The results of consumer spending for the 2009 year have now been officially released, showing a 5.3% drop over the previous year. Could this drop in consumer spending be indicative of the recession’s affects on the state? Or, is it unfair to judge such a drop, as suggested, compared to the record-breaking 2008 figures?
According to North Dakota Tax Commissioner, Cory Fong, North Dakota’s economy remains healthy, noting that comparing 2009 statistics to the record-breaking 2008 statistics paints an unfair assessment of the state’s economy.
Or does it?
2008 was indeed an outstanding year for economic growth in the state – the highest in the nation, based on gross domestic product results. North Dakota’s economic growth in 2008 expanded twice as much as every other state, except Wyoming.
Why such a huge economic boost in 2008? One word… oil.
North Dakota produced a record amount of oil in 2008, 67.2 million barrels, an increase of nearly 18 million barrels from the year prior. North Dakota’s main commodity, agriculture, also saw strong results in 2008.
So what about 2009?
Under normal circumstances, I would agree that it’s unfair to judge 2009 economic results off of 2008’s record-breaking statistics. However, oil production in 2009 actually surpassed the record 2008 amount, to about 80 million barrels.
When the oil boom is being credited as the biggest contributing factor for North Dakota’s economic growth, an increase in production in 2009 should not have been reflected with a decrease in consumer spending.
This says to me that the record-producing oil helped to offset, what would have been, an even bigger decrease in spending.
Given the circumstances, a 5.3% drop might not seem significant, considering that it is still a 15% increase over 2007 results; however, a drop in consumer spending in a year of record oil production could be a troubling sign of the true economic state of North Dakota. Had it not been for the oil boom, it can be reasonably assumed that our results would have been much poorer.
Something else to consider is that most of the high-profile layoffs that have occurred in the state took place towards the end of last year, and into the beginning of this year. That fact could explain why consumer spending dipped 7.9% in the fourth quarter of 2009 – 2.6% higher than full-year 2009.
The higher decrease seen in fourth quarter spending could be indicative of a changing economic trend for the state. Not to say our economy will collapse, but it leaves me to question the actual vitality of our state’s economy.
Economic conditions, positive or negative, tend to hit North Dakota at a much slower pace than the rest of the country. As an analogy, if someone were to drop a rock in the middle of a lake, North Dakota would be on the shores of that lake… one of the last to be affected.
There’s no doubt that North Dakota’s economy has, so far, faired better than most of the nation during this recession, but to say that a 5.3% drop in spending isn’t any indication of our economy is giving a false impression.
Since 2009 oil production surpassed 2008, by a large margin, a 5.3% drop in consumer spending could be more significant than what’s been implied.
Could this have been the start of the recession’s affects in North Dakota, or was it simply a temporary down-set? Only time will tell.
