Kotkin: "Why North Dakota Is Booming"

Joel Kotkin on North Dakota:

Oil also is the principal reason North Dakota enjoys arguably the best fiscal situation in all the states. With a severance tax on locally produced oil, there's a growing state surplus. Recent estimates put an extra $1 billion in the state's coffers this year, and that's based on a now-low price of $70 a barrel.

North Dakota, however, is no one-note Prairie sheikdom. The state enjoys prodigious coal supplies and has—yes—even moved heavily into wind-generated electricity, now ranking ninth in the country. Thanks to global demand, North Dakota's crop sales are strong, but they are no longer the dominant economic driver—agriculture employs only 7.2% of the state's work force.

Perhaps more surprising, North Dakota is also attracting high-tech. For years many of the state's talented graduates left home, but that brain drain is beginning to reverse. This has been critical to the success of many companies, such as Great Plains Software, which was founded in the 1980s and sold to Microsoft in 2001 for $1.1 billion. The firm has well over 1,000 employees.

The corridor between Grand Forks and Fargo along the Red River (the border between North Dakota and Minnesota) has grown rapidly in the past decade. It now boasts the headquarters of Microsoft Business Systems and firms such as PacketDigital, which makes microelectronics for portable electronic devices and systems. There are also biotech firms such as Aldevron, which manufactures proteins for biomedical research. Between 2002 and 2009, state employment in science, technology, engineering and math-related professions grew over 30%, according to EMSI, an economic modeling firm. This is five times the national average.

While the overall numbers are still small compared to those of bigger states, North Dakota now outperforms the nation in everything from the percentage of college graduates under the age of 45 to per-capita numbers of engineering and science graduates. Median household income in 2009 was $49,450, up from $42,235 in 2000. That 17% increase over the last decade was three times the rate of Massachusetts and more than 10 times that of California.

Here's a case of great minds thinking alike: Last year, North Dakota topped the BHI's Annual State Competitiveness Index with its strong showing in our Government and Fiscal Policy, Infrastructure and Environmental Policy measures.

The complete 2010 State Competitiveness Report is available here.

The end of the recession?

BRIAN WESBURY:

"Today’s data should end, once and for all, any notion that the US is still in recession."

Will it be "U-shaped" or "V-shaped"?

NOURIEL ROUBINI in the FINANCIAL TIMES:

There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.

Another reason to fear a double-dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil importing economies. The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel.

In summary, the recovery is likely to be anaemic and below trend in advanced economies and there is a big risk of a double-dip recession.

Not what it seemed: GDP fall is steep

Associated Press:

WASHINGTON (AP) - The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

A much sharper cutback in consumer spending - which accounts for about 70 percent of economic activity - along with a bigger drop in U.S. exports sales, and reductions in business spending and inventories all contributed to the largest revision on records dating to 1976.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

Meanwhile Greg Mankiw thinks the Obama administration's forecasts are a bit too rosy. The Obama forecasts are on the left (no pun intended):

2009: -1.2% -1.9%
2010: +3.2% +2.1%
2011: +4.0% +2.9%
2012: +4.6% +2.9%
2013: +4.2% +2.8%

Accumulating the difference, you find that Team Obama projects about 6 percent higher GDP in 2013 than do private forecasters.

As the eminent American philosopher Yogi Berra says: "It's tough to make predictions, especially about the future."