If the Economy is Doing so Well, Why Doesn’t it Feel More Robust?

The Great Recession has been over for five years, but in many ways the economy still feels like we are still in the recovery stages.

In 2001 the business cycle was coming to an end when 9/11 exacerbated the situation. Workers in most sectors were touched by the recession. Fortunately, we could blame the downturn on the terrorists.

The country rallied, and with fiscal policies such as zero percent financing we recovered – some would say it was a false recovery because we stole sales from the future. By 2007 we were confident that all would be well, but that didn’t turn out to be the case.

In both recessions many families were hit hard, regardless of race, job title, or income level. In some cases one or both spouses lost their job, establishments went out of business, people had their houses foreclosed on, and there was no place to hide. Both recessions touched nearly everyone and the fact they were back-to-back doubled the pain.

In 2007 most economists did not see the 2007 recession coming and when they realized something was wrong, they failed to acknowledge that it was for real. In fact some of the state’s leading economists were in denial. (It is almost funny to re-read newspaper articles and emails from that era talking about the economy.)

In retrospect there were some small signs pointing to the 2007 recession, such as declines in financial employment. These signs weren’t sufficient to make anyone believe a major downturn was impending. For the most part, the public did not have access to the data and information that caused the problem. Many of those who had access to the information may not have understood the ramifications of what was actually happening. In some cases those who had access to the information conveniently ignored it. As business leaders and the public learned about the cause of the recession some felt betrayed by what happened. They had a right to be upset because the 2007 recession was not part of a normal business cycle. It was self-inflicted.

Psychologically the “back-to-back” recessions changed the structure of the way companies do business. Companies had to find ways to be successful with fewer employees. As a result they became more efficient and hired fewer workers during the recovery.

It was difficult for some of the laid off workers to come to terms with the realization they wouldn’t have a job waiting for them when things got better. It was tough for older workers to be ungraciously kicked off the payrolls. At the same time, several graduating classes of college students, with hefty student loans, were passed over because there were no jobs for them.

Many of the workers who held onto their jobs felt both blessed and cursed. They were fortunate to have a job, yet at times they were taken advantage of (minimal or no pay increases, reduced benefits, longer hours, more responsibilities). Work became a necessary burden for many.

As a result of the “back-to-back” recessions consumers changed spending patterns, particularly in retail. Many people have been more discrete with their spending, they may not spent as much they once spent, and they tend to wait for items to be on sale before they purchase them. Adults with family members who had experienced the Great Depression may have benefitted from their experiences. As the Rolling Stones said, “You can’t always get what you want, but if you try sometime you find you get what you need.”

Economists are partially to blame for the feeling the economy does not feel more robust. They continually refer back to the recession in their charts and their discussions. By continuing to refer to the recession, economists are continually reminding people how bad the economy was just a few years ago. It is difficult to feel the economy is robust when you are always looking over your shoulder.

Number of Colorado Business Establishments Remains Well Below 2007 Peak

The Bureau of Labor Statistics tracks the number of business establishments as well as the number of employees. An establishment is defined as a single physical location where business is conducted or where services or industrial operations are performed. By contrast, a firm is comprised of establishments.

The number of Colorado business establishments peaked at 180,934 in Q3 2007. As a result of the Great Recession, the number of Colorado business establishments declined to 168,939 in Q1 2011.

There has been steady growth in the number of business establishments since bottoming out in 2011; however, it will be several more years before a return to the 2007 peak. In other words, the effects of the Great Recession are still being felt despite the state’s job recovery.

The number of business establishments in Colorado remains below the 2007 peak.
The number of Colorado business establishments remains below the 2007 peak.

©Copyright 2011 by CBER.

SIngle Family Permits Being Added at Greater Rate than 1991-2005

Improvement in the construction industry, as measured by single family permits, has contributed to the recovery from the Great Recession.

Looking back, the number of annual permits grew steadily from 1991 to 2006.

After bottoming out in January 1991 at 587,000 annual permits and the average number of permits added that year was 751,000. In September 2005, the number of permits peaked at 1,798,000 and the average number of permits added that year was 1,685,000. Over this period of 15 years months the average number of single family permits increased at an average annual rate of 62,233 units per year.

After the Great Recession hit, the number of monthly permits bottomed out at 379,000 in February of 2011. The average number of permits issues for 2011 was 420,000. In 2013  the number of permits increased to 614,000. For this two year period, permits are being added at an average annual rate of 97,208.

The story of the construction industry continues to be one of good and bad news.  Over the past two years, the rate of new single family permits being issued is greater than during the boom years. The problem is the greater recession created such a hole, it seems like there is little construction activity.

single family permits

©Copyright 2011 by CBER.

Manufacturing Role in U.S. Recovery May be Overstated

The Manufacturing Sector has been regarded as a driving force in the recovery from the Great Recession.

A look at U.S. Manufacturing Shipments shows the sector’s contribution to the recovery may be slightly overstated. Consider the annualized growth rates for shipments for the following periods:

  • January 1992 to January 2000, 8 years at +5.6%.
  • January 2000 to January 2002, 2 years at -4.6%.
  • January 2002 to January 2008, 6 years at +6.5%.
  • January 2008 to January 2009, 1 year at -21.6%.
  • January 2009 to January 2014 (est.), 5 years at +6.1%.

As a result of the Great Recession, shipments dropped to mid-2004 levels and it took 5 years before shipments returned to 2008 levels.

While it is good news that the manufacturing sector has played an important role in the recovery, it should be noted that the annualized rate of growth from 2012 to 2014 was only about 2.0%.

What’s on tap for manufacturing in 2014?
manufacturing
©Copyright 2011 by CBER.

U.S. Job Recovery Slower than Colorado

Coloradans breathed a sigh of relief when the BLS released June data showing the state’s wage and salary employment finally returned to the 2008 peak. (For more information about the Colorado situation, click here.)

Nationally, it is a much different story. The U.S. is still about a year away from returning to the 2008 job peak.

U.S. employment topped out at 138.1 million in January 2008. By February 2010, the number of wage and salary jobs had plunged to 129.3 million, a decrease of 8.8 million workers.

At the end of July 2013, 6.7 million jobs had been added since the trough and employment had reached 136.0 million. Slightly more than 2.0 million jobs are needed to reach the pre-recession peak, or about 77% of the jobs have been recovered.

Over the past year, jobs have been added at a rate of about 190,000 per month. If they continue to be added at that rate, it will take another 10 months (May 2014) before the pre-recession peak is reached.

As a result of the Great Recession, the number of unemployed workers jumped from 7.7 million in January 2008 to 15.4 million in October 2010, i.e. the number of unemployed workers doubled. Since October 2010, the number of unemployed has declined to 11.5 million, a decrease of only 3.9 million.

For many Americans, the recovery from the Great Recession has been painful. For another group, the recovery will never happen.

©Copyright 2011 by CBER.

Stagnancy in the Size of the Colorado Labor Force – The Lost Decade and Beyond

In a previous post, the topic of discussion was the stagnancy of the labor force during the 1980s (click here). In that case the size of the labor force was flat for about five years because of a regional recession, weak wage and salary job growth, and negative net migration. This post will look at the size of the labor force during the Great Recession and beyond.

Local Area Unemployment Statistics (LAUS) are available for Colorado beginning in 1976. Since then, the month-over-prior month labor force increased about 87% of the time (383 of 442 months). In a vibrant economy, periodic ups and downs are expected, but increases in the size of the labor force are generally the rule of the thumb.

Between April 2000 and October 2012 there were 30 months with decreases in the month-over-prior month size of the labor force. In January 2008 there were 2,722,015 workers. By April 2009 the number had risen to 2,758,468 workers.

During the past 42 months, there were 19 month-over-prior month declines. There were 2,725,803 workers in the October 2012 labor force. This was 32,665 fewer than the level in April 2009 and essentially the same as January 2008.

Next, we will look at three data sets for the period: Wage and Salary job growth, Net migration, and the Unemployment Rate.

For the years, 2009-2012, wage and salary job growth was devastating, with back-to-back net job losses in 2009 and 2010. The net change in wage and salary jobs follows:
• 2008 19,000
• 2009 -104,700
• 2010 -23,300
• 2011  33,000
• 2012 est  45,000

Unlike the 1980s, when the state experienced negative net migration, there has been solid positive net migration, i.e. more people moved into the state than out of it. The net migration follows:
• 2008 45,000
• 2009 36,300
• 2010 37,000
• 2011 34,900
• 2012 est 36,800

For this period the unemployment rate varied from 4.8% to 8.0%. While the monthly rate has dropped from a high of 9.0% in 2010, the 2012 annual rate remains the same as it was in 2009.
• 2008 4.8%
• 2009 8.1%
• 2010 8.9%
• 2011 8.3%
• 2012 8.0%

For all intensive purposes, the size of the labor force will be about the same as it was at the end of 2009 and the number of employed and unemployed workers will be similar.

• The 33,000 wage and salary jobs added in 2011 lowered the unemployment rate by 0.6% points, yet growth of 45,000 jobs in 2012 will lower it by 0.3% points.
• For the period 2008 to 2012, total net migration was 190,000; approximately 125,000 of these individuals are 16-65 years old.

This raises a series of questions:
• How many people have become contract or 1099 workers? How many have become sole proprietors and owned family businesses? How many people are working temporary jobs? Will they still work in this capacity when the economy recovers or will they take wage and salary jobs?
• How many workers have stopped working who don’t show up in the data?
• What are the in migrants doing? Did they take jobs that Colorado residents might have taken? Are they working in other capacities?
• How many families with dual incomes now only have one income?
• Have the published unemployment numbers been manipulated to meet political agendas?

There seem to be more questions than answers and the numbers do not seem to reconcile. As grave as the employment situation has been, it appears that the unemployment rate may be inaccurate and may have understated the magnitude of the problem.


©Copyright 2011 by CBER.

Stagnancy in the Size of the Colorado Labor Force – 1980s

The unemployment rate is one of the most popular, but overrated statistics for measuring the performance of the economy. It is such a crude measurement of economic performance that the state’s labor economist was recently quoted in the media as saying that it shouldn’t be taken at face value.

The calculation of the unemployment rate is simple. The number of unemployed workers is added to the number of employed workers (wage and salary, sole proprietors, and others) and that equals the size of the labor force. The unemployment rate is simply the number of unemployed workers divided by the size of the labor force.

In other words, the size of the labor force is a key component in determining the accuracy of the unemployment rate. This brings us to the topic of this post – the size of the labor force.

Local Area Unemployment Statistics (LAUS) are available for Colorado beginning in 1976. Since then, month-over-prior month labor force increased about 87% of the time (383 of 442 months). In a vibrant economy, periodic ups and downs are expected, but increases in the size of the labor force are generally the rule of the thumb.

There are two periods when the size of the labor force did not increase, during the 1980s and the late 2000s. The following analysis looks a period during the 1980s.

Between September 1984 through April 1989 the size of the labor force declined in 29 of 53 months.

In August 1984 the size of the labor force, as measured by LAUS data,  was 1,719,239. It declined sharply in 1985, bounced back for most of 1986, and fell sharply in 1987. It remained flat for much of 1988 and into the first part of 1989. In June of 1989, the labor force was reported at 1,719,824. From that point, it continued to grow.

Next, we will look at three data sets for the period: Wage and Salary job growth, Net migration, and the unemployment rate.

During this period, Wage and Salary (CES)  job growth was weak, with net job losses in 1987. The net change in wage and salary jobs follows:
• 1984   75,100
• 1985   16,400
• 1986  -10,400
• 1987       4,300
• 1988    23,500
• 1989    46,200
• 1990    38,600

The CES and LAUS series are different measures of employment, but they should tell a similar story about changes in employment.

During this period the state experienced negative net migration, i.e. more people moved out of the state than into the state. The net migration follows:
• 1984      2,782
• 1985      5,172
• 1986     -5,270
• 1987   -13,997
• 1988   -24,280
• 1989   -18,752
• 1990   -12,964

For this period the unemployment rate varied from 5.4% to 7.5%. It remained at a higher than normal level because unemployed workers were able to move outside the region and find work. The annual unemployment rates for this period were:
• 1984   5.4%
• 1985   6.0%
• 1986   7.5%
• 1987   7.5%
• 1988   6.4%
• 1989   5.6%
• 1990   5.1%

The labor force was stagnant for about five years for the following reasons:
• There was a regional recession
• Weak wage and salary job growth
• Negative net migration.

A similar stagnancy in the size of the labor force occurred during the 2000s. It is more difficult to understand and will be discussed in a later post (click here).


©Copyright 2011 by CBER.

Great Recession Continues to Play Havoc with State Finances

The Great Recession has taken its toll on state and local governments. Three years after the end of the Great Recession state and local governments continue to face significant fiscal challenges. In mid-July The State Budget Crisis Task Force released a report headed up by Richard Ravitch and Paul Volcker that examined the challenges to financial stability for California, Illinois, New Jersey, New York, Texas, and Virginia. Just over 36% of the country’s population lives in these six states.

There are a number of variables (policies, economic structure, demographics, etc.) that differentiate the states; however, the report identified six fiscal threats common to each:
• Medicaid spending growth is reducing funds for other needs.
• Federal deficit reduction will result in lower funds for state coffers.
• Underfunded retirement accounts are a risk for future budgets
• Eroding tax bases and volatile tax revenues jeopardize state finances.
• Local government fiscal challenges may impact state budgets.
• State budget laws and practices hinder fiscal stability.

To show the seriousness of the problem the report evaluated changes in tax revenues generated from the peak-to-trough, the trough to 2011, and peak-to-2011. The changes in percentages are adjusted for inflation; however, they are not adjusted for policy changes. In some cases policy changes have been made that have or will positively impact revenues.

The change from peak-to-trough follows:
• U.S.  -12.0%
• California -14.9%
• Illinois  -18.7%
• New Jersey -17.2%
• New York    -4.3%
• Texas  -15.4%
• Virginia -15.9%

The change for the recovery, or trough-to-2011, follows:
• U.S.  +  5.7%
• California +11.9%
• Illinois  +12.9%
• New Jersey +  2.7%
• New York +  4.3%
• Texas  +  7.4%
• Virginia +  3.9%

The change from peak- to-2011, follows:
• U.S.  –  7.0%
• California –  4.8%
• Illinois  –  8.2%
• New Jersey -15.0%
• New York –  0.2%
• Texas  –  9.2%
• Virginia -12.6%

Colorado was not included in the report; however, the challenges faced by the state are similar. Data from the Colorado Legislative Council’s quarterly reports (June) show the following levels in the state’s gross general fund, expressed in billions:
• FY ending June 2008  $7.7
• FY ending June 2009 $6.7
• FY ending June 2010 $6.5
• FY ending June 2011 $7.1
• FY ending June 2012 $7.6
• FY ending June 2013 $7.8
• FY ending June 2014 $8.2

The Colorado data is not inflation adjusted. On an inflation-adjusted basis the level of the state General Fund will not return to the FY 2008 level until FY 2013 or 2014. The Colorado State Demography Office projects that the state population will increase from 4.9 to 5.4 million people for that period. In other words the state will add half a million people and have the same level of funding as five or six years ago.

It is truly a challenging time to be working in the public sector.

Links to the State Budget Crisis site and the Colorado Legislative Council site are:

 

 

©Copyright 2011 by CBER.

The Colorado Economy is Outperforming the U.S.*

Earlier this year, President Obama sparked a debate about the health of the economy when he said, “The private sector is doing fine.”

At the national level, the private sector began adding jobs in February 2010 and has consistently added jobs since. The private sector has regained about 48% of the jobs lost in the recession, as compared to the peak in 2008. That part of the debate is clear.

On the other hand, the number of total government jobs has been on the decline since January 2008 (temporary employment associated with the 2010 Census is excluded). Shrinking budgets have caused federal, state, and local agencies to tighten their belts.

Closer to home, Colorado leaders are proudly proclaiming that the state is recovering faster than the U.S. Unfortunately, the sense of optimism displayed in this statement requires an asterisk.

The state’s private sector began adding jobs in January 2010. It has regained about 49% of the jobs lost in the recession, as compared to the peak in 2008. By this measure of improvement, Colorado’s private sector is recovering from the recession at a similar rate as the U.S. Whether that level of growth is “fine” is a debate for a different time. (It should also be noted that current private sector employment is below the peak prior to the 2001 recession.)

Government employment is the difference maker. In contrast to the national level where there is a decline, the number of government jobs in Colorado has increased slightly since 2009. As a result, total Colorado employment has regained jobs lost in the recession at a faster rate than the U.S.*

 

©Copyright 2011 by CBER.

It is Time to Right the Ship – America’s Financial System

Zbigniew Brzezinski, National Security Advisor to President Carter, recently released a book entitled Strategic Vision – America and the Crisis of Global Power.

In his book, Brzezinski lays out America’s assets and liabilities, listing six of each. On the liability side, he focuses extensively on the flawed financial system.

In a footnote on page 48, the author highlights data from Roger Lowenstein’s, The End of Wall Street (2010) explaining the social and economic consequences of the “self-induced 2008-2009 financial crisis (note the use of the phrase self-induced):
• Average deficits of G-20 nations increased from 1% to 8% (p. 294).
• By 2009, American share of the national debt was $24,000-$2,500 of which was debt to China (p. 294).
• America’s total national wealth decreased from $64 trillion to $51 trillion (p. 284).
• America’s unemployment rate reached 10.2% (p. 284).
• The United States lost 8 million jobs (p. 284.)
• Mortgage foreclosures increased from 74,000 a month in 2005 to 280,000 a month in the summer of 2008, and a high of 360,000 in July 2009 (p. 147 and p. 283.)
• Banks failed at a rate of three per week in 2009 (p. 282).
• During the spring of 2009, 15 million American families owed more on their mortgages than their homes were worth (p. 282).
• There was a total GDP contraction of 3.8% – the biggest contraction since post WWII demobilization (p. 282).
• America experienced its longest recession since the 1930s ( p. 282).
• Stocks fell 57%-the biggest drop since the Great Depression (p. 281).

These data quantify how tough the times have been for Americans. Brzezinski takes it a step further by pointing out that one of America’s greatest assets is its overall economic strength and the power associated with that position. In other words there is a lot of incentive for the U.S. to right the ship and fix the problems with its financial system – immediately.

For details, check out the book. It is a must read!

 

©Copyright 2011 by CBER.