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Business closings are sign Fargo-Moorhead economy is returning to normal

Planning documents filed with the city of Fargo call for a new 7,215-square-foot building with a Jimmy John's restaurant and three other retail units to replace a vacant former Arby's restaurant building at 2815 13th Ave. S. David Samson / The Forum 1 / 3
The Sears store is on the northeast corner of West Acres as seen Thursday, Jan. 5, 2017, in Fargo, N.D. Forum file photo2 / 3
Lone Star restaurant stands empty Friday, Jan. 6, 2017, at 4328 13th Ave. S., Fargo, after closing in November. Forum file photo3 / 3

FARGO—The new year has just begun, but it's already brought a flurry of local business closings.

Fargo lost several restaurants in recent weeks, including Lone Star Steakhouse, King Leo's and Godfather's Pizza. Aeropostale and The Limited closed at West Acres Shopping Center last month, Sears will shut down by April and an employee at New York & Co. confirmed this week that the clothing store will close Jan. 28.

Moorhead's Kmart shuttered its doors last month, and the community lost its two remaining movie rental stores in December.

After years of booming business, are these closures a sign of economic trouble? That's not likely, according to an economist with the Federal Reserve Bank of Minneapolis.

"What Fargo's been experiencing frankly for years is activity only in one direction, and that's been up," said Ron Wirtz, regional outreach director. "While maybe you've noticed more closings than normal, these things happen."

Wirtz said it instead could be something we haven't experienced in a while: somewhat slower growth after a booming recent past.

It's the same conclusion reached by Cindy Graffeo, executive director of Moorhead's Economic Development Authority.

"I think we may be slowing down from insane growth to still crazy strong growth," she said. "I don't have any reason to be concerned in general."

Healthy community

A new report by finance website WalletHub that analyzed 505 U.S. cities ranked Fargo as the country's ninth-most recession-recovered small city and 12th-most recovered city overall. For several years, this kind of national praise has been the norm.

Wirtz said there are several indicators of a strong local economy. Cass County's unemployment rate ticked up to 2.1 percent in November from 1.9 percent the month before, while the national unemployment rate in December was 4.7 percent.

North Dakota's taxable sales and purchases decreased by 21.4 percent in the second quarter of 2016 compared to the same quarter a year before, he said, while Cass County only dropped about 4.5 percent.

"Cass County in general is still performing at a rate that I think almost anywhere in the country would be envious of," he said. "That doesn't mean that there aren't some things happening that are new to the region, but in general, the data that's available suggests that things are still very healthy."

It's a sentiment shared by Jim Gartin, president of the Greater Fargo Moorhead Economic Development Corp.

He said the regional economy remains "very strong," with the market gaining more than 10,000 new residents and an even greater number of jobs from 2015 to 2016—despite a slowdown in oil activity in western North Dakota and lower agricultural prices.

"Even though agriculture has been down, which is our No. 1 business sector in our region, we have such a balanced economy here so when one sector is down, the other sectors seem to pick it up," he said.

Recent closures here point to more of an "adjustment" than economic red flags, he said. Many of the stores that have closed, including those in West Acres and the Moorhead Kmart, were a result of the chains strategically shuttering many or all of their stores after waning sales nationwide.

New challenges

Still, Gartin said the community does suffer from a shortage of workers. If businesses can't find qualified employees, he said, they limit their growth or move to other markets.

The issue prompted West Fargo lefse maker Freddy's Lefse to suspend its mail order service for the 2016 holiday season despite growing demand.

"The bottom line is our growth and our ability to grow is completely dependent in every area of our industry sectors on the labor and having the right people trained in the right ways to be prepared to take the jobs that are available," Gartin said.

Fargo-based Appraisal Services Inc. tracks the local apartment vacancy rate each quarter, and the Dec. 1 count suggests another potential issue. In June 2013, apartment vacancy in Cass and Clay counties was 2.5 percent; that climbed to 9 percent last month.

The issue, according to commercial real estate appraiser Petter Eriksmoen, is developers responded to high demand and short supply by building new complexes—a lot of new complexes, with about 1,300 new units coming online per year in the past five years.

At the same time, Eriksmoen said in-migration to the community has slowed, as has single-family house sales and builds. He said these warning signs suggest the local economy may have "reached the top" and plateaued after several big years.

"I think we're coming back down to earth a little bit," he said.

Fargo Planning Director Jim Gilmour described the change in the housing market as a "back to normal," not a sign of economic decline.

There were 218 new single-family houses in Fargo in the first six months of 2016, up 79 from the 139 during the same period in 2015. By the end of the year, the final tally of 368 was only three more than in 2015, showing that single-family house construction slowed in the second half of 2016.

A drop in Canadian border traffic has also been an issue.

After near parity with the U.S. dollar—meaning Canadians could save money by shopping here—the Canadian dollar fell to its current level of $.76. That means border crossings at Pembina, N.D., north of Fargo have decreased in recent years, with bus crossings down 23 percent and car crossings down 12 percent from 2015 to 2016.

Happy Harry's Bottle Shop CEO Dustin Mitzel said it's easy to notice fewer Manitoba license plates in parking lots.

"That has impact on all kinds of discretionary income that's flowing through Fargo that restaurants, retail and hotels feel," he said.

But Matt Marshall, West Fargo's economic development and community services director, said the local business climate is still thriving despite the newer challenges.

"We've had another phenomenal year of people coming to West Fargo, and our local economy here I think really is still very diverse and strong," he said.

Ryan Johnson

Ryan Johnson has been a Forum reporter since 2012 and previously wrote for the Grand Forks Herald.

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