Creighton University's Heider College of Business has issued its December 2014 Mid-America Business Conditions Index. Dr. Ernie Goss and his Creighton associations survey purchasing managers in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota. They index responses on a scale of 0 to 100; under 50 means a sluggish economy over the next three to six months, while over 50 means a growing economy.

The regional index has been beating 50 since January 2013. Let's look at how South Dakota compared to the region and to Minnesota in 2014:

Overall Index, Mid-America Business Conditions Index, 2014 for region, South Dakota, and Minnesota

New Orders, Mid-America Business Conditions Index, 2014 for region, South Dakota, and Minnesota

Production, Mid-America Business Conditions Index, 2014 for region, South Dakota, and Minnesota

Delivery Lead Time, Mid-America Business Conditions Index, 2014 for region, South Dakota, and Minnesota

Employment, Mid-America Business Conditions Index, 2014 for region, South Dakota, and Minnesota

Inventories, Mid-America Business Conditions Index, 2014 for region, South Dakota, and Minnesota

 

(The inventories index gauges inventories of raw materials and supplies. Larger inventories mean purchasing managers expect higher sales.)

On the overall MABCI, South Dakota spent most of the first half of the year looking better to purchasing managers than the regional average. South Dakota slid hard in July and finished the year just a tick below the regional overall index. On the five metrics that Goss breaks down by state, South Dakota finished ahead of the region on production and delivery lead time but below the region on new orders, employment, and inventories.

South Dakota's favorite measuring stick for economic performance and fiscal policy, Minnesota, started the year even with the region on the overall MABCI and stayed above average every month after that. Minnesota finished the year ahead of the regional MABCI in new orders, production, and inventories, close on employment, and a couple ticks below on delivery lead time.

On every metric but delivery lead time, Minnesota is beating South Dakota. Hmm... that seems like more evidence that Daugaardonomics is not working for South Dakota.

Possibly related: Minnesota lawmakers are trying to figure out what to do with a one-billion-dollar budget surplus.

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I'm reading up on the Mid-American States Purchasing Economy Survey Report, a survey of supply managers in nine states conducted monthly by Dr. Ernie Goss and associates at Creighton University's Heider College of Business. Our local press like to blurb these survey results without much analysis. Stay tuned for my take on the latest data in a later post.

But as I read, I notice that Dr. Goss's December 17 blog post, which also heads his November survey report, cast doubt on the wisdom of betting your state fiscal health on casino gambling:

Between 2000 and 2012, despite assurances from elected and non-elected officials, states with commercial casinos versus states without commercial casinos experienced lower GDP growth, 54.8% versus 62.6%, and inferior job growth, 5.5% compared to 8.7%. Furthermore in 2012, states with commercial casinos shelled out 15.2% of GDP in the form of transfer and welfare payments. This was significantly higher than states without commercial casinos of 13.8%.

And did commercial casinos produce lower tax burdens? No! For the latest year, citizens of the 23 commercial casino states suffered a state and local tax burden as a percent of GDP of 8.6%, while the 28 states and DC with no commercial casinos experienced a lower 8.1% tax burden.

Commercial casino states did, however, spend more on education. In 2012, gambling states spent 5.6% of GDP on education which was above the 5.3% of GDP spent by non-casino states [Ernie Goss, "Commercial Casino Gambling: Hurts Economic Growth & Increases Welfare Spending," Economic Trends, 2014.12.17].

Alas, Dr. Goss doesn't cite his sources, so I can't immediately dig out the South Dakota numbers. I can note that South Dakota's GDP growth ranked ninth in the U.S. in 2013 and 18th for GDP growth from 2008 to 2012. Our state and local spending on education in 2012 was 4.6% of our GDP.

We should not conclude that casinos damage a state's economy or increase the tax burden. It could be states have opened up casino gambling in response to tough economic conditions. But the data do allow us to conclude that casino gambling does not by itself make a state's tax revenues and economy outperform those in states that resist the gambling bug.

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Politico's Michael Grunwald notes that we don't get Pulitzers for writing good news. But on this Christmas, Grunwald says America is looking not just un-Pulitzerly, but more Bricksburgally awesome than many people expected:

Mitt Romney promised to bring unemployment down to 6 percent in his first term; it’s already down to 5.8 percent, half the struggling eurozone’s rate. Newt Gingrich promised $2.50 gas; it’s down to $2.38. Crime, abortion, teen pregnancy and oil imports are also way down, while renewable power is way up and the American auto industry is booming again. You don’t have to give credit to President Barack Obama for “America’s resurgence,” as he has started calling it, but there’s overwhelming evidence the resurgence is real. The Chicken Littles who predicted a double-dip recession, runaway interest rates, Zimbabwe-style inflation, a Greece-style debt crisis, skyrocketing energy prices, health insurance “death spirals” and other horrors have been reliably wrong [Michael Grunwald, "Everything Is Awesome!" Politico, 2014.12.24].

Matthew Yglesias posted a chart in this happy vein last week showing how the U.S. has outperformed its international economic partners in recovering from the economic crash of 2008:

GDP since 2008 crash for U.S. and friends

(Source: Council of Economic Advisors, via Yglesias 2014.12.18)

More Americans are working full-time, continuing a trend from 2013.

And in more great Christmas news, Dish Network has dropped Fox News after contract negotiations failed. Now 14 million Dish subscribers can spend the holidays detoxing from Fox's false-fear-o-rama (say, as Grunwald mentioned, whatever happened to Ebola?).

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The obvious solution to South Dakota's vo-tech workforce shortage is higher wages. But if our business and political leaders are committed to ignoring that option, perhaps we can consider another solution: immigrants.

The Pew Charitable Trusts just issued a report on "Changing Patterns in U.S. Immigration and Population." It includes this map of counties where the population of U.S.-born residents has declined over the last couple decades:

Native-Born Population Declines in Middle America, 1990-2012. Source: Pew Charitable Trusts, "Changing Patterns in U.S. Immigration and Population," 2014.12.18

(click to embiggen!)

See that big blue band down the middle of the country? Those are counties where there are fewer natives born Americans. More of East River is emptying out than West River.

A lot of counties in that band of demographic blues are countering that population loss with immigrants:

"Immigration Slows Population Declines in Middle America"—Source: Pew Charitable Trusts, "Changing Patterns in U.S. Immigration and Population," 2014.12.18

(click to embiggen!)

The dark green counties saw foreign immigration growth outpace the native population loss. The lighter green counties saw foreign immigration slow their shrinkage. Notice that green starts to peter out around the Dakotas.

South Dakotans, like all Americans, are getting older and having fewer babies. The Pew report says immigration is key to filling the workforce:

In addition to having the potential to offset population decline in some areas of the country, immigrants can also compensate for the aging of the native-born population. The median age of the total U.S. population is rising, and the ratio of seniors (ages 65+) to working age people (ages 25-64) is increasing. Immigration mitigates these trends by adding working age adults to the U.S. population. Nearly half of immigrants admitted between 2003 and 2012 were between the ages of 20 and 40, while only 5 percent were ages 65 or older.

The size and makeup of the U.S. population has important implications for economic productivity, taxation, and spending. Immigrants are already disproportionately represented in the labor force with a share of about 16 percent, while they make up about 13 percent of the overall population. The Pew Research Center has determined that if current immigration trends and birth rates continue, by 2050 virtually all (93 percent) of the nation’s working age population growth will come from immigrants and their U.S.-born children [Pew Charitable Trusts, "Changing Patterns in U.S. Immigration and Population: Immigrants Slow Population Decline in Many Counties," December 2014].

South Dakota has shown its willingness to use immigration as an economic development tool in the past. The state appears to recognize at least part of the immigration–economics equation in its new Build Dakota vo-tech scholarship program:

But with high school graduation classes declining, South Dakota also must lure more people here from other states. Build Dakota understands that, its designers say. Out-of-staters entering one of South Dakota’s four technical schools will be able to apply for full scholarships, too, as long as they commit to working at least three years in the state after they graduate [Steve Young, "Build Dakota Offers Promise for Workforce Growth," that Sioux Falls paper, 2014.12.19].

But notice the limits there: we're thinking about students from other states, not workers from other countries. We're targeting youth who will in a couple years turn into technicians who will work for three years with entry-level skills at entry-level wages. Where's the component of our economic development plan that targets experienced workers, foreign and domestic, who could come to South Dakota and add value right now with better skills and bigger families?

Our workforce shortage is not magic. South Dakota has more retirees, fewer workers, and fewer kids stepping in to replace them. Our workforce recruitment efforts need to do more to ride the immigration wave that is boosting other parts of Middle America.

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Arizona/South Dakota billionaire T. Denny Sanford is using $25 million of his usury-gotten fortune to keep South Dakota state government from coming up with more of its own money to address workforce development. How very nice.

I suppose it's impolite to pester an elderly benefactor about the literal content of statements made in a fit of boosterism. But permit me to look at a few words from the gift horse's mouth, uttered yesterday at the rollout of the new Build Dakota vo-tech scholarship plan:

"I'm proud of everything that South Dakota stands for," Sanford said. "Productivity, a great health system and South Dakota Works. And it works in a good way. Not only do people work harder and have a better work ethic, but the system works. We've got a system unequal to anything else I've seen. We've got to get the people here to do it."

..."Go forward, South Dakota; let's get it done," Sanford said. "I know you will because everything we do here works" [Jodi Schwan, "Sanford, State Pledge $50 Million for Workforce Needs," that Sioux Falls paper, 2014.12.17].

Everything we do here works... that statement makes it hard to explain why we need this scholarship program in the first place. What happened to the New South Dakotans program that was Governor Daugaard's first big swing at workforce recruitment? Oh yeah: it didn't work. And if everything we have here works, why do we have a teacher shortage? And a road-repair shortage?

But we South Dakotans still work harder than everyone else, right? We have a better work ethic, right?

  1. A Bureau of Labor Statistics report from 2010 says that in 2008, South Dakota ranked 47th for average weekly hours and 51st for average hourly earnings in private industry.
  2. From 1977 to 2000, 25 states had higher annual labor-productivity growth than South Dakota. Our labor-productivity growth improved from 2000 to 2004, thanks to our riding out the 2001 recession a little better than the rest of the country, but 13 states still beat us on that metric in that period.
  3. This is a crude figure, but if you divide our gross state product by our population in 2013, you find that South Dakota ranks 22nd for economic output per person (see full chart below). However hard they are working, folks in 21 other states are generating more wealth per person than South Dakotans. The only neighboring state producing less wealth per person is Montana, which ranks 42nd in GSP per capita.
  4. Working harder isn't exactly a sign of progress. How hard do you think Mr. Sanford is working right now? American workers put in more hours than their European counterparts but report less life satisfaction.

I suppose the state's official position should be that Denny Sanford can say the sky is blue and Elvis is President, as long as he keeps the money coming. Denny Sanford can build our hospitals and schools and workforce... but let's not let him fabricate our facts.

State 2013 GSP $ Millions Population (2013) GSP/pop GSP/pop rank
Alabama 180,727 4,833,722 $37,388.79 47
Alaska 51,542 735,132 $70,112.58 2
Arizona 261,924 6,626,624 $39,526.01 41
Arkansas 115,745 2,959,373 $39,111.33 43
California 2,050,693 38,332,521 $53,497.47 13
Colorado 273,721 5,268,367 $51,955.57 18
Connecticut 233,996 3,596,080 $65,069.74 5
Delaware 58,028 925,749 $62,682.22 7
District of Columbia 105,465 646,449 $163,145.12 1
Florida 750,511 19,552,860 $38,383.69 46
Georgia 424,606 9,992,167 $42,493.89 37
Hawaii 70,110 1,404,054 $49,933.98 20
Idaho 57,029 1,612,136 $35,374.81 50
Illinois 671,407 12,882,135 $52,119.23 17
Indiana 294,212 6,570,902 $44,774.98 31
Iowa 150,512 3,090,416 $48,702.83 21
Kansas 132,153 2,893,957 $45,665.16 28
Kentucky 170,667 4,395,295 $38,829.48 44
Louisiana 222,008 4,625,470 $47,996.85 24
Maine 51,163 1,328,302 $38,517.60 45
Maryland 322,234 5,928,814 $54,350.50 11
Massachusetts 420,748 6,692,824 $62,865.54 6
Michigan 408,218 9,895,622 $41,252.38 39
Minnesota 289,125 5,420,380 $53,340.36 14
Mississippi 96,979 2,991,207 $32,421.36 51
Missouri 258,135 6,044,171 $42,708.09 35
Montana 39,846 1,015,165 $39,250.76 42
Nebraska 98,250 1,868,516 $52,581.83 15
Nevada 123,903 2,790,136 $44,407.51 33
New Hampshire 64,118 1,323,459 $48,447.29 23
New Jersey 509,067 8,899,339 $57,202.79 9
New Mexico 84,310 2,085,287 $40,430.89 40
New York 1,226,619 19,651,127 $62,419.78 8
North Carolina 439,672 9,848,060 $44,645.54 32
North Dakota 49,772 723,393 $68,803.54 3
Ohio 526,196 11,570,808 $45,476.17 29
Oklahoma 164,303 3,850,568 $42,669.81 36
Oregon 211,241 3,930,065 $53,750.00 12
Pennsylvania 603,872 12,773,801 $47,274.26 26
Rhode Island 49,962 1,051,511 $47,514.48 25
South Carolina 172,176 4,774,839 $36,059.02 49
South Dakota 41,142 844,877 $48,695.85 22
Tennessee 269,602 6,495,978 $41,502.91 38
Texas 1,387,598 26,448,193 $52,464.76 16
Utah 131,017 2,900,872 $45,164.70 30
Vermont 27,723 626,630 $44,241.42 34
Virginia 426,423 8,260,405 $51,622.53 19
Washington 381,017 6,971,406 $54,654.25 10
West Virginia 68,541 1,854,304 $36,963.19 48
Wisconsin 264,126 5,742,713 $45,993.24 27
Wyoming 39,538 582,658 $67,857.99 4
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How does a practical Republican react to an underperforming state economy and Governor Dennis Daugaard's blasé budget proposal? John Tsitrian says drop the political posturing, prioritize practical economics, and expand Medicaid:

Given Daugaard's cautiously reactive tone when discussing the upcoming budget, I wondered why our Governor couldn't be a bit more pro-active in his approach to energizing the economy. Daugaard is either overlooking or ignoring an obvious boost to our near-static growth rates--Medicaid expansion.

...[C]onsider the total outlays by SD through 2022 vs. the revenues from the federal government: SD pays out $157 million and gets back $2.1 billion, yes billion with a "b." Are we as a state too stupid to grasp what a good deal this is? [John Tsitrian, "With SD's Economy Drifting into the Doldrums, Expanding medicaid Makes More Sense than Ever," The Constant Commoner, 2014.12.11]

Even if you think the Affordable Care Act won't last, it's time to get out the Mickelson bucket and catch some of that federal money while it's raining.

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A couple of charts in state economist Jim Terwilliger's presentation to the South Dakota Banking Commission last Friday explain part South Dakota's doldrummy fiscal outlook.

Screen Shot 2014-12-11 at 11.02.57From 1997 to 2007, farm income averaged about 6% of South Dakota's personal income. When ethanol boomed, so did crop prices, and the farm percentage of our income grew to almost 11% by 2011. In 2013, it was back down to 9.2%.

Corn dropped 40% in 2013 and is down another 6.7% this year; oilseed is also down (OPEC strikes again!). Corn and wheat futures have dropped back to the trough they dropped into right after the recession. Hmm... imagine how much worse corn prices could have been if the Chinese resolved their grain-storage shortage and stopped losing so much corn to mold.

Screen Shot 2014-12-11 at 11.03.17Average farm income under Daugaard has been double the average farm income under Rounds; equipment tax collections have tripled from the Rounds-era midpoint. Low farm prices will bend down, not boost, those returns.

Those curves may not bend down as far as we fear. Thanks to all those pastures getting plowed for corn, fewer cattle are out there, taking beef prices to an all-time high. Until the market rebalances, ranchers who held beef stand to make some money. Now if we just hadn't let those schemers run that beef plant in Aberdeen into bankruptcy, we might have a nice surfboard to ride that beef wave for even more economic activity.

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Kevin Drum produces a remarkable chart that shows President Barack Obama's clear superiority to his predecessor in helping the economy recover from recession:

Chart: Obama vs. Bush Employment Recovery

Source: Kevin Drum, "The Obama Recovery Has Been Miles Better Than the Bush Recovery," Mother Jones, 2014.12.06

Count private employment as a percentage of the labor force, and you see that in five and a half years, President Bush never got private employment back to a larger percentage of the workforce than it was when he took office. Under President Obama, that percentage has climbed steadily higher. President Obama achieved this recovery from a far worse recession than President Bush faced. President Obama has also achieved this recovery without the housing boom that fueled much of President Bush's recovery but which, as Drum reminds us, ended in "an epic global crash."

Drum spots President Bush a few points with a second graph that includes government employment:

Obama vs. Bush, Total Jobs Recovery

Source: Kevin Drum, "The Obama Recovery Has Been Miles Better Than the Bush Recovery," Mother Jones, 2014.12.06

We raise President Bush's numbers and lower President Obama's if we include government payrolls.

Bush got a nice tailwind from increased hiring at the state and federal level. Obama, conversely, was sailing into heavy headwinds because he inherited a worse recession. States cut employment sharply—partly because they had to and partly because Republican governors saw the recession as an opportunity to slash the size of government—and Congress was unwilling to help them out in any kind of serious way [Kevin Drum, "The Obama Recovery Has Been Miles Better Than the Bush Recovery," Mother Jones, 2014.12.06].

I've said it before, and I'll say it again: President Barack Obama is beating his predecessor George W. Bush on economic performance. The difference would be even greater if President Obama had grown government the way President Bush did.

Related Reading: Discussing British politics, Simon Wren-Lewis says that ideologues who adopt a "small state" as a matter of principle miss lots of points:

...they are not prepared to look at these items on their merits. Instead they have a blanket ideological distaste for all things to do with government. The evidence that government is ‘always the problem’ is just not there. The idea that private sector activity is always welfare enhancing and is best left alone was blown out of the water by the financial crisis.

...reducing government spending during a liquidity trap recession does real harm. It wastes resources on a huge scale.

...a final problem I have with small state people... is their disregard for the evidence. It is true that most people are bad at acknowledging counter evidence, but those with an ideological conviction are worse than most [Simon Wren-Lewis, "The Imaginary World of Small State People," Mainly Macro, 2014.12.07].

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