Published: March 10, 2009 08:11 am      

Business informer: March '09

Economic outlook

Upper Midwest outlook gloomy

The economic downturn in the Upper Midwest will continue through 2009, with the unemployment rate predicted to hit 14 percent in part of Michigan by the end of the year, followed by Minnesota with an expected 7.8 percent unemployment rate, according to the latest forecast from the Federal Reserve Bank of Minneapolis.

Employment by year-end is expected to be down from last year's levels and unemployment rates are expected to rise above historic averages throughout the area.

The forecast covers the bank's 9th District, which includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

Nonfarm employment is expected to fall throughout the district, with the exception of North Dakota where it's predicted to rise 1.1 percent. The largest drop (6 percent) is expected in the Upper Peninsula, followed by Wisconsin (3.2 percent), South Dakota (2.6 percent), Minnesota (2.3 percent) and Montana (0.5 percent).

As employment drops, the unemployment rate is forecast to climb by the end of 2009 to 14 percent in the Upper Peninsula. Minnesota will have the next highest rate at 7.8 percent followed by Wisconsin (6.9 percent), Montana (5.8 percent), North Dakota (4.4 percent) and South Dakota (4.2 percent).

The silver lining in the forecast is housing starts.

The number of housing starts is expected to increase in each part of the Fed district, with Minnesota leading the way with a 103 percent increase to a seasonally adjusted 17,700 units in the fourth quarter of 2009. That's up from 8,700 units in the fourth quarter of 2008.



Unemployment

Unemployment claims continue to rise

The initial unemployment claims in the local nine-county area continued to rise in January compared to a year ago. The increase in claims were generally higher in the region than for the rest of the state.

The manufacturing sector was hardest hit with initial unemployment claims up 222 percent from January of 2008. There were 716 new claims this January.

Retail and services sectors also saw increases of 36 percent and 77 percent respectively. Claims in the construction industry were down 20 percent from a year earlier.

Unemployment claims statewide were also up in all categories except construction.



Energy forecasts

Gasoline prices to be stable through 2010

Gasoline prices from now until the end of 2010 are predicted to remain relatively stable.

Regular-grade gasoline prices are projected to average $1.95 per gallon in 2009 and $2.19 per gallon in 2010.

On-highway diesel fuel retail prices, which averaged $3.79 per gallon in 2008, are projected to average $2.28 per gallon in 2009 and $2.55 in 2010.

For this year, the price of gasoline — excluding taxes — is predicted to peak in May at $1.50 a gallon. It is predicted to hit a low of $1.40 in December.

For 2010 the price is predicted to peak at $1.84 per gallon, excluding taxes, in August.

The government’s Energy Information Administration provided a review of 2008, saying total petroleum products consumption declined by almost 1.2 million barrels per day, or 5.8 percent, from the 2007 average.

That was the largest annual decline since 1980. The major factors behind the fall in consumption were a rapid rise in retail prices to record levels during the first half of 2008 followed by a weakening economy in the second half.

Motor gasoline consumption in 2008 declined by 320,000 barrels per day, or 3.4 percent. Despite the cold weather that gripped much of the Lower-48 States in December, distillate fuel consumption in 2008 fell by 5.4 percent from the previous year as a result of precipitous declines in transportation consumption of diesel fuel.

For this year, the government predicts total consumption to fall by a further 460,000 barrels per day, or 2.4 percent, because of continued economic weakness.

In 2008, domestic crude oil production averaged 4.95 million barrels per day, down by 110,000 barrels per day from 2007. However, in 2009, domestic output is projected to increase by about 400,000 barrels daily to an average of 5.35 million barrels. This would be the first increase in production since 1991.

Contributing to the increases in output are the Gulf of Mexico Thunder Horse platform, which is coming on stream now, and the Tahiti platform, expected to come on stream later this year.



Natural gas prices continue lower



U.S. natural gas prices are expected in 2009 to be 45 percent below the average price in 2008, according to the U.S. Energy Information Agency.

The agency says the Henry Hub spot price for natural gas will average about 5.01 per million cubic feet in 2009, compared to $9.13 for all of 2008.

Driving the price decline will be the continual downward trend in usage and the continual building of natural gas inventories. The current economic downturn continues to put pressure on prices even though weather in the last couple of months was colder than normal.

At the same time, a precipitous drop in natural gas drilling activity will put downward pressure on supply and a bit of upward pressure on price. The number of working natural gas rigs operating in the U.S. has declined 31 percent since August of 2008, according to the agency.

Still current inventories are above the five year average by about 3 percent and expected to go up to 5 percent above that average in 2009. The agency says, however, the inventories will drop in 2010 and possibly push prices up from 2009 by 18 percent.







Construction/real estate

Construction sector remains slow

Commercial building permits in Mankato were at about the same level in January as they were in 2008 and were up in North Mankato compared to a year earlier.

New housing continued to be stagnant with just two new homes being started in January.

Building permits for residential repairs and alterations were also down sharply in January of this year compared to a year earlier.