Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • caeslinger

    I think plateau is probably an incorrect assessment. The oil industry may be plateauing, but that doesn’t mean the rest of the industries are. As the housing sector is catching up, it will allow rents to come back down and then other industries to once again flourish once labor rates come back down.

    • http://sayanythingblog.com Rob

      The oil industry may be plateauing, but that doesn’t mean the rest of the industries are.

      Well a) the oil industry is having a very disproportionate impact on the state’s overall economy and b) we seem to be in the midst of an ag bubble right now too.

      • caeslinger

        The Ag bubble is very real, however, it may not be popping.

        It only pops if:

        A) global demand plummets
        B) dollar rises in value
        C) government takes a huge step back in mandates

        I don’t see either of these scenarios very likely, in fact, you can make the case that the 2nd is only going to increase the bubble.

        • ND Observer

          The ag bubble could also burst if lots more farm land goes into production in Africa, the Russian Republics or even South America. With high crop prices the incentive to put more farm land into production is high. We have only had 6 years of good prices in a row in the 1950s and the 1970s. The ag bubble is real.

  • OverStated

    The housing graphic is not well presented, leaving an impression that we peaked in Jan/Feb 2012.

    Looking at the graphic twice, one will see that it ends in late 2012, before the early-year housing permit applications are submitted. If anything, the run ups in the late parts of 2011 and 2012 could be compared, showing similar movements.

    In the end, projecting a dramatic decrease in housing starts by comparing Jan/Feb to Oct/Nov in a seasonal construction market is faulty analysis.

  • camsaure

    No peak in state spending though. All the liberals should be happy about that.

    • borborygmi

      yah and we didn’t even vote for them.

  • http://flamemeister.com flamemeister

    If you follow that East Coast media stories on North Dakota you get the distinct impression that they can’t wait for North Dakota to fail.

  • borborygmi

    it could just be that the oil industry is transitioning from the drilling phase of the Bakken oil boom to the production phase. Bingo!

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