2023 Regional Economic Conditions Conference

Good morning, my name is Neil Kashkari. I'm president and CEO of the Federal Reserve Bank of Minneapolis. On behalf of all of my colleagues at the Minneapolis Fed, thank you and we welcome you for joining us for this Regional Economics Conference. Six or so years ago, we started this series where we invite experts from around the Ninth Federal Reserve District. The Ninth District is Minnesota, North and South Dakota, Montana, the Upper Peninsula of Michigan, and Northwestern Wisconsin. That's a very large geography of America, and my colleagues and I spend a lot of time traveling across the region to learn what's happening in the regional economy, and then I bring those insights back to Washington DC every six weeks for FOMC meetings. Well, we also said, let's invite experts from around those states to come to us and share their outlooks for their own regional and state economies, and that's the purpose of this conference. So we're really appreciative of all of the high-quality speakers and experts that we've brought together today. We're excited to hear from them and learn from them. As part of the series, we also have a keynote speaker, which is often a CEO of a major company in the region or sometimes an elected official from the region, to give us their outlook on their reach, on our regional economy, and on the economy that they operate in for their businesses. And today, I'm really excited that we have a terrific leader, a global leader who's based here in Minnesota: Mike Roman, the CEO and Chairman of 3M. Mike became CEO of 3M in 2018 after a long career at 3M, and Chairman of the Board in 2019. I'm going to turn it over to Mike in a moment. We're going to hear some opening remarks from him, and then Mike and I are going to have a conversation about 3M, about our regional economy, about the global economy, and what he is seeing as they operate all around the world. One other thing about Mike that I'm excited about is he's a fellow engineer, a Big Ten guy. He went to University of Minnesota for electrical engineering. I went to University of Illinois for mechanical engineering. So I'm always happy to be in the company of another engineer. And so thank you all for being here, and with that, I'm going to turn it over to Mike. Mike, welcome to the Minneapolis Fed.

Great, well thank you. You touched on a few things. And you know, Mike is one of the people that I call pretty often and just say, 'Hey, what's happening around the world? What are you seeing?' Especially when supply disruptions started taking place and really started showing up all around the world. And I really appreciate some of the insights you shared with us and my colleagues. Let's why don't we start there. Supply chains. How are you seeing the global supply environment? Are supply chains getting better? Where are we relative to normal?

Yeah, and definitely I want to get to inflation. Just staying on supply chains for a moment, you know, one of the big challenges that I saw for us but also for businesses all around the world is trying to decide: are these changes going to be sustained? So I'm just curious, when you think about restructuring your logistics to serve the East Coast because of these different traffic patterns, lack of a better word, how did you think about it? Is this going to be a lasting change, or is this something we just need to do for the next couple years and then it's going to revert back to the West Coast?

Got it. Thank you. Why don't we shift a little bit and talk about labor, labor availability. We were hoping, I would say my colleagues at the Federal Reserve, that we'd see a bigger labor response, meaning a lot more workers come back in. We've been wrestling with where do the workers go. More than a million Americans of course died from COVID, which is a tragic human loss but also lost capacity for the US economy. A lot of workers retired early. There's also been a real curbing of immigration into America. All of those things are exacerbating labor availability. However, how have you navigated it, and how do you see the labor market today?

And I guess a couple follow-up questions. Are you seeing any... we're very focused on wage growth. How tight is the labor market? Are you seeing any softening in the labor market in the last several months or the last six months? Is it notable or not so much?

And as you look around the world, because you operate all around the world, is this dynamic pretty similar, pretty consistent in all the markets you operate in, or are there big regional variations?

Got it. Okay, why don't we turn to something you did touch on already, which is inflation and the outlook for inflation. Obviously, my colleagues and I have been surprised at how high inflation ran up and how persistent it has been. That's why we adjusted our monetary policy very aggressively. I'm just curious how you look at inflation now, what you all are experiencing, and as you plan for the future, what are you embedding in your plans?

You know, one of the comments that some other businesses in the region have shared with me is they've been surprised how they've been able to pass on prices to their customers. Some of these are consumer-oriented businesses, but typically they would raise prices, they would see an immediate reduction in demand in volumes because the response is very elastic. And they said what's been different in the last couple years is they've seen their costs go up a lot, they've turned around and passed those costs on, and customers have been very willing to take it. Curious if that resonates with what you all are seeing.

Got it. Why don't we turn to... you've talked to me a little bit about, when you mentioned it here today, the transformation of 3M that you're underway. And I'm curious, was that transformation caused by the pandemic? Is it a response to the pandemic, or something pre-pandemic? I'm just, a lot of businesses say to me, 'Hey, we're trying to figure out what the future looks like and how we need to make long-term adjustments.' And so I'm just curious how the pandemic fits into the transformation.

And I know you had mentioned to me earlier that you just convened your top leaders from around the world here in the Twin Cities. Any big takeaways from bringing everybody back in person for that conference?

Yeah, I can tell you just from our experience here being back, it makes a big difference, especially when you have leaders and teams back together in person. The other thing that was noteworthy is the Federal Reserve, the FOMC meetings every six weeks in Washington. These are very serious people come exceptionally well prepared. And then of course the pandemic hit and we had to learn how to do it remotely. It's amazing how much is lost. And when we finally were able to come back in person, I think it was March of last year, everybody just breathed a big sigh of relief. It's like, okay, finally we can have this engagement. And it just, there's definitely something lost over online. And so I understand it.

You know, our innovation center, one of them in the Minneapolis Fed, is our research department. We've got a brilliant team of PhD economists. This department has a long storied history. This was the group of employees amongst all of us who throughout the pandemic were saying, 'We want to come back, we want to come back, we want to come back, because we have to collaborate with our colleagues, we have to challenge each other, we have to learn from each other.' And how much of that innovation is lost being remote? I think it's hard to exaggerate that. I think it's a really big deal.

And by the way, you just touched on something which is, you know, COVID is obviously still with us. And thankfully with vaccines and treatments, it's becoming a lot less deadly. I mean, it's becoming more endemic, more flu-like, which fingers crossed that we're staying on that course. I'm just curious, in your plants, are you seeing kind of an ongoing level of people being sick just because there's flu now, there's COVID, other stuff going around? Or is that not so much of a factor anymore?

Yeah, and I actually think that's one of the lasting benefits, which is, you know, how often would people come to work when they felt a little bit sick? And now because remote work for many folks is so effective, it's like, 'Hey, I don't feel quite well, I'm going to stay home just out of caution.' Everybody ends up being better off in that situation.

Okay, so let's shift gears and let's talk about the regional economy. 3M has a big footprint in the Ninth Federal Reserve District. I think you have around 20,000 employees in Minnesota alone. I'm just curious if you have perspective on the regional economy. And how do you think about, I know you manufacture locally to serve your local markets, but how do you think about say within the US, do you want to put more in this region, do you want to put more in the Southwest? I'm just curious, what leads those decisions?

I'm curious, this is a micro comment which may not get raised all the way to you, but something I hear from businesses around the region is they said to me, 'We would like to have more operations in this region, but the housing, affordable housing, is such a barrier to us being able to attract the workers we need. Even if we can attract the workers, they cannot find a place to live that they can afford that meets their family's needs.' I'm just curious, does this come up? Or is that something that would be more at the regional level for your regional operators?

Yeah, I know you're involved with and you're an alumnus of the University of Minnesota. I've always said to folks that the richness of our university system here is actually a key economic advantage. It's a source of talent. I'm just curious for 3M, how does that fit into your planning for the future of the company?

Yeah, absolutely. And by the way, related to this discussion, reminded me that a lot of businesses have said to me, and they've said publicly, and I've said publicly, how important immigration is to feed our nation's economy. It's a huge source of talent, either very highly educated talent but also workers across the education spectrum that we need for the economy. But the interesting thing is some businesses have said, 'Hey, if our political system cannot meet our needs, with the adoption of technology we can now access those workers remotely. We would rather have them here, but if we cannot have them here, then we will tap into them wherever their home country is.' I'm not, does that, do you see that at 3M? Is that a factor as you think about talent?

If you look at the demographics of most advanced economies, their societies are aging, they're having fewer children than prior generations. And economic growth comes from two things: productivity growth, so great innovation, and population growth. And so this is why economies around the world, advanced economies, are struggling. And so as I've analyzed it, I've been quite outspoken about it. If you look at America's history, one of the big sources of our economic strength has been our ability to attract immigrants. And so the challenge is going to be, can we reach some kind of an agreement on how to make sure that that is a tool for us? Because many countries don't have that option. It's at least an option for us. And so fingers crossed. I'm biased, my parents are immigrants from India and my wife is an immigrant from the Philippines. But I think the economics are quite clear on this.

And on diversity, I know you already talked about the work that 3M is doing. It's a big priority for us here at the Minneapolis Fed, has been for a long time. George Floyd's murder certainly intensified our focus on these efforts. Are you seeing us as a society making progress?

Yeah, I'll tell you, I mean, our organization is tiny compared to 3M, but here at the Minneapolis Fed, we have a lot of employee resource groups. And they've in many cases taken the lead, which they've said, 'Hey, this is what's important to us, this is what we're seeing, this is where we need support.' And then the leadership has said, 'Hey, we support you, these are good ideas, let's put these into action.' And I'm seeing evidence that it's bearing fruit, but obviously we still have work to do.

Well, we only have a couple minutes left, Mike. We've covered a lot today. Are there any other thoughts you wanted to offer on 3M, on the regional economy, on the global economy? I mean, I think we could keep talking for a long time, but we do have to wrap up here in a minute or two.

Well, that's great. Well, I want to thank you on behalf of all my colleagues for joining us today. I also want to thank you again for being such a helpful partner for us, source of information. I've called you time and time again. You've put me in touch with your supply chain experts, you've put me in touch with some of your technologists. You're a great resource for us, and I really appreciate it. So thank you.

Absolutely. Okay, thank you.

Thank you, Neil and Mike. That's a hard act to follow. And thank you everyone for tuning in to our webinar today on regional economic conditions. My name is Joe Mann. I'm a Regional Outreach Director for the Minneapolis Fed. Shortly, I'll be turning it over to our expert panels on regional economic conditions in our Ninth District states. But first, I'm going to kick things off by presenting some results from our annual survey of manufacturing. So this is a good sort of follow-up to the conversation we just had, because the Minneapolis Fed, in conjunction with the Minnesota Department of Employment and Economic Development, does an annual survey of manufacturers in our region. So I'm just going to briefly run over some of the results of that survey that we're releasing this morning. I should start with the standard reminder that my opinions are my own and not necessarily those of the Federal Reserve Bank of Minneapolis. So what I'll be going over today is just a kind of a brief highlight of the manufacturing sector, its size and its role that it plays in our regional economy in the Ninth Federal Reserve District, before I get into the results from this year's survey that we just conducted at the end of 2022. Headline results from the survey: in spite of the challenges that the economy faced in 2022, the manufacturers that we surveyed in our region told us that they generally overall experienced growth in 2022. And again, despite some uncertainty about the outlook for 2023, fairly stable outlook for the year ahead in 2023. So I'm glad to hear Mike Roman say just now that his outlook for 3M is for continued growth in 2023, because that's also what we heard from the manufacturers in our survey. We also asked a special question about what's been going on with supply chains this year, just to follow up on a question we asked on that last year. We asked whether conditions are getting better or worse. And unfortunately, the manufacturers that we survey told us is generally those challenges have remained an issue or remained prominent for them in the last year. So I'll start with a little bit of an overview of the manufacturing sector just to kind of level set the importance of this sector in the United States and especially in the Ninth Federal Reserve District. So if you look at the composition of GDP, what we produce as a country, manufacturing represents about 11% of our output in the US, but a slightly larger share in our Ninth District states. Likewise, in terms of employment, where people are working, once again the Ninth District has a relatively larger share of our workers working in factories or otherwise in manufacturing than the US as a whole. About 12% of workers in our Ninth District states are employed in some capacity in manufacturing versus 8% in the US. So very large and important sector of our economy, and one of the ones that's most tangible for all of us. We might have a harder time envisioning financial services, but we can really picture what happens in the manufacturing sector, and it's a pretty important bellwether for the economy overall. So because of its importance in our region, for a couple decades running, we have been conducting a survey in conjunction with the Minnesota Department of Employment and Economic Development. I'll talk a little bit about the background on that survey. This is an annual survey that we do. It follows the best practices of a random scientific survey. So we conduct a random sample of manufacturers that we pull via US mail. I send them a form in the mail. And that sample is stratified by state and firm size so that we're getting a representative group from each state relative to their size in the composition of manufacturers overall. And this year, we had just under 400 respondents get back to us. And as I mentioned, I have to give a lot of thanks to our partners at the Minnesota Department of Employment and Economic Development. They conduct the survey for the state of Minnesota, and we at the Minneapolis Fed conduct the survey for the other states in our region. And just as a reminder, those are North Dakota, South Dakota, Montana, and then portions of Wisconsin, the Upper Peninsula of Michigan. And for those interested in seeing the results just for Minnesota, DEED is also releasing these results on their website this morning. I'll just be previewing our results for the district as a whole in brief. And again, those of you who are interested in more detail on the survey, you can find more on the article on our website at minneapolisfed.org. So the overall headline result from this year's survey is that we saw growth in activity in 2022, again despite some of the hiccups that we've experienced in the continuing supply chain challenges, the rise of inflation in 2022. Manufacturers overall told us that they saw growth in their firms this year. So those results are represented here as what we call a diffusion index. It's just a quick way of aggregating the responses from the manufacturers that we surveyed into an index that tells us whether an indicator increased or decreased. So values higher than 50 in the index indicate on average expansion in that indicator, and values below 50 indicate contraction. And so as you can see across an array of indicators here, our respondents told us that they saw growth. The strongest growth among the strongest categories was new orders. In fact, more than half of manufacturers told us that they saw an increase in new orders in 2022 relative to a year earlier. We also saw growth in production and in productivity as well. Not surprisingly, given the higher rate of inflation that we're all experiencing, a very strong majority, more than 80% of manufacturers, told us that they increased the prices that they charge for the products that they produce. Employment, that manufacturers increased on average, maybe less than you might expect given the overall strength in the sector. I'll say a quick word about employment. The relatively more subdued growth in employment this year, just going by the comments that we received from survey respondents, was largely due to very tight supply of labor. So we got a lot of comments about a tight supply of labor. And if you look at the results on our website, we also ask our manufacturers about what happened with compensation this year. Very strong growth in wages. That's one of the kind of headline results from the survey that we published. We had nearly half of respondents, about 45%, told us that they increased wages per worker at their company by 6% or more in 2022. So we asked these manufacturers about performance at their company over the past year, and then we also asked them to look ahead to the coming year. But before I get into those results, just to kind of, I think it's helpful to look at how these survey results have tended to come in over time. And as you can see, comparing 2022 to the year before, we saw sort of sideways movement. Again, we're in growth territory for orders, for production, and for employment in these categories. And so a relatively typical year, at least in terms of the aggregate results. But now we're two years removed from the pandemic from 2020. We got two full years removed, and that's well in the rearview mirror for a lot of the manufacturers that we've surveyed. So that's kind of the backward-looking portion of our survey. As I mentioned, we also asked the manufacturers about what they expect to happen at their firms for the coming year. And overall, while you see that most of these indicators are again in growth territory, so the gold bars compare their 2023 outlooks for their companies to what they told us, what I already showed you for the performance that they experienced in 2022. And you can see that most of these indicators are consistent with what we saw last year, at least as far as being in growth territory. So in direction, on average, they're up. But if you break into the results, if you and you can find these on the table on our website, the largest share of respondents from most of these categories told us that they expect no change in 2023. So while they saw growth in 2021 and 2022, some of them are telling us that they expect more growth in 2023. Some of them, of course, are telling us that they expect decreases in 2023. But the largest share of them in most of these categories are telling us that they just expect steady as she goes in 2023. And importantly, I want to point out that these are their expectations for their companies, not necessarily for the economy overall, which I'll get into in a moment. As with 2022, the two indicators that were in contraction territory were profits and exports. And those are both on balance expected to come in negative to level in the year ahead. One sort of bright note from the results here is the outlook for prices. Given inflation, it is still in expansion territory, but at a much less acute level than we saw in 2022. So while the manufacturers we surveyed are telling us they still expect to increase their prices on average in the coming year, we had a larger share of them telling us that they're not expecting to change their prices in the coming year, which is consistent with what we've seen on recent readings of inflation. So to kind of put this in context, again, by sort of historical standards, where does our optimism index fall this year relative to previous years? You can see that for these three key indicators, for new orders, for production, and employment, they're all in positive territory for this year. But the index has dipped a little bit relative to last year, and it's in fairly typical territory for what we see in a normal year. Again, those are just expectations for manufacturers' own firms in the year ahead. We also ask them about their overall economic expectations, and those are a bit more pessimistic, maybe not surprisingly, given all the uncertainty in the economic outlook right now. That businesses on average expect in the coming year for their state and their state economy to fall into contraction territory for a few of these key macroeconomic indicators you see here: for business investment, for employment. And I want to point out, I'm comparing here their outlook from a year ago, so not the most recent survey results, but their outlooks in 2021 for 2022 were generally optimistic for the coming year. And this year, while they had a really high inflation outlook last year, still an elevated inflation outlook for the coming year, but all these other indicators, business investment, employment, consumer spending, and corporate profits, are in contraction territory in terms of their expectations for their overall state economies in the coming year. So while they're optimistic for their own firms and for manufacturing in general, expectations for the coming year are a little bit more subdued at the state level. Last thing I want to cover before I turn it over to my colleagues is just this special question we asked about supply chains. We know this has been an ongoing issue really for all of our sectors of the economy, but particularly for manufacturers. They've been experiencing these supply chain disruptions for several years running now. And we asked a question on last year's survey about whether they were experiencing problems due to a variety of reasons. And this year we decided to revisit that question and basically ask them whether the challenges they were experiencing got better or worse. And what you can see from these results here, if you look at the breakdown of responses issue by issue, generally speaking, most of the manufacturers told us that these challenges either got worse or were unchanged. A big exception is COVID-19, perhaps unsurprisingly. Just about 40% of manufacturers told us that the supply chain issues due to COVID-19 got better. The most severe challenges are going to be the labor issues of suppliers. An overwhelming share telling us that those got worse over the coming year. And also transportation and logistics issues as well. Turning to raw materials availability, while there was a larger share, just about a quarter of respondents told us that raw materials availability got better in the last year, about half of them told us that it got worse over the past year. So fairly mixed bag there. Again, overall results of the survey, while they're positive for the past year and the outlook is stable for the year ahead, manufacturers telling us they're still dealing with a variety of supply chain challenges at least through the past year. Again, you can find more detail on these results on our website, minneapolisfed.org, or on the Minnesota Department of Employment and Economic Development's website. But that's all I wanted to share this morning. And I think a good way of teeing up our conversations that we're going to have in the next two panels. And with that, I want to turn it over to my colleague Ron Wertz, who is going to be moderating our first expert panel.

Thanks Joe, great job, very interesting stuff. And good morning everyone. My name is Ron Wertz. I'm a Regional Outreach Director for the Minneapolis Fed. Joe's done a really nice job of helping us transition to that second half of the program that he mentioned, that's really about the Ninth District economy. So we've learned a little bit about manufacturing. The next hour is going to provide an overview of state economies in Montana, North Dakota, and South Dakota from an expert in each of those states. Then the following session after that, we'll discuss labor markets and workforce development in Minnesota, Michigan's Upper Peninsula, and Wisconsin, and we'll have experts from the three of those states as well. The format's going to stay similar for both sessions, and I'll describe them real quick. Each speaker is going to be introduced before their presentation and given up to 15 minutes to present formal remarks. And then after all three speakers in the session have presented, there will be roughly 10 to 15 minutes left for moderated Q&A. So if you have questions, we'll be checking the Q&A box. They'll put your questions in there as soon as you have them. With that, we'll start our first session on state economies. And our first speaker is Amy Watson from Montana. Amy is Montana's State Economist with the Department of Labor and Industry, where she conducts analysis of economic and demographic conditions to help inform state policy. Among many research interests, Amy has actually partnered with the Minneapolis Fed on research measuring the extent and impact of child care shortages. So please welcome Amy Watson as our first presenter. Amy, the floor is yours.

Great, thanks so much Ron. As Ron mentioned, my name is Amy Watson. I am the State Economist with the Montana Department of Labor and Industry. And I'm excited to be here today to talk to you all a little bit about what's going on in Montana. So in Montana right now, we've had a fairly rapid recovery from the pandemic recession. So the pandemic recession was sharp and a significant drop in all areas of our economy, but then we were able to recover that very quickly. Our jobs recovered by May of 2021, and our GDP recovered by the third quarter of 2020. In 2021, we experienced significant growth. It was a record-breaking year for Montana in a lot of ways in terms of employment growth and GDP growth as well as wage growth. And then in 2022, we've seen growth moderate significantly to more of our long-run trend. Headwinds in Montana that I'll speak about a little bit are similar, I'm sure, to things that are happening in other states. We're experiencing significantly tight labor markets, and inflation is also eating into some of our economic growth as well. Real GDP growth, I think, is what you're seeing here. So we're looking at significant GDP growth in 2021 of about 4.8%. It was just slightly below what the US was experiencing.

We did have a slight blip in 2020 of negative 0.3 overall. Of course, that was a significant drop in the second and third quarter, and then we recovered quickly by the end of the third quarter. Looking forward, we are growing at about 1.5 percent, which is consistent with our long-run average. Rapid employment growth both in 2021 and 2022, we've seen about 3.8 and 3.2 percent growth in those two years. On average over those two years, we've added about 18,300 jobs per year, and that's 2.8 percent faster than typical, so just really rapid employment growth over that time frame. Almost every industry has recovered jobs; I believe the only one that hasn't is transportation. We are experiencing significant population growth as well as labor force and employment growth. This shows that we've had about 20,000 additional individuals entering our labor market, our labor force, since the beginning of the pandemic. Over the last three years, we've seen about 25,000 people come in in terms of employment, and our population has also been growing. Part of the reason our unemployment has been dropping is because our labor force is not growing quite as rapidly as our employment growth, and that of course is causing that tightening. We're seeing significant labor market shortages. Our unemployment rate hit a record low in 2022 of about 2.4 percent. It has come up slightly since then; we're sitting at about 2.9 percent, still well below the national unemployment rate. Significantly, over the last year or so, we've seen a drop in the number of long-term unemployed of about 56 percent, so it's hit a new record low. We've never seen this few number of people who are long-term unemployed, meaning they've been out of the labor market or unemployed for 16 weeks or more. That really indicates to us significant tightening. Again, this tightening has been going on for the better part of the last decade, but the COVID pandemic certainly exacerbated those issues. Right now, we estimate that we have about two job openings per every unemployed person. You can see how that has changed over time. During the peak of the 2009 recession, we had about three people per job opening. Pre-pandemic, we were in that tight labor market territory; we experienced about 1.4 job openings per every unemployed person. But since then, during the pandemic, it's really gotten more significant. We were at about three job openings per person in the middle of 2022, and it's come down slightly, mostly due to a decrease in the number of job openings that we estimate, not necessarily a change in the number of unemployed. But it still sits very high at about 2.7 jobs per person. Part of the reason our labor market has gotten tighter over the last few years or continues to tighten is that our labor force participation rate is dropping. About 62.1 or 62.4 percent in Montana is our current labor force participation rate. It is trending with the national average, and a lot of that has to do with our retiring population. Montana is an older population in general, so we've seen a significant rise in the number of retirements over the last few years. Retirees make up about 60 percent of the population of people who are out of our labor force. We hit that 200,000 mark in terms of retirees, and that number is projected to continue to increase as more of those baby boomers exit our labor market. The next largest is illness and disabilities. All of those other factors have really been holding relatively steady over the last 20 years or so. So really what's driving the decrease in our labor force participation rates is those demographic shifts. One thing that we've been interested in looking at specifically over the last three years or so is the number of people who are out of the labor force because they're caring for family. We've seen a significant change in that population, largely due to a lack of available and affordable child care. This is another one of the potential headwinds to future economic growth. We estimate that in Montana, licensed child care capacity meets only about 43 percent of our estimated demand. That's statewide. This is a map of Montana's 56 counties, and you can see that there are a number of counties that are that light color, indicating a child care desert where supply means less than a third of demand. We estimate demand as the number of children who are living in working parent households, meaning either dual parent households where both parents are in the labor force, or single-parent households where that individual is working. That has created significant underutilization of our parental labor force. We see about 20,000 Montana parents who are not in the labor force due to family responsibilities, another 20,000 or so who are absent or working part-time because of those family responsibilities, and about 29,000 who are working reduced hours. In total, we've seen nearly 70,000 Montana parents who we consider to be an underutilized source of labor in our economy. You can see how that changed over the last three years. Prior to the pandemic, we were seeing about 62,000, then it peaked, added about 10,000 to that number, about 71,000, and then has come down slightly but still remains elevated compared to prior to the pandemic. Again, like our tight labor markets, the child care shortage existed before the pandemic, but certainly the pandemic exacerbated that issue as well and really brought it to the forefront of economic development efforts in Montana. Montana has seen real wage and income growth over the last five years or so. We've seen our wages grow dramatically in terms of real wages. In 2020, it was a significant year for wage growth, about 8.6 percent growth over that year. But in the last couple of years, inflation has eaten into our wage gains, so we've seen negative real wage growth in 2021 and 2022. It's a similar story when you look at our income levels. Per capita income in Montana has continued to grow, but as you can see, we're currently sitting at about $57,000 for per capita income, which is just slightly above our inflation level currently. So we have seen wage gains, but those wage gains have been eaten into in the last couple of years, and that is something that will continue to be an issue in terms of economic growth in the future. Part of that inflation picture has really been what's happening to shelter costs, specifically our housing market. In Montana, we've seen about a 54 percent increase in our median home price since 2015. I've highlighted a few of our major counties in the state. Gallatin County, where Bozeman is located, is in the southwest portion of Montana, very close to Yellowstone and a lot of outdoor recreation in that area. Their median home price is approaching $800,000. We've also seen Flathead, up by Glacier, at about $650,000. Missoula, of course, and then Lewis and Clark County where I'm located in the capital of Helena, Yellowstone County is Billings, Cascade County is Great Falls, and Silver Bow County is Butte. You can see there's significant variation in our home prices across the state, but all of these areas have seen home prices more than double over the last three years or so, and then it's increased by 54 percent across the entire state. A lot of that has to do with in-migration. Montana has always been an in-migration state, or has been for the last couple of decades at least. We tend to average about 6,200 net in-migrants moving into Montana, most of that is domestic migration. In the last two years, we've seen net in-migration more than double. Over the two-year time frame, about 41,000 people, which represents about 3.8 percent of our population. Montana is a large state with about 1.1 million people that live in the state in total, so that is a significant number of people that we've seen come into Montana. In fact, we are ranked second in the nation for the largest percent of in-migration over that time period. Some of you may guess the number one is Idaho, as Boise has been the poster child for that, but certainly in Montana we're feeling similar effects, and it has impacted our housing market as well as other aspects of the economy. But again, when we think about labor market tightness, those in-migrants are welcome into Montana to help our labor shortage as well. With that, I will turn it back over to Ron. Our website there, I've posted the link, it's lmi.mt.gov, and I look forward to taking your questions at the end here.

Thank you very much, Amy. A wonderful kickoff to this session. Lots of good information. I already have a couple of questions for you based on what I heard there. If anyone else has questions, remember please put them in the chat box so we can try to get to those. So let's go to our next speaker. Our next speaker is David Flynn from North Dakota. David is research director at the Institute of Policy and Business Analytics at the Nistler College of Business and Public Administration at the University of North Dakota. David does a lot of things, including analysis and forecast of unemployment, tax, and other variables in the regional and state economy. Please welcome David Flynn.

Thank you very much for having me. It's great to be here. I always enjoy this, and I've enjoyed hearing the discussion, both of Montana but also the discussion from the Fed president and 3M CEO. Without any further ado, I'll just move us along here and lay a little bit of groundwork. I think you look at what happened in the 2010 to 2020 time period, pre-COVID, and you can say that this might have been the decade for North Dakota. You saw something on the order of 13 percent in terms of population growth overall. It was a radical departure from what had been a slowly declining population. You also saw a significant rise in monthly tax receipts. We saw a transition as lots of different economic fundamentals within the state changed, but significant increases in the various different tax revenues and tax streams that we had going on as a result. These were really important and really major changes. In terms of what I would say as the framework to the recent change, I think we'll start seeing some important work saying North Dakota had maybe the best run of any state from 2010 to 2019. But what does that mean for the post-COVID era? In addition to things like population and taxes, we saw a 66 percent growth in nominal state product from that 2010 to 2019 time period, so that's a significant rise. Obviously, the industry that gets most of the attention and probably most of the credit for this is the oil industry, energy in general. Important to the state for certain, but when you look and see that there is something on the order of a 525 percent increase in monthly oil production measured in barrels of oil produced, it's hard to look beyond that and say others were as responsible or more responsible. So I think the question that comes into play here and now is, can or will this continue? The economic conditions there to permit this to go on, and I would suggest that the answer seems to be yes, but as always, there are some questions that we would have. Like much of the country, North Dakota finds itself in a post-COVID crossroads. Some very similar challenges to what the state has dealt with for the last 20, 30, maybe even 50 years, and while they're similar, there are distinctions that might make it important to look for new solutions, especially when you compare it to the circumstances like we already heard from Montana, like what I'm sure we'll hear for South Dakota and the region in general, but also with a varied national backdrop that we see now. Labor supply issues have been a constant in North Dakota for the last 20 or so years. It's actually the U.S. that has sort of come to the level of problem North Dakota has had for some time, which in the realm of misery loves company might be a good thing, but in the realm of being competitive, North Dakota businesses looking for workers, looking for labor, that's not a good scenario because you then are competing in a very different labor market than you were before. We've also heard about inflation issues here as well. Much like the great data from Montana showed, wage gains have shown significant depreciation in terms of real value, but you've also seen incredible appreciations in home costs and other things, other assets of that type over this time as well. Then, of course, the question I think is getting insufficient attention from businesses going forward right now is the interest rate question, and I'll highlight that in a little bit. North Dakota, though, I think has a good foundation for growth. The question becomes, what's that next growth driver going to be? First challenge I'd highlight is that labor force is just not expanding. This is the North Dakota labor force, and you can see that since about 2015, it is essentially plateaued, some slight decline in the post-COVID era with a little bit of recovery. But North Dakota enjoying an enormous run-up as oil expanded, the draw particularly for 20 to 30 year old males in that extended oil industry growth was really important in keeping many of them here as they started to mature in their life cycle, looking at family formation, staying here, and pivoting out of oil into other industries or maintaining work in that oil industry was really important for that labor force expansion. But it hasn't been expanding really since that first pivot in the oil price market. As we heard, labor force participation is going down. However, you can see that labor force participation in North Dakota is still much higher than the national average. Unlike what we saw with Montana, that labor force participation rate is below 70 percent, but that decline, I think it's important to note, predates COVID too much. I think attention is paid in some cases with some metrics to that COVID benchmark and suggesting that COVID was the driver. This has clearly been going on for quite some time. There are certainly age demographic considerations here as the grain of the population, the staying in the state, those kinds of factors have certainly played a significant role. The exit of significant numbers of college graduates to find job opportunities elsewhere and then come back later, if at all, has been a particular problem that the state's been confronting. But again, labor force participation is clearly something that we want to watch and see in terms of where it's going. So again, the population increased just like was said for Montana. It certainly explains some of the math behind that labor force participation decline, but again, the underlying demographics are not necessarily helpful in that regard when you start talking about the 20 to 30 year old increase, the exit of significant numbers when the oil industry jobs were drying up for a time, and then getting them back. The in-migration is highly variable and highly volatile for North Dakota, very much keyed in when you look at the performance of the oil sector. You also look at things like birth rates above the national average, and so the continued growth elements are there. It's just a matter of maintaining that growth throughout the very various years of the life cycle. In terms of one other factor, North Dakota's legislature meets once every two years. This happens to be the year they're meeting, so they're in session right now, and obviously the big concern there is typically putting together the budget going forward. This is just a look at the overall monthly tax collections coming in. This data is from the North Dakota Office for the Management of the Budget, and you can see a lot of volatility in this number. A significant increase as we've gone into oil. The surprise element there is not really much of a surprise. The introduction of oil introduced significant volatility into the overall monthly receipts from the Office of Management of the Budget. What you're seeing is that since we saw that oil industry start to become more established, start to lose that initial startup phase as an industry in the state, there's still growth in those revenues, but it is at a much more moderate pace as we've been going on, and that's what the trend line, the blue trend line there, is trying to demonstrate. So we're seeing significant volatility that needs to be balanced and at some level understood against a nice slow steady growth pace. As we're looking at these taxes, we see that we've got opportunities. You see a significant number of these different taxes there. These are the most consistent performers in the state, and so there's significant additions that can be made with these and significant pivots that can be made with these, but there's lots of different tax streams for the state to consider and to look at. In particular, right now, one of the things I would highlight is that the state could be looking for fiscal flexibility. The state has the fiscal resources to entertain policy overhauls, whether they want to consider a change to the individual income tax, whether they want to ban the corporate income tax, whatever they want to entertain from the perspective of growth, investment, and competitiveness, there is that opportunity just with current fiscal resources and the direction they seem to be going. Now, the other thing that's there is that there's currently a Legacy Fund in North Dakota. A portion of the dollars attained from oil industry taxes goes into the Legacy Fund. This was an initiative that was approved by the voters in the state, and it provides a certain percentage of revenues to every biennium. With currently $8 billion in that, there's obviously an opportunity to think more broadly with that fund and say, is it something to be leveraged beyond just a rainy day fund? If there are capital projects, investment avenues, the like that need to be engaged in, can we look at the Legacy Fund as a possible source for this instead of looking at it as a hole in the ground in which to bury funds? So I mentioned oil. Oil and the extractive industries are still the growth driver. However, the situation is changing again. It's a maturing sector. It's not an unimportant sector, but it's maturing. One of the things that we're hearing a lot of right now are co-production activities with the existing extractive industries, looking to expand into other things along with that coal lignite industry as well as the oil industry. But we also see community activities looking to adjust and change in that local industry as well. When the local base is changing, oil output, you can see since that COVID-induced drop has recovered somewhat but is fairly steady, fairly stable, kind of a plateau situation, which is interesting given the North Dakota first purchase price experience, a strong increase in the post-COVID era. Even with that significant rise in prices, we only recovered to levels that we saw immediately prior to COVID. As a result of that, the industry again more mature, profit taking, waiting to see if price increases are sustainable. These are of course things that weren't going on as well. Maturing is not less important. It's obviously a bedrock for tax revenues, Legacy Fund, and other activities. It's certainly going to continue to be an important part with these co-activities, but it requires some long-term planning and a long-term horizon. Some risks to the outlook for this state in particular: I think increasing interest rates are a risk. I know everybody probably suggests that increasing interest rates are a risk, and they are, but the fact of the matter is we have individuals who've not experienced higher interest rate regimes because we haven't really seen them of this sort for a long period of time. Just like it's been 40 years since people have encountered this type of inflation, this type of interest rate regime is not something that is in the experience set of many people. I have fiscal concerns in terms of things like the U.S. debt ceiling and a game of chicken in Congress raising the risk of U.S. debt default. I don't think the U.S. is going to experience that default, but again, the risk of it, the plausibility of it, becomes a problem as well. Then what I will also sort of point there is a lack of considered effort in terms of a defined direction with economic growth initiatives in the state. North Dakota is a low population state, currently sitting in the mid-700,000 population. What I see in those circumstances is a need for more direction. It's interesting because there are current initiatives underway to try to assess, evaluate, and then improve things like digital skill sets within the population to allow for innovation to be more readily accepted and to increase the workforce available in some of those industries. But again, there needs to be, I think, a little more of a concerted effort on the policy front to try and direct people into those kinds of initiatives to support those labor force issues and those labor force concerns. That is it for me. Thank you very much.

Thank you, David. I'm always struck by the uniqueness of the North Dakota economy, especially in comparison to all of the other Ninth District states. So David, I really appreciate your ability to bring that contrast to our audience today. Great job. We will move on to our last presenter. Our last presenter is Joe Santos from South Dakota. Joe's the director of the Ness School of Management and Economics at South Dakota State University. Along with teaching economics, Joe does research on financial regulation, monetary policy, commodity futures markets, and other topics. Please welcome Joe Santos for our last presentation.

Well, good morning everyone and thanks for this opportunity. I'm going to offer a very quick overview of the South Dakota economy and what I think are some of the interesting challenges and opportunities. I'm going to dive right in, and I'm going to do this within a sort of pedagogical framework of production, then people, and then place, about five minutes a piece. So here we go. To begin with production, I want to just offer you a sense of the GDP landscape if you will. We look at just private industry components. Let's look at green and fire right, and we'll just go very quickly clockwise here. That's finance, insurance, and real estate, of course, and that's the largest segment of private industry in the state. Then very quickly we go up to professional and business services, and education and health, and social assistance, agriculture and mining of course, and then construction, manufacturing, and utilities. Then we go down to wholesale and retail and a few others, but primarily it's about finance, insurance, real estate, manufacturing, construction, healthcare, and agriculture. I want to take a look at the household level and how the household has fared in recent years, and also allow this as a sort of off-ramp to a bit of analysis as well. Here I have per capita personal income for South Dakota. If you pick a date, go up to a line, turn left, that would be the dollar amount per capita, so say $65,000 per capita. I have here not just South Dakota but also the United States. There are a couple of interesting features here, some of which are probably well-traveled territories. The spikes there, of course, that's the pandemic and strong fiscal policies in the form of transfer payments affording households a sort of stronger balance sheet if you will during the pandemic. Then what you see is a sort of leveling off and a return to normal. I want to focus on the very end of that, where the blue and the red lines end. You'll notice the blue is above the red line, so at the moment, per capita personal income in South Dakota registers a value that is greater than the value of per capita income in the United States. That's interesting as it is, but I think this offers us a really interesting analytical off-ramp for what's going on in the labor markets in South Dakota. Allow me just a little bit of detergent analysis here. I want to think about what's going on in per capita personal income. Of course, that's income divided by the population. The really easy way to dismiss what's going on perhaps is this kind of depopulation story, saying it's income divided by people and the state has fewer and fewer people, so that's why income divided by people is relatively high. Of course, that's not the case, and here we can see that. Population growth in South Dakota is greater than population growth in the United States more generally, so that sort of quick dismissive answer isn't going to work. So why else is per capita income above the United States level? Here, a little more analysis if I may. I have just a very simple decomposition. Per capita personal income is on the left; it's income divided by the population. I think of this as being driven by three potential sources, and we'll walk through them very quickly. Either per capita income is rising because income per person is rising, you can think of this as a productivity force if you will, or the employment rate is rising, that's one minus the unemployment rate. So if the unemployment rate is three percent, that ratio is 97, so that could be a driving force behind rising per capita income. Or it could be what I've heard my colleagues talk a lot about in the context of their region so far, the labor force participation rate. Those are the driving forces. It turns out in the case of South Dakota, the reason why per capita income is relatively high really comes down to those latter two forces. It's essentially a high employment rate and a high labor force participation rate that is essentially supporting per capita income in the state. Let me show you this. I'm going to just show you a quick picture of those employment rates both for South Dakota and the region, and then a quick picture of that labor force participation rate against South Dakota and the region. Here are the employment rates. Again, pick a date, go up to the blue line, turn left, maybe you see 95. That would mean that you have a five percent unemployment rate and so a 95 employment rate. For South Dakota, we have a very low unemployment rate. We can continue to have a very low unemployment rate, and that's one of the reasons why per capita income is as high as it is. The other is really sort of an outline feature, and that is for South Dakota, labor force participation rate remains not only above the United States labor force participation rate, that is the blue line above the red line, but the blue line isn't experiencing the sort of downward pitch if you will that it is in so many other places in the country. So our labor force participation rate is high and it's sort of persistently high. So that's it. We have relatively strong per capita income in the state because in some sort of loose way, we're sort of working a lot, right, in terms of employment rates and labor force participation rates. I'll just show you this numerically. In other words, 66 is bigger than 65. I'm looking at the per capita income levels there. 66 is bigger than 65 because 98 is bigger than 96 and 69 is bigger than 62. Those are the driving forces behind what right now is a relatively high per capita income. Having said that, though, of course, this is all happening while the purchasing power of money is falling. We have an inflation problem as we all know, and so no matter, per capita income in real terms is not performing in the way any household would like. Here I just direct your attention to the very right of the screen, and you've got a blue line and a red line that seems to be converging, but in a way that we would rather not converge. That is, both for the United States and for the state of South Dakota, real personal income, what that personal income buys, is essentially stagnated. The growth in real personal income is hovering around zero. That's just very simple: income is rising in nominal terms, more money per household, but so too are prices rising, and so stuff per household is flat. Now, people. Here what I'm thinking about is a bit of a decomposition of the labor market in South Dakota and sort of where the bodies are in terms of employees. I'm going to put a lot on this chart, but I first want to explain what will be on this chart. I have one sector up here right now, the government sector. What's going on here is I'm showing you not the number of people employed in the government sector, but rather the number of people employed relative to the number right before the pandemic. So if you pick a date, go up, turn left, and let's say you hit the number one, the way to use one in a sentence is that for that date, there is precisely the same number of employees in the government sector as there were just prior to the pandemic. So that's the government sector. Now I'm going to make this picture a mess by bringing up a bunch of others. We see all different sorts of behaviors. I'm going to clean this up very quickly. I think I see a sort of pattern here, so I'm going to share with you what I think the pattern is. In two of these sectors, we notice in construction and professional and business services in the state, the number of employees in those industries has been rising again relative to the number just before the pandemic. But that's not the case in several other industries where we see this sort of flatlining. You saw it a moment ago with government, but you see it with other sectors now as well, finance and manufacturing and information technology and so forth. So it's an interesting variation in the labor market where these markets are tight, but the number of employees going into one sector or the other is not homogeneous. There's variation there. The other bit of this in terms of people is basically their wage. Here I have a very imperfect measure of wage, something we refer to as average hourly earnings. Again, here I'm just putting one up for you for a moment. This is leisure and hospitality, just so I can explain what we're looking at. Again, pick a date, go up to the green line, turn left, and I don't know, maybe you hit a number like seven. The way to use that in a sentence is to say that the wage rate in the leisure and hospitality industry rose year over year by seven percent. We've seen growth in the wage rate in leisure and hospitality. This has been going on in other industries as well. Now I'm going to add a whole bunch of other lines, and it's going to be a complete mess. We've got this sort of war shot test. What do we see? Well, I actually think I do see something. Toward the end of this mess on the right side, these lines are sort of diverging. Let me just emphasize this divergence. Some of them are sort of hovering around that five to ten percent range, but some of them are not. In particular, professional and business services wages in that industry and education and health services wages in that industry seem to be slowing. This is interesting from two perspectives. One, it's just interesting that we see this sort of bifurcation and that stuff is happening in the labor market that reveals some variation. That's just an interesting story. But the other reason I think this is interesting is from the perspective of a macro economist. This to me suggests that perhaps the inflation problem is fading a little bit. What I mean by this is this picture reveals that the purchasing power of money is falling, but that fall is not independent of what money is buying. If you buy education and health care services, you get more for your money than if you buy mining and construction services, where you get less for your money. That's a sort of microeconomic variation that is becoming apparent in figures like this that I reason could suggest that this sort of general problem of a depletion of the purchasing power of money may be fading. Finally, place. In the last few minutes here, I'm thinking about land and real estate because in South Dakota, this has been perhaps one of the greatest pain points. I want to start just with a little academic reference. There's been quite a bit of work on this suggesting, and here most recently in the American Economic Journal, that when you have expansionary monetary policy as we certainly did until recently, you tend to also see home price appreciation. It's a fairly reliable relationship. Interest rates are low, they're not now but they were, interest rates are low, house prices are high. These folks do a little bit of work to demonstrate that according to their data set, and the data set includes a little bit of the Ninth District, you see this sort of price appreciation in home values when the central bank lowers interest rates. The white space doesn't mean that the phenomenon doesn't exist there; the white space just means the authors didn't have data for those areas. But the point is there is this relationship, and I would argue that I think we're seeing that relationship play out in South Dakota as well, and in a way that is disproportionately greater than we're seeing the relationship play out in the nation. Let me show you what I mean. Here's a home price index both for South Dakota and the United States. Here it screams homogeneity. We look just like the nation according to this home price index. Prices for homes have risen substantially, but they've done so in the United States, they've also done so in South Dakota. It's a sort of nothing interesting to see here except for the large spike. Incidentally, using these same data and going back to the housing bubble of 2007, however you want to date it, you do not see a spike this high according to these data. If we break this up though and sort of look at just the state of South Dakota, now we see something very interesting. If we just map out average list prices for homes, the darker the green, the more the jump in average list prices for homes over this year, a year ago today to now. You see South Dakota, and it's indeed a lot of the Ninth District is in a darker green tone, suggesting that this home price appreciation is not homogeneous across the country. Otherwise, the picture would have the same color throughout the map, but rather there's quite a bit of variation, and the intensity of price appreciation resides to some extent in the Ninth District. One more. These are averages though, so someone is listening thinking, well that's because there's some big home being built in the Black Hills of South Dakota and it's bringing up the average. So I'm now just going to flip this and go to median, which of course is indifferent to outliers like that. Again, South Dakota is dark green. So very quickly, flip back and forth a little bit of animation here. That's average, that's median. In either case, South Dakota is in one of the darker green segments of the map, suggesting that this price appreciation is affecting us in ways that it's not necessarily affecting the rest of the country. I can say if there's one sort of pain point or challenge, it's this one. This is what folks seem to be talking most about. This also goes for agricultural land values. In the interest of time, I stuck with the residential housing stock, but this appreciation in general is something that folks are dealing with in the state. I think my time is up, so I'll stop there. Thank you very much for your attention.

Thank you, Joe. You know what really strikes me is the diversity of all three of those presentations. Enjoyed them tremendously. I think you all three did a great job not only bringing a lot of content, also staying on time, actually being a little bit ahead of time, so we have a lot of time for Q&A, which I'm thrilled about. Joe, I'm actually going to go back to you with the first question. Everybody's kind of addressed housing to some extent, and there's also a question online regarding housing. I'm curious, it was also mentioned in the conversation with Neil and Mike regarding the effect of available housing and housing prices on economic development. I'm wondering if the three of you, starting with Joe, could talk a little bit about housing supply and what prices are also having on what is probably the long-term economic growth, kind of that push and pull. There's clearly demand, doesn't seem like we're necessarily keeping up on housing stock. I'm wondering if you each could talk a little bit about how you see that problem.

Yeah, thank you. This is coming up an awful lot. Of course, it varies across the state, so there's heterogeneity within the state as well. Minnehaha County, home of Sioux Falls and so on, is where issues of zoning and so forth are coming up a lot, perhaps explaining some of the tightness in the supply. But nevertheless, to your larger point, there is a tight supply, and I think there is a correlation between this tight supply of housing and the state's inability to really draw additional labor. You saw in those employment rates and the labor force participation rates, they're very high, and the corollary of that is that there isn't a lot of accommodation there. So we really can't figure out a way, I think, to raise that labor force participation rate any higher or to raise that employment rate any higher, so that's a headwind as it is. Then to the point of your question, when you add to this that we don't have the housing stock necessary to house the employees were we even to attract them, that's just an additional headwind. So I see this as a very big problem. Again, I know that the city of Sioux Falls, our greatest population center, sees this as a very great problem and is thinking about issues around how we zone property and so forth, and dealing in our state not just with the commercial and residential tension, but we're also with the agricultural tension. There's sort of three things that you could do with that plot of land, and so that's one of the challenges we're working with. There's no question, at least it seems to me and I think everyone else who looks at it, that empirically the labor supply challenge and the housing challenge are deeply interrelated.

Right, right. Thanks, Joe. I appreciate that. Just a quick note on Sioux Falls, I happen to follow a lot of the permitting activity there. They just released their annual permitting, it was almost two billion dollars, which is almost double what a record year was in 2021. So yes, activity there is off the charts. If I can go to you, David, same question. I'm wondering what your thoughts are on that topic.

Well, the housing topic. Yeah, we've seen price appreciation for houses here that are incredibly high, 15, 20 percent annual price increases. I think the interesting circumstance that I see here is that it's spurring a significant amount of apartment activity, and I'm going to call it luxury apartment. I know luxury is kind of a subjective term, but it's a kind of apartment living that on the first floor is commercial space, maybe a grocery store, maybe a restaurant, and above it are different kinds of apartments. The pricing of those is interesting because I feel like because we're in an equilibrium right now that has high home prices because of construction supply chain issues, because of labor availability issues within the construction sector, that high price allows them to build higher rent apartments. So we're seeing in areas like Grand Forks and Fargo more of those types of units being built now. I think that's potentially a short-run solution in terms of getting people into the state because there are nice units to rent. The problem is, and I think this is what Joe was alluding to, there's a long-run concern. When you're bringing somebody in, you don't want somebody necessarily coming in for a year or two years, and if there are not solutions now to a longer-run issue like housing availability, it makes it that much harder to convince people to relocate. So yes, I can move in now and maybe I could build, but can you really live in a nice apartment and build? Can you really do that when you look around and see that there's just nothing but help wanted signs, construction firms trying to go into the high schools to talk to people there and say, 'Hey, if you're not going to college, you're not going to the military, maybe you should come work in a construction firm'? It's an interesting dynamic. The only other thing I'll mention is that the interesting dynamic I've seen is that in particular in places like Grand Forks, the lower rent apartment units are not going out of service yet, they're not being pushed out, but that's to their long-run detriment because it's basically over-supplying a lower level of quality apartment unit, and as a result, that's leading to other issues there on that front for the apartment companies. So it's an interesting dynamic.

Thanks, David. So Amy, I think you provided kind of the most stark picture of this housing issue with regards to the median price increases that have just been wildly inflated over the last decade. Clearly, this is an issue in Montana. I'm curious how you see this as an economic development issue.

Yeah, I mean, I think I would echo the same comments that Joe and David were talking about in terms of just affordability and its impact on economic development. I think that's a significant concern in Montana, and particularly in some of our more, I would say, in-migrant counties, places where we've seen the most in-migration. In terms of Flathead, where Glacier is located, and Missoula as well as the Gallatin region, have seen really stark increases in their median home prices, and the days on the market number had been decreasing over that time period. So you see that definitely impacting home affordability. I mean, in a place like Bozeman, where they rely a lot on outdoor recreation and tourism, and the accommodation and food service industry as well as the retail trade industry, it's going to have the hardest time with recruitment and retention because those are lower wage industries. In that area, you've seen a lot of expansion out into neighboring communities like Belgrade and Four Corners. Those areas have really grown, and so that kind of spread where some of those individuals could find housing. But overall, I think one, we may be a little too early to tell, but we may be kind of turning a corner in terms of housing availability due to some of the actions with the rising interest rates. We've seen median home price tick down just slightly over the last few months, average number of days a home has been on the market has been increasing just a little bit. So hopefully we've reached a little bit of an inflection point, but that's a little too early to tell. And of course, you see that trickle down into rent increases. About 30 percent of our population are renters, and so you see that those prices have increased by about seven percent. But overall, we're still seeing significant affordability concerns, particularly for our low-wage industries.

Thanks, Amy. So I'm going to keep the conversation with you as long as you have the mic. None of you talked a lot about agriculture. It's a really important sector in all three of your states. I'm wondering if you can give our listeners just a few ideas about how you see the ag sector right now. We've done our own survey work recently. It looks like farm incomes in general are high because of high commodity prices. I'm wondering if you can give us a little insight into the industry in your particular state.

Yeah, so our agriculture and natural resources, that includes agriculture, mining, and utilities, is certainly a big impact. It has a big impact on our overall GDP in the state. It's about, I believe, about 10 to 15 percent of our overall GDP, that's just off the top of my head. So it's not our largest producing industry. We do, like Joe mentioned, financial services, which includes the retail, is our largest, followed by healthcare and social assistance. But it certainly still has a large impact, particularly in the more rural areas of our state. We've seen slight declines in our GDP for agriculture, mining, and utilities over the last year or so, but overall they've been fairly robust in terms of their growth and their production. Their employment levels are still where they were before. They're of course high wage occupations, particularly in mining and utilities, and so we've seen that they've had significant real wage growth. But recently, over the last year or so, we've seen them be more of a drag on our economic production. I will mention just briefly that transportation, in Montana we drive a lot, so we're really sensitive. Big state, we have to travel far anywhere anytime we're going anywhere, so it's really sensitive to fuel prices. We've seen about a four percent drop in transportation GDP over the last year as gasoline prices have increased, although they've been coming down recently, so we expect that to tick back up again. But that also impacts industries like all industries in terms of trucking and shipping and rail and all that. So that impacts mining as well as agriculture.

Okay, thanks Amy. Joe, let me go to you. What are farmers and ranchers looking like right now, and what's their outlook?

Yeah, to build off on Amy's answer, which I think reflects a lot of what's going on here too to some extent. So as a share of the economy, it's sort of understated in these pie charts. I'm sure you would say the same with GDP, because a lot of the manufacturing or the construction or the wholesale, retail trade and so on would not be there were it not for agriculture, and that's certainly the case for South Dakota. So it has outsized effect relative to that pie wedge that anyone would show you. So there's that. In terms of the industry itself, you mentioned farm incomes and so on being relatively strong, and they are, and commodity prices relatively strong, and they are. So in that sense, things are good. If there's anything that I think comes up, as I mentioned in my talk, there's sort of two bits, and they're related. One is just land value in general, and agricultural land value as well as just residential and commercial land value rising so aggressively is a concern and an issue and certainly a topic of conversation. But the other is, of course, inflation. Not just the general sort of complaint around inflation, but I think there's really a strong analytical argument folks in agriculture are making here. That is, their sort of finished goods prices, their commodity prices, are flexible, sort of determined by world markets, and rose as the purchasing power of money fell. But their input prices, at least for a while, did not adjust, and so things were quite good for a bit. Again, this has knock-on effects for banking, which finances the activity, and so on. Things were quite good all down that supply chain. What's happening now, of course, is that these price pressures are revealing themselves on input prices, and I'm thinking fertilizer comes to mind, and fuel more generally, and that's beginning to really tighten, let's say, income statement positions and ultimately balance sheet positions of these producers. So in addition to the labor supply challenges, which again sort of work through every industry in the state and certainly in agriculture, I would say now it's the issue around what's happening to input prices, and they're rising of course, and how high will they rise, and to what extent will that sort of squeeze out the very farm income that you rightly began the question with.

Right, right. Thank you, Joe. David, anything particular to add, or should we throw you a new question?

Well, I would just suggest that one of the things we're seeing up here is again some significant variation across the state in terms of overall conditions. We've had very interesting weather patterns where we've gone dry for one particular year but then too much water the next year, cold weather impacting ranchers and spring calving and those kinds of things. So a lot of volatility and variability. Transportation still remains an issue at times depending on what's happening. That's been resolved somewhat, but back in the oil boom days, you couldn't get your ag products onto a train to their end location because oil was paying a premium. So there are still those constant adjustments, but nothing much more than what we're hearing from the other states as well.

Thanks, David. So we have time for maybe one more go-around. David, I'm going to start with you. All of the states here, the Dakotas and Montana, have seen some population burst of late. Earlier in North Dakota because of the oil boom, and during the pandemic really in Montana, although Montana has been growing pretty significantly over a steady period, but really has seen it during the pandemic, and South Dakota has really seen an influx. I'm curious if you might talk a little bit about where that comes from in North Dakota. I think we understand, I guess I'm kind of curious from your perspective, David, what lessons have you learned from that population growth that might inform what's going on in the other states? And for Montana and South Dakota, I'm curious if your projections on economic growth have really shifted because you're seeing this influx that maybe you didn't expect 10 years ago. So let's start with you, David.

Sure. So the cliffs notes on this are essentially we had a surge in oil that brought in working age males in particular, young unmarried working age males, roughly 24 to 28 was the biggest group, but that 20 to 30 range was important as well. Once oil became more than a temporary increase, once it became clear that there was going to be a sustained increase in that activity, then you started to see adjustments in locations and family formation activities that started to then increase birth rates. So we've seen birth rates go up. There really isn't what I would call a Bakken baby boom or anything like that, but there was a notable increase that occurred somewhat correlated with oil prices. I think the most interesting thing that happened was they were able to keep higher than expected numbers of people here once oil turned into its first business cycle pivot. Once that happened, they found other jobs. The industry matured with other opportunities, so even if you lost one out of every three oil workers, the fact that they married and had kids was increasing the population as well. But this does create a location issue. Every one of the states also has, we're big states with lower populations, which means, I think Amy said, we drive a lot. So there's a lot of questions about things like where do you locate education facilities, kindergarten seats, middle schools, high schools. Those kinds of things are still out there as issues, and that kind of broader social infrastructure that the population requires to truly maintain long-term residency, I think is something that you can't talk about early enough in that regard.

So in the interest of time, I'm going to give Amy the last say on this. But I am curious, you've seen a lot of growth there. Projections probably are similar. I'm curious how the state is thinking about that charge of that energy of population growth.

Yeah, I think it was very apparent over the last few years. I mean, Montana's always been an in-migration state, but that jump we really felt it. I think the first place it hits is the housing market. You see particularly for our in-migrants from our western states, Washington, Oregon, and California, they're coming from higher home price markets, and so you saw a lot of all-cash offers, that sort of thing, anecdotally. Particularly like I said in our western regions, there is quite a bit of discrepancy between the western regions of the state that tend to be more populated versus our eastern region, except for the Billings area. But I would say in general, we need in-migrants to address our workforce problem. Our natural change in the population fell over the last couple of years. We had fewer births than deaths, and so we needed those in-migrants to help alleviate some of our workforce shortage. So we're trying to, I think there's probably a lot of pushback among the general population to have all of these newcomers come in, but from an economic workforce development perspective, they're welcome in that perspective.

So with that, Amy, I appreciate the participation of all the panelists. I think a great job on all your presentations, a really engaging Q&A, and thank you for participating today. This is really helpful and I think a good tee-up to the next conversation. We're going to transition now to the next session that is with my colleague Eric Garcia Luna, and he is going to lead a panel discussion on workforce development and labor force. So take it away, Eric.

Great, thank you. Thank you, Ron. I appreciate that. Happy Friday, everyone. Thank you for joining us for this year's conference. My name is Eric Garcia Luna, and I'm a regional outreach director here at the Minneapolis Fed. As Ron mentioned, in the next hour, we're going to hear from experts in three of the Ninth District states: Minnesota, Wisconsin, and Michigan. They're going to share with us their wisdom on what they're seeing in terms of population and labor force participation in each of their states, very similar to what we saw in the previous session. Each presenter is going to have 15 minutes to go over their material. We'll also save about 15 minutes for discussion at the end. If anyone in the audience has questions for our presenters, please remember to type those in the chat box, and we'll be monitoring those. With that, I'm going to introduce our first presenter, Orian Casale from the Minnesota Department of Employment and Economic Development, where she is an assistant director of the Labor Market Information Office. Orian, well, I'll start with a quick overview of Minnesota's labor market as of November data. We have one of the tightest labor markets in the nation.

November our unemployment rate sorry let me switch my slide here our unemployment rate was 2.3 percent, up from an all-time low in any state of 1.8 percent in June and July. We have had since June the highest ratio of job openings to unemployed workers in the nation based on JOLTS data. In October there were 3.2 jobs for every unemployed worker statewide, and that's actually been decreasing so it had been higher. Despite this very tight labor market, Minnesota has added jobs for the last 14 months straight through November. Over the year in November our job growth rate was 3.5 percent compared to 3.2 percent nationally. However, measuring from the beginning of the pandemic recession, we've seen slightly slower growth in the U.S. While the U.S. regained all of the jobs it lost during this recession by June of last year, Minnesota was still 34,500 jobs short of our February 2020 level in November. So this first part of my presentation will focus on workforce trends compared to February 2020. Just prior to the pandemic we are still short almost 94,000 or 3% in our labor force. The U.S. is short a negligible 65,000 workers. Moreover, on average in 2022 we have had about 67,000 unemployed workers monthly, which is an all-time low for Minnesota. Notwithstanding the shake-up caused by the pandemic recession, stalled growth in the labor force is a very long-term trend. You can see from this graph that the rate of growth leveled off around 2001, a direct result of an aging workforce and slowing population growth. The pandemic restrictions on immigration have also hit Minnesota hard. Over the previous decade, immigrants comprised 50 percent of the labor force growth in Minnesota, which has been mentioned in other presentations, but this slowed to a trickle in 2020 and 2021. Immigration numbers are back up in the first half of 2022, so we may start to recover some of that loss growth over the next few years. And just to make the point, the tight labor market is impacting all regions and all counties around the state. Comparing women and men's labor force participation and unemployment trends gives us some insight into what is underlying the overall labor force trends. So prior to the pandemic, between 2002 and 2019, women's labor force participation rates and unemployment rates both fell slower than those of men. During and just following the pandemic recession, November 2019 to 2021, women's labor force participation dropped more sharply than men, while women's unemployment rates rose faster. After the pandemic recession, over the year in November 2022, women's labor force participation has been recovering more slowly than men's, while women's unemployment has declined more quickly. So looking over the entire period November 2002 to 2022, women's labor force participation fell 7.8 percentage points compared to 7.6 percentage points for men. Women's unemployment fell 1.2 percentage points compared to 2.5 percentage points for men. As a result of these shifts, the number of employed women has grown 8.2 percent since 2002, while the number of employed men has grown 12.6 percent over that period, so faster growth for men. All race groups still have lower labor force participation in November 2022 than prior to the pandemic recession on a 12-month moving average basis. Hispanic Minnesotans have the highest labor force participation of the three groups, followed now by Black Minnesotans. White Minnesotans have seen a steady decline in their labor force participation over the period and currently have the lowest labor force participation of the three groups, and this is largely driven by demographics by age. Unemployment rates are now lower for all groups than prior to the pandemic. However, Black workers still have the highest unemployment rates coming out of the pandemic recession, although they have been dropping sharply since June. Hispanic workers also had very high unemployment rates during the recession, and although they dropped sharply coming out of the recession, they have been creeping up since June. White workers have seen a steady decline in their unemployment rates and continue to have the lowest unemployment rates among these three race groups. I'm focusing on these three groups because this is what we can really publish coming out of the Current Population Survey monthly data. Employment trends by age are from Quarterly Workforce Indicators, linked data on UI-covered workers from the Census Bureau. Over the last three years, all age groups lost employment between first quarter 2020 and first quarter 2022 in Minnesota, with the exception of teens age 14 to 18. This group added 8,700 workers, up 9.2 percent over the period. At the other end of the age spectrum, older workers age 65 plus saw the smallest decline and are almost back to their employment level prior to the pandemic. 19 to 34 year olds saw the greatest declines over the three years, and the second largest declines were in the 55 to 65 year old group. So looking at the gender and the age trends combined, we can surmise that insufficient early learning and school-aged care is playing a big role in the inability of the labor force to grow, because it's hitting that prime working age worker and it's hitting women more strongly. Workers age 65 plus seem willing to continue to work despite the ongoing pandemic, probably because those who are still in the workforce at this age either have to work or really like working. Teens are taking advantage of increased employment opportunities and filling some of the vacuum left by prime working age adults who have left the labor force. These next set of slides are for my colleague Alessia Liebert's ongoing study of re-employment trends after the pandemic recession. The study tracks the re-employment outcomes of the 631,000 workers, or 20 percent of Minnesota's workforce, who were working in UI-covered employment prior to the pandemic and applied for and received unemployment insurance during spring and summer 2020. This report will be published in early February on our website if anyone wants to go and look for it. As you can see from this slide, there has been very little change in overall re-employment rate since third quarter 2020. However, many workers have switched employers since third quarter 2020, and many fewer workers are on unemployment insurance because the broad-based pandemic programs ended in September 2021. The gray bars represent workers who no longer appear in Minnesota UI wage records. This includes people who have dropped out of the labor force for a variety of reasons, but also those who have moved out of state or into self-employment. They just don't show up in these data. As you can see, this is the group that increased the most over the year. Re-employment outcomes vary by demographic group. Younger workers were least likely to be recalled by their employer of layoff and most likely to switch industry sector. These are also the most mobile group, with many in the gray area likely moving out of state for school or work. For the most part, the older the worker, the more likely they were to be recalled and stay with their original employers, and the less likely they were to switch employers or industries. The oldest category, those over age 55, were the most likely to have dropped out of UI-covered employment, probably mostly due to retirement. This 32 percent on the gray bar for workers over age 55 is about 10 percentage points higher than among the total workforce, indicating that a layoff may have accelerated retirement plans for many. By race, white workers were most likely to be recalled after their layoff, while Black and mixed race workers were least likely to be recalled. On the other hand, Black, mixed race, and Hispanic workers were most likely to switch employers, with Black workers most likely to switch into a different industry sector. This slide breaks down re-employment outcomes by industry sector of layoff. Clinics and hospitals lead in recall rates. Only 14 percent of workers who were laid off during the recession from this industry switched to a different industry. On the flip side, the nursing and residential care facilities sector was only able to retain 31 percent of laid off workers, with 43 percent of them switching into other industry sectors. Nursing and residential care struggled with staffing levels throughout this period and has only started to see over-the-year job growth in the last four months in Minnesota, as quickly rising wages in the industry have successfully drawn in more workers. I could say a lot about this graph but I'm going to have to leave it at that. The other thing that's not on this graph that I do want to mention is the sectors that absorb the largest share of switchers are, in order, retail trade, manufacturing, hospitals and clinics, and accommodations and food services, which as we know was the sector that was hardest hit by the pandemic layoffs. This slide looks at inflation-adjusted or real hourly wage outcomes of workers who changed employers compared to those who did not. In this population of workers who had been laid off, workers who changed employer were on average younger and had lower hourly earnings than those who stayed with the employer from which they were laid off. But even after adjusting for inflation, the median worker who changed employer saw stronger real wage growth than those who did not change employers, so 3.4 and 6.8 percent. However, the group that changed employer had greater variability in wage outcomes, with over a quarter of them experiencing a significant drop of 10 percent or more in their hourly wage. Finally, workers who were laid off during the pandemic recession and were re-employed in second quarter 2022 saw larger growth in real wages at two percent compared to the total workforce, and experienced close to the same amount of variability in their wage outcomes as all workers. Continuing with the theme of job switching, this is another analysis from Alessia Lieber. Here we focus on all payroll workers, all workers and jobs covered by UI economy-wide, not just those who had been laid off during the recession. This analysis compares those who switched employers and those who stayed with the same employer between 2020 and 2021, just as inflation was kicking into high gear. The green line represents the wages of job switchers and the blue line represents the wages of workers who stayed with the same employer during this period. You can see that workers who switched employers saw better wage growth and were able to keep up with inflation up to age 56. Workers who stayed with the same employer saw wages stagnate and real wages shrink by the age of 35. I would encourage anyone who's interested in this analysis to check out the article in our September issue of Trends. My colleague Mustafa Hamida is working on a series of articles exploring Minnesota's wage distribution. These next two slides are from that study. This graph looks at how the wage distribution has shifted over the last five years. Some of his findings from the study are that Minnesota's wage distribution has shifted to the right between 2017 and 2022, meaning that wage inequality has decreased over this period. Between 2017 and 2022, the median hourly wage of workers increased from $21.05 an hour to $26.14 an hour in current dollars. Wage inequality is decreasing across the distribution but is decreasing faster at the lower half. Some summary numbers: the share of workers making $11 or less per hour decreased from 11 percent in 2017 to 1.8 percent in 2022, and the share making $15 or less decreased from 29 to 11 percent, all in inflation-adjusted dollars. My last slide shows that wages grew faster at the lower end of the distribution over the five-year period than at the upper end. Overall, after adjusting for inflation, wages grew across the distribution from 2017 to 2022, but declined across the distribution in 2021. In 2022, only workers below the 40th percentile of the wage distribution saw real wage growth, while workers at the 40th percentile and above saw real wages decline. That's my presentation, thank you, and I'm looking forward to the conversation.

Thank you so much, Orian. That is very interesting information. I just want to make a note that we may go a little bit over the 12 p.m. end time. Everybody's welcome to stay, but we want to make sure that we hear all the intelligence that our panelists have to share. Next, I'm going to welcome Tessa Conroy. She is an economic development specialist and associate professor at the University of Wisconsin-Madison. She works in the Department of Agricultural and Applied Economics and the Department of Extension, and her focus is community economic growth and development, small business dynamics, and entrepreneurship. With that, Tessa, it's all yours.

Good morning everybody, thank you for having me. I'll be doing the state labor force overview for Wisconsin. I'll start with the same story that we have seen across all states in the Ninth District: we have really low levels of labor underutilization. Here I'm showing you U3 and U6, our conventional measure of unemployment as well as an alternative measure of unemployment for Wisconsin, and then how those compare to the United States. In Wisconsin, we're looking at an unemployment rate between three and three and a half percent, so we're also experiencing tight labor markets here, even compared to the average experience across the country. I just want to point out with this alternative measure of unemployment that includes the marginally attached workers, these are people that I think might be the low-hanging fruit in terms of engaging more people in work. These are people that say they want a job but haven't been looking in the last 12 months for a number of reasons, but even those numbers are coming down. I also want to point out that even though unemployment is low, it does vary quite a bit by race, and we saw this as well with Orian's slides. Unemployment rate by race here in Wisconsin, 2022 quarter three, we're looking at a relatively low white unemployment rate at 2.6 percent, much higher for the Black population at 6.3, also higher for Hispanics at 3.6, closer to 2.7 for the Asian and Pacific Islander. The gap between white and Black in Wisconsin is significant, and I want to draw more attention to it by also looking at the long-run trend. This is a remarkably persistent gap in the unemployment rates, and I think a challenge for us to be considering here in Wisconsin, particularly placed in context of how it looks with the rest of the country. Here we're mapping the Black to white unemployment rates across the country, again quarter three from 2022. Wisconsin here has a relatively high ratio compared to a lot of states. I think as recently as quarter two, we had one of the highest ratios of Black to white unemployment rates, so really big differences here. Also coupled with large racial differences in wages and earnings, this makes Wisconsin a place with a really significant racial disparity challenge in the labor market that we need to be considering. Coming back though to the topic of a tight labor market, certainly we have a tight labor market, but when I look at this data I would say it's not because people aren't working. People are working. In the summer of 2022, we had as high of engagement in the labor force in Wisconsin as we basically ever had, so we're seeing those people engaged in the labor force. Taking another closer look at marginally attached workers, these are people who say they would like a job but for some reason have stopped their search. These are discouraged workers, people experiencing some sort of barrier to employment. I just want to connect with Amy's work that she was discussing in the prior session on the importance of child care. These marginally attached workers could be those that indicate they would like to be working but they are experiencing a child care barrier. Anecdotally as well as empirically, we're seeing that this child care challenge is really important in Wisconsin, a big barrier for parents of young children, especially mothers of young children. We tend to see noticeable differences in labor force participation rates between men and women in those prime age years, and we might attribute some of that to the child care challenge. So when we're thinking about how do we engage more workers in the workforce, thinking about who are those populations that have barriers, I think that those parents of young children are certainly one of them. So it's if they are working, what tight labor market? Certainly demand is very high, that's what we're seeing right now. Here we have a graph of unemployed persons per job opening in Wisconsin. Given that there's a job that needs to be filled, how many people do we have who are looking for work available to fill that position? In Wisconsin, we're well under one person per job opening, so these are very tight labor markets. There was a time, particularly in the years following the Great Recession, where we had lots of workers competing just for one job opening, and the labor market has really kind of turned on its head in that sense. We're back to talking about a tight labor market, we're back to talking about employers competing to get workers rather than workers competing to get a job. I think that you see that here pretty clearly looking at this ratio of unemployed persons to job openings. Another reason the labor market is tight, again a theme throughout the presentations, is because the population is aging, particularly in rural labor markets. Here we have the prime age population, and we focus on the prime age just because that's the meat of our labor force, that tends to be where we see labor force participation rates be the highest. The prime age population from 25 to 54, starting in 2010 and then taking projections going forward to 2040, what we see is that the prime age share of the population is declining. Our baby boomers exiting the labor force, people aging out of the labor force, and that's just making that chunk of workers who are so central to filling positions a little bit smaller relative to the rest of the population. Looking at the difference between urban and rural, declining in both places but the gap between rural and urban in Wisconsin getting bigger over time, so I expect this to be a particularly acute challenge in rural areas. I want to put a little bit from maybe thinking about the labor force in the conventional terms and talk a little bit about the self-employed, about entrepreneurs, about the workers who are making a living by working for themselves. During the pandemic we saw some really interesting trends in entrepreneurship. What I'm showing you here are the business application data. A business application is an application for an employer identification number. It's a lot like a social security number for businesses. They're going to need that number to file their payroll taxes when they hire employees, but businesses might also need this number to open a business banking account, to fill out regulatory forms at the state level, for example. So we expect most businesses to need an application number, however they might get this number early in the process, so we consider this an early indicator of entrepreneurial activity or, as I'm calling it here, a measure of entrepreneurial intent, people who intend to start a business. Prior to the pandemic in Wisconsin, we hovered around three to four thousand business applications per month, and then that really accelerated during the pandemic. We did have a short downturn in those first few months, March, April, May, but by July of 2020, and that's what you're seeing for the high point, we had more business application activity than we'd ever seen. Since March of 2020, we've had close to 170,000 business applications in the state. Some of those of course would have happened anyway, pandemic or no pandemic, but even then we have upwards of 50,000 sort of extra business applications in this period coming out of and during the pandemic. I think this is really exciting. We're talking about people starting businesses, people making a living for themselves. It seems that there is a lot of this type of intention out in the workforce right now. In terms of what this looks like year over year for Wisconsin and the surrounding states, we have annual growth in business applications and we see that those business applications have been growing and remain elevated. Growth though has stalled. They accelerated during 2020, became much higher than we'd seen prior, and have stayed high at that level since, maybe starting to decline a little bit in some places, but still staying at that relatively high level. Even when you're looking around Wisconsin, by county it's true that there's a lot of variation, but it's still the case that we have elevated entrepreneurial activity for the most part across the state. Business applications were up 40 percent on average in 2022 compared to 2019, that last sort of normal year before the pandemic. We're seeing this across the state, rural and urban, and I think that this could be a positive signal for economic development across the state. So far I've talked to you about business applications, but now we're going to be looking at business formations. Of those business applications that come in, people wanting that employer identification number, how many of them actually go on to create a fully formed business within two years? To be counted as forming a business, you have to hire your first employees. We have all of this entrepreneurial activity, how many of those businesses actually open? We saw upwards of 5,000 business applications per month, and we see that the actual number of businesses that form is a lot smaller. Before the pandemic, between three and four hundred businesses arising out of that big pool of business applications, but this is specifically businesses that hire employees, keep in mind. These businesses are exciting because these are our job creators, these are businesses that are hiring those first employees, creating new jobs over and above what we've had before. When we look at what is expected to happen, these are based on projections because we have to give those businesses some time to actually open their doors, but we do expect to see upwards of 30 percent more businesses opening their doors, becoming fully formed, based on that increase in business application data. I think what's interesting though is the sort of long-term trend in what we see happening in that conversion rate. Of those that apply for the application, how many become fully formed? In general we see a conversion rate between 10 and 15 percent, but there's been this long run decline, so we see fewer and fewer businesses hiring their first employees and being counted as fully formed in that way. That said, I think that this undercounts business activity because we're not including the non-employer businesses, and the non-employer businesses are a large and growing section of the business community. In Wisconsin, non-employer establishments make up about three quarters of the business community, a smaller share of sales and employment of course, but really large in number. When you look at where the growth is happening in Wisconsin, and this is true in other states that I've looked at, we've had really modest growth in employer establishments but quite impressive growth of non-employer establishments. Some recent work from the Federal Reserve of New York shows about 17 percent of the workforce is earning income either supplementing or as their primary source of income from these non-employer businesses. I think this is an important section of the business community that maybe doesn't get a lot of attention because they're not the job creators in the way that we often focus on, but these businesses are creating at least one job, a job for themselves. They're growing in number, and there's some early work that I'm doing that suggests that this is a particularly important path for people of color entering into entrepreneurial activity. Given this information on business applications and these business formations, I've been puzzling over what this means for self-employment. With one data set we're keeping track of businesses, and with this other data set, the Current Population Survey, we're keeping track of people. Is it the case that as entrepreneurial intent rises, we would also see self-employment rise? As we see business activity rise, would we see more and more people identifying as self-employed? I was surprised to see for the Ninth District states that this is actually remarkably stable. There's fluctuation sure, but one of the trends when I look at these data that I'm interested in keeping an eye on is the composition. Even if the number of self-employed is the same, maybe it's the case that the people who are entrepreneurs have always been entrepreneurs, but they're changing the way they do business, and that might be showing up here in terms of the incorporated versus unincorporated share of self-employed. The incorporated tends to be the more formal, they tend to have a better trajectory in terms of growth. Is it the case that with the pandemic we saw more people taking steps to formalize some activities that they were already involved in, applying for that employer identification number, and that's shifting the way that we experience self-employment? That's something that I'm keeping an eye on. I think it's a little bit soon to tell, but as you can see there is this slight uptick in the share of incorporated self-employment in the Ninth District, and that's something that I will be watching going forward. With that, I want to thank you so much for your time and I look forward to the discussion at the end.

Thank you so much, that's a very interesting angle to the conversation. Next, I'm going to welcome Rochelle Winkler, who is a professor of sociology and demography at Michigan Tech. Her research focuses on rural community well-being and spatial inequalities. Much of her work examines migration within the United States and how it relates to community well-being, including social, economic, and environmental factors. Rochelle, thank you so much.

Thank you, hello everyone. I hope you can hear me okay. Thank you for inviting me to share with you all today. I'm going to take a broad look at the labor force focusing on demographic changes with some thinking about what that means for past, present, and future labor force. I want to start by recognizing Julia Peterson, who contributed to developing several of these slides and who works with me on this work. I also want to start by looking historically for a moment. The population in the U.P. peaked a hundred years ago in 1920, and I think that's important context to just keep in mind. Since then, the population has modestly declined in most decades, and that loss was primarily driven by out-migration, much of which was associated with closures of mines or military bases, mills, or other large employers. So historically we've really seen population respond to contraction of employment opportunities. But more recently, population change has been less directly connected to employment. For one, decline has increasingly been because of natural decrease, having more deaths than births, rather than migration, and a lot of that has to do with aging, which I'm going to spend a good chunk of time on. On the migration side, we're seeing in some places that people are moving into the U.P. for more natural and cultural amenities and working remotely or starting their own businesses in ways that are not tied to employment, or people leaving sometimes also for more urban cultural amenities even when there are local jobs available at times, so a little bit of a mismatch there. Looking just at the last decade and breaking population change down by county, we see that only Houghton County experienced population growth in the last decade. Some of the counties that experienced the greatest percent population loss, like Gogebic and Ontonagon counties, have consistently experienced quite dramatic population loss for decades, and that's primarily driven by out-migration of young adults. In those counties in particular, we've seen a really dramatic contraction of the labor force that's been ongoing for 60 years. I said before that most of this change historically was driven by migration out of the region, and I want to look at some data on that now. If we look at migration patterns that are broken down by age in particular, we can get a better understanding of how it impacts the labor force. I'm going to give you all a special little sneak peek at some data that aren't even released yet but that we've been working on. These are net migration estimates by age for U.S. counties for the time period between 2010 and 2020. You can find similar data for each decade going all the way back to the 1950s for all counties at this website URL that you'll see on the screen here, but the 2010 to 2020 data we're still working on finalizing and getting incorporated into the website, so we expect that those will be added this April, so more is coming soon. In this snapshot that you see here in the image, it's net migration for counties across the district with oranges indicating net out-migration and the white and purples indicating in-migration. In this map we see totals, but it is possible to break this down by age, sex, and race and ethnicity, so it's a data source that you all might be interested in. I encourage you to play around with the website and you can make interactive charts or maps for your own areas of interest or download data. To show you some of that new data, in this chart I'm using those age data and it shows the estimated number of net migrants by five-year age group in each decade going back to the 1950s through 2020 for the U.P. You have younger ages on the left, older ages on the right. Everything above that zero line is positive net in-migration at those ages, and below that zero line represents net out-migration. In the 1950s and the 1960s, those solid light blue lines, the region experienced net out-migration of almost every age group. Since the 1970s, the region has generally experienced net gains at traditional college ages, and this is associated with the fact that U.P. universities attract students from out of the region, and these universities really started to grow more in the 1970s. In the most recent decade, these gains were particularly large, so attracting a net gain of about 8,000 college-age young people in that 10-year age group. After graduation though, many of those students and other young adults leave the region, and we see net out-migration in the most recent decades of about 12,000 young adults, so still seeing more net loss than those that come in. But I see this as both a challenge and an opportunity. On one hand, the talent is there in the region, they're there for university, and the challenge is to keep more of them there for the labor force. We do see some net positive also at retirement ages across the U.P. But together, this net loss of young people for decade after decade after decade and net gains among older adults really leads to population aging. That aging has also led to a situation where our population is declining now across the region as much because of natural decrease, more deaths than births, than out-migration. In the last decade, more than half of the region's population loss was because of natural decrease, as we can see in the pie chart here. If we look at that natural population change for each county in the bar chart, we see only Houghton County saw more births than deaths, and in some counties that difference between births and deaths is quite large. We can expect that these changes will continue into the future as we see population age even further. Even more recently since 2020, in the onset of COVID-19, we see even more natural decrease in the U.P. and really across the whole district and around the country. Every county in the U.P. had more deaths than births in the last two years, but this was also more broadly true with over two-thirds of the nation's counties having natural decrease in 2021. So aging is a really central part of the story in the U.P. It's why we see the natural decrease, it also has dramatic impacts on the labor force. Our labor force participation rates in the U.P. by county range from less than 40 percent in Alger County up to 59 percent, the highest one we've got in Marquette County. So these are very low, and this corresponds closely with median age. In 2021, the median age was over 50 years old in six of the 15 U.P. counties, and it was over 44 in another six counties. This compares to about 38 years for the nation as a whole, so dramatically older. In those three counties in the U.P. that have a large university presence, Houghton, Marquette, and Chippewa counties, they're younger, but also interesting is the labor force participation rates are a little bit higher. I think that's interesting because even though we know a large portion of these people are young people who are full-time students, we still see some higher labor force participation there, although it's still low really across the region. At the same time as we see low labor force participation, we also see relatively high unemployment in the U.P. compared to the rest of the district certainly, and also compared to the nation. Unemployment rates have dropped in the last couple of years in the U.P., but not to the same extent that we've seen elsewhere that we've heard our colleagues talk about today. We have seen a tighter labor market though in the last few years, I would also say especially for skilled workers, workers in the trades, and workers with specific talent. All of this suggests that there is some kind of a mismatch between the job opportunities that are available and the kinds of skills that our labor has, the kinds of flexibility that may or may not be present, and/or spatial mismatch with exactly where people are living. So far I've painted kind of a gloomy story for the U.P. in terms of the labor force, but we do see some promising new patterns related to pandemic migration, remote workers, and university students that I'd like to touch on. We've been doing research on how what had been typical migration patterns around the country really have changed since the onset of the COVID-19 pandemic. We're primarily using data from the U.S. Postal Service change of address forms, and we look within U.P. counties and compare the months prior to the pandemic to the months after the pandemic. We find that migration out of the U.P. has really slowed down during the pandemic, and this is true across rural America. So U.P. residents stayed in place more is really the story. Migration into the U.P. also slowed down, but less so than the out-migration, and this means that there was less population loss during the pandemic than what we were seeing prior to the pandemic. To show this in a little more detail, these are Postal Service data for U.P. zip codes, and they show that in those three years prior to the pandemic on the left, the U.P. was losing about 6,500 net migrants each year, but since the pandemic onset this loss was reduced to about 3,000 a year, so less than half the typical. There's a big but here. We know that this particular data source is not perfect, and in particular one of the ways that it does poorly is estimating college students. It doesn't capture the college students coming in, but it does tend to capture them leaving. Since the U.P. migration patterns are so driven by college students, especially in the largest population counties, we know that these numbers here are too negative, but they do give us a good sense of that change during the pandemic. We get a better overall picture by looking at the Census Bureau population estimates of net migration, and here with these data we see a shift toward positive net migration since the pandemic started in all but one U.P. county, and that one is Menominee County with only a very small net loss. This is a huge difference compared to really quite consistent net out-migration over the last 60 years in the U.P. We hear a lot of stories about people moving into rural areas to escape cities during the pandemic, but I want to emphasize here that that is not really what's going on. There has always been some people moving to the U.P. from cities for decades, but the big difference here is that fewer people left. Still, the shift to remote work possibilities is making it more possible for folks to move to the U.P. in ways that aren't directly connected to employment opportunities. This is just one example of an initiative called Remote Workforce Keweenaw. Basically it's a website, it's primarily driven by one guy, but they've connected the local community and economic development groups. They have a website, a blog, they're on social media, they're regularly publishing stuff and trying to do really two main things. One, they're trying to reach out to people elsewhere to capture their interest in moving to the U.P. and provide them some information to facilitate them being able to do that. Two, they're trying to connect remote workers that are here already within the region so that they can build social and community networks and they're more likely to stay, to contribute to local community and economic development opportunities, and to connect them to local in-person work opportunities as well. This organization is currently tracking over 160 remote workers since they started in the last three years in Houghton and Keweenaw counties, which are pretty small population places. To summarize what I think all this means for the labor market in the U.P. and beyond, the labor market is shrinking in large part due to slower population growth and aging across the United States, but especially in the Midwest. This is even more pronounced in the U.P., and then even more pronounced in those U.P. counties that are outside of those most populous counties that are also home to larger universities. The fact that this is widespread makes it even more difficult to address. You can't recruit from outside if you all have the same problem, and this speaks to something that we heard in the initial fireside conversation that immigration increasingly becomes important in this context. We do also see some pandemic-related changes that are generally positive for the U.P. in terms of changing some very long-term patterns about migration, but there are questions. Will these stay-at-homes stay? Will they take local jobs? Will they gain the right skills? Will the pandemic migrants who are coming in, will they stay and will they take local jobs? We don't really know the answers to those questions yet. Also, I think there's a real opportunity in the growing numbers of university students who come to the U.P., and the question remains what can we do to keep more of this talent in the region. Then some challenges too, as others have talked about today. There are real challenges in the U.P. with housing shortages. Housing costs have increased here just like they have elsewhere, but they generally remain quite low relative to other places. The real problem in the U.P. is a lack of rental housing and a lack of quality housing. In the western U.P., for instance, about 40 percent of housing units were built before 1940. Across the region, the history of out-migration and relatively low income has created a situation where there's been almost a century of disinvestment in housing, and that's catching up with us now. Finally, as we heard from Amy in Montana and others more recently, the U.P. is also a child care desert really across the region, particularly in terms of licensed child care with regular access to child care. This has been a problem for a long time, it was really exacerbated by the pandemic. Thank you very much, happy to consider questions.

Thank you so much, Rochelle. You ended on a very good segue slide right there. We're hearing from a lot of employers themselves that they are struggling to find the talent, but at the same time as you alluded, there are workers out there that may be looking for employment. I'm just wondering what employers are doing in order to attract that talent, to keep that talent, besides the menu of items that you talked about, anything from housing to child care. What are employers doing in order to address the labor shortage?

I can just speak to a couple of more local initiatives that I know of. One thing that we see in the Keweenaw region in the western part of the U.P. is that our biggest local employers have really started to work closely with local community economic development leaders, meeting regularly. This is just one example, a group called Team Peninsula that has decided to really come together as a collective and invest in trying to address some of these challenges. They're focusing hard on housing and child care. They're also trying to think about ways of attracting more people to the region. They've been a big sponsor of this Remote Workforce Keweenaw initiative that I mentioned, and also thinking about trying to make the U.P. a welcoming place for immigrants and finding ways to do that. So that's just one example.

Great, thank you. Can everybody hear me okay now? I'm going to double check on that. Great. Tessa, I wonder if you could shed some light on that same issue. What are employers doing in order to address that from their standpoint?

Similar to Rochelle, I think we're seeing employers realize, particularly with an issue like child care, we might have used to think of that as a household issue or a family issue or even a women's issue, and I think now we're starting to see it as an economic issue, as a labor force issue. Employers are thinking about ways that they can be part of the solution. We've engaged with employers kind of across the spectrum. There are employers that are in a position and have the resources to say, what would it take for me to open a child care and how do I support our community in that way? Then there are employers who maybe aren't in a position to run a full-fledged child care but say, I have facilities, so I can offer facilities to the problem. We're seeing anchor institutions get involved in a way that is new and exciting. Hospitals coming to the table wanting to discuss child care, schools coming to the table wanting to discuss child care. We're seeing lots of community action groups on child care, different ways of using grant funding to reduce barriers to engage community members. So it looks a little bit different wherever you go in Wisconsin in terms of employer involvement and community leadership, but I definitely see a lot of movement on child care. I would agree that housing is another space where we have communities coming together, doing workshops, thinking about what does it take to have housing such that the people who work here can live here.

That's great, thank you. And I'll go to Orian.

Yeah, I just think the number one thing that employers are doing right now is trying to raise wages to the extent that they can. Obviously that ability differs across industries and across employers, but employers who are raising wages seem to be having more success in attracting workers. I think residential care facilities is a good example. They were losing workers until they were able to raise wages, and now they've seen a complete turnaround in that and they're beginning to grow again. In terms of child care, I think employers and others are beginning to see child care as an economic development issue. We as a state are funding child care in terms of economic development. I think employers individually have a very hard time really doing that much themselves about child care because child care is a very challenging kind of business to run, but they're more supportive overall of seeing that as more of an economic development issue. I think the other last thing I want to mention is that communities are really trying to figure out how to be more welcoming to new residents in all different ways, housing and others, but just making people feel like they're part of the community when they move in.

That's great, thank you. And we did hear a little bit about immigration earlier today, we've been hearing that actually throughout the presentation, so I think your statement is right on. Tessa, you expanded a little bit on the entrepreneurial part of these opportunities that many are possibly finding, their pivot from employment to trying to become more entrepreneurial. What are some of those businesses that they may be going into that you're seeing the most? And after you answer, I'd be curious to hear if Rochelle or Orian have seen some similar stuff.

Yeah, we've seen a lot of activity particularly in online retail. It does seem to be the case that people are developing online businesses, it's a big chunk of that new activity. Also a lot of opportunity in transportation and warehousing. I think over the last couple of years, when you look at where these business applications are happening nationally, there's been a lot of shifts in how we deliver things, how we get goods from one place to another, and I think with that has come new opportunity. So those are the two categories where I see a lot of activity in terms of opportunity. But when we look at those business applications and the factors or industries, it's all across the board. There isn't a sector or industry that's sort of been untouched by this entrepreneurial intent, which I find interesting and encouraging at the same time.

Yeah, for sure. Just a quick follow-up right there. I wonder if you know if there's a specific ethnic group or a specific industry that those individuals are leaving their employment from, not so much what they're opening as a business, but where are they coming from? Just curious to see if you have any insights into that.

I wish we knew. I think that there's reason to believe that some people entered into a more entrepreneurial state of mind out of necessity. In those more dire months of the pandemic, people had to find or create new employment for themselves, so whatever their past job was, they don't have that anymore, so now they're self-employed. I think though that the pandemic also had circumstances such that we were all sort of maybe reevaluating our work. Why am I doing what I'm doing when I've always had this goal? I think there's also, at least anecdotally, this sense that people have been emboldened to pursue their passions, and so again that's also coming across a variety of sectors.

Yeah, we as we did our work ourselves, we kept hearing that, so that's something that we're definitely familiar with. Orian, I'll go to you, anything to add on that front?

I don't have that much to add. I think the only thing I will add is I think people have seen the pandemic, post-pandemic, as an opportunity to pursue their dreams and passions, and the contraction in the service sector might have given a lot of people opportunities to kind of fill the void of businesses that closed.

All right, and I know we're right at the noon hour, so I said we will stick around for a little bit more just to make up for time. Rochelle, anything to add?

I don't have much to add. I would say one thing that we're seeing in the U.P. in particular, because as I mentioned the population and the infrastructure really peaked here back in 1920, we remain in a situation across much of the U.P. where there are a lot of open buildings, open space that have been relatively low rent. One of the things that we've had with entrepreneurial activity is people starting to come in and fill those spaces and redevelop those spaces. It requires a big investment to redevelop some of these spaces that have seen disinvestment for too long, but a lot of these places were built in a magnificent kind of fashion and just need some real love and care. We're seeing more and more entrepreneurs start to reinvest in some of those spaces and reinvent them.

Great. Just final thoughts on this next question and we'll wrap it up. As you know, many refer to today's labor market as one where workers have the upper hand. You talked a little bit about that. I wonder if you think that's truly the case, and what opportunities are there for the economy as a whole to address that mismatch of demand and supply of workers? I'll start with Tessa.

Given the trends in inflation and some uncertainty about where the economy is headed, I can see where this is changing, but I do think workers over the last year or so have been in a different position of course than during the pandemic. We sort of returned to those late 2019 types of conversations where workers were feeling like they were in a position to seek some of the work amenities that maybe they hadn't had but prefer. So yes, it's higher wages, but it's not just that. Workers maybe are in a position where they want a little bit more control over their hours, both in terms of maybe they feel like they're not getting enough hours or they're working too many, or they want flexibility. We see flexibility really entering into those conversations for the parents of young children, this segment of the labor force that potentially has a lot of barriers. I don't think it's the case that there was a great resignation or all of these people quitting. I'm of the perspective that this is really maybe a story more of workers taking advantage of opportunities to improve their employment situation and seek out some of those job attributes that are really important to them, including wages but lots of other things as well.

Oh no, that's great. And Orian?

Well, I think from our research we are seeing that workers do have a little more, especially lower wage workers and younger workers, a little more power in this economy, particularly workers who are willing to switch jobs and employers. That obviously isn't all workers, so we're seeing again as the wage distribution research shows, we're seeing some improvements at the lower end, which I think is a very positive development.

Great, thank you. And last but not least, Rochelle.

I don't have much to add on that one. I think it's hard to say. I don't feel like I can really make a strong claim on that one, particularly in the U.P. A lot of the state data that we might look at just are not relevant in the U.P.

No, that is fair. And with that, I don't know, I'm just going to open it generally for any final thoughts you may have. If you don't have any thoughts, then we'll just wrap it up and give you your day back. Anyone? We're good. Well with that, I want to thank you so much, and I want to thank all the panelists and participants for taking the time to join us for today's conference. We're very grateful and we hope that you all found today's conference valuable. The slide decks, I know that somebody asked that question, will be available to all of you. We ask that you also please take a minute to fill out a brief survey that will pop up in your Zoom window. Thank you again and just have a great weekend.