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Pumping units

Pumping units work near Williston in this Forum News Service file photo. North Dakota's commodity-based economy could shield the state if a recession sets in. 

GRAND FORKS — Despite a growing pile of economic warning signs, there’s no recession yet. And even if there is, observers say, its effects in North Dakota likely will be dampened by the state’s dependency on commodities like oil and agriculture — giving the local economy a far different economic mix than the rest of the country.

“That doesn’t mean you’re perfectly insulated,” said David Flynn, a professor of economics at UND. “But it does mean that if you look at the impacts originating in particular sectors, or impacting particular sectors, you might have some insulation here.”

Not everybody agrees a recession is imminent. President Donald Trump has recently described the nation’s economy as strong, and said that as many seem to be trying to cook up recession fears, “the numbers and facts are working totally in the opposite direction.”

However, in a survey released last week by the National Association for Business Economics, roughly three out of four participating economists say they expect a recession by 2021.

And amid the national debate, some investors are worrying.

Despite steady job growth and low unemployment, the yield on 10-year U.S. Treasury bonds fell below the yield for two-year bonds on Aug. 14, in a move widely interpreted to mean the bond market’s confidence in the American economy is faltering. That also comes as the German economy sputters, heading toward possible recession, and both Brexit and U.S. trade tensions with China create significant uncertainty in the global marketplace.

“(‘Recession’) is a fluid, flexible term for a reason,” Flynn said. “I would suggest that we’re more likely hitting a breather, if you will, in what has been a reasonably strong economy across many sectors. (It) could feel like a recession, especially if it has its center in the consumer sector, which has been the chief growth engine for the past decade.”

The past is a useful guide here. During the economic downturn of 2008, North Dakota’s gross domestic product still grew — however slightly — during the early years of the oil boom, federal economic records show. Records on file with the Tax Commissioner’s office also show that, despite various income tax collections ebbing in the 2009 or 2010 fiscal years, oil extraction tax surged beginning in fiscal year 2008.

Weathering the North Dakota recession

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“Historically, when there’s a national recession, we tend to buck those national trends, although we’re not immune from it,” said Arik Spencer, president and CEO of the Greater North Dakota Chamber. “Although I think people should be paying attention and move forward cautiously, I don’t think there’s need for people to be overly concerned yet.”

There’s reason to believe some parts of North Dakota’s economy may be weaker this time around, though. Soybean trade has been particularly hard hit during Trump’s trade spat with China, which has typically been a significant agricultural buyer for North Dakota crops.

“The farmers have been supportive that issues had to change in China,” said Nancy Johnson, executive director of the North Dakota Soybean Growers Association. “They also are disappointed that they are the weapon that is being used by the Chinese to persuade President Trump to negotiate. Farmers would prefer to trade and not store their beans.”

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She added that, leading up to last year’s battery of Chinese tariffs placed on crops, a significant majority of North Dakota’s soybeans “went directly or indirectly to China.”

“I think (farmers are) disappointed that this doesn’t point in any direction but crappy,” she said. “We have been optimistic that a trade agreement will happen. What we’re unsure of is ... how to declare success.”

The chief risk for North Dakota, then, is how different its economy is from 2008, when multiple indicators show it weathered the recession well — or at least better than other parts of the country. Flynn said that despite his optimism that a recession won’t occur, the agricultural and oil markets don’t appear to have the vibrancy they had back in 2008.

“Trade policy has impacted key sectors for North Dakota. That’s problematic, and already puts you on a tenuous foothold. You talk about a larger or broader recessionary event in the offing, because you’re already hurting on that producer side,” Flynn said. “If it comes from a consumer side as well, then you have serious problems.

“Economic policy right now may be the biggest question mark in terms of whether we see economic slowdown or recession in the near future,” Flynn continued. “It’s a very uncertain time for policy, and there’s a lot of questions surrounding policy that really need to be cleared up for the private sector to respond and understand what’s going on going forward.”

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