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Employment Numbers Drive DJIA up by 217 Points

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On August 3rd the Bureau of Labor Statistics reported that the U.S. added 163,000 jobs for the month of July. Employment for May was revised upwards for the second consecutive month to 87,000; however, June was lowered from 80,000 to 64,000. The news drove the Dow Jones Industrial Average up by 217 points.

Through the first seven months of this year, the nation added about 151,000 jobs a month. This compares to a monthly average of 153,000 jobs for the first seven months of 2011. Since the end of the recession the U.S. has added net jobs in 25 months and lost net jobs in 12 months. Employment growth is consistently weak, but since October 2010 it has been consistently positive. About 3.1 million jobs have been added since the end of the recession.

About one-third of the monthly sector employment gains were in the Professional and Business Services, lead by the Temporary Help Services and Computer Systems Design sectors. Jobs were also added in health care, leisure and hospitality, manufacturing, and wholesale trade. Other major sectors were relatively flat.

On an upbeat note, the Conference Board is projecting stronger growth in the second half of 2012. Annual real output growth for the year will be about 1.9%.

Likewise, the USA TODAY/IHS Global Insight Economic Outlook Index calls for Real GDP growth to reach 2% in the latter part of the second half of the year. This index tracks 11 leading and financial indicators. The following four indicators increased – hours worked, real capital goods orders, the real money supply and light-vehicle sales.

On average, Colorado nonfarm employment is about 1.72% of the U.S. total. If Colorado grows at the same pace as the U.S. the upcoming August press release will reflect a gain of about 2,900 jobs.

©Copyright 2011 by CBER.

Goods Producing Sectors Poised to Add Jobs this Year

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Companies are divided into two categories: Goods Producing sectors and Service Producing sectors. In simplistic terms: you make stuff or you do stuff.

One of the reasons the Goods Producing category is important is that many primary jobs are in these sectors. The NAICS categories include the Extractive Industries, Construction, and Manufacturing.

Only twice (1997 and 1998) since 1990 have all three sectors added jobs in the same year. At the midpoint of 2012, the trio are in a position to show gains for this year also. Previously the gains were a result of an economy hitting on all cylinders. This time the gains will occur because of an economy that has misfired and the sectors have nowhere else to go but up. They are playing a small, but extremely important role in the recovery.

For additional details on the Colorado economy click here or go to https://cber.co/.

©Copyright 2011 by CBER.

Did the State Really Lose 6,900 Jobs in June?

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It has been a tough summer for Colorado. There have been budgetary problems, wildfires, and shootings. At a time when state leaders have been touting how the state is recovering from the recession at a faster rate than the nation, The Bureau of Labor Statistics has announced that the state has shed 6,900 jobs (Seasonally Adjusted – SA) in June.

The non-seasonally adjusted (NSA) data for June tells a story that more closely reflects business activity on the street. A review of the second quarter for the past four years is shown below:

• 2009 2,252,500 workers
• 2010 2,226,100 workers, a decrease of 26,400 workers over Q2 in the prior year.
• 2011 2,257,100 workers, an increase of 31,000 workers over Q2 in the prior year.
• 2012 2,289,400 workers, an increase of 32,300 workers over Q2 in the prior year.

Another way to look at the July Colorado data is to think about the national employment data published in early July. It showed the nation added 80,000 jobs in June. On average, Colorado employment is about 1.7% of the nation’s total.

That means that if Colorado was growing at a rate comparable to the U.S. then the state should have added about 1,400 jobs in June. If Colorado was expanding at a faster rate than the U.S. then 2,000 to 3,000 workers would have been added. Either Colorado is in a lot of trouble or the loss of 6,900 jobs doesn’t make sense.

There are several reasons for this apparent disparity. First, the BLS recently reduced their funding to state agencies, they centralized monthly state estimates, and they revised the monthly employment estimation process with the intent of providing a “better product”. While that process may result in cost savings and greater efficiency within BLS, it appears that some of the monthly data may be less reliable and useful.

As well, the seasonal adjustment factors used to take out the effect of seasonality appear to be unreliable. Over the past decade the performance of the economy has been atypical, thus making it virtually impossible for the seasonal adjustment factors to effectively measure seasonal patterns. In other words, the SA data for June most likely does not reflect what is happening in the economy.

So, what does this mean?

The June data is preliminary. Possible updates may be made in the July, March 2013, and March 2014 revisions. Watch for updates and either work with the NSA data or use the preliminary SA data with caution.

Meanwhile, a review of the NSA data for H1 2012, shows that job growth has tapered off, in line with a project drop-off in growth of U.S. output. With marginally stronger output growth on tap for the second half, it appears the state is in line to add 35,000 to 40,000 jobs this year.

For additional details about the Colorado economy go to https://cber.co/

©Copyright 2011 by CBER.

Great Recession Continues to Play Havoc with State Finances

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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.

U.S. Employment – After Six Months, is the Glass Half Empty or Half Full?

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On July 6th the Bureau of Labor Statistics reported that the U.S. added 80,000 jobs for the month of June. Employment for May was revised upwards to 77,000.

For the third consecutive year employment started strong, but fizzled. Through the first six months of this year,the nation added about 150,300 jobs a month. This compares to a monthly average of 160,800 jobs in the first half of 2011 and 145,800 jobs during the second half.

Employment increased in manufacturing; professional and business services, health care, and wholesale trade. Other sectors were relatively flat.

If you compare the first half of 2012 to the first half of 2011 (150,300 vs. 160,800), the employment situation is clearly worse this year and fewer jobs will be added this year, i.e. the glass is half empty.

A comparison of the second half of 2012 to the first half of 2011 (145,800 vs. 150,300) shows improvement in 2012.

Given projections for weak, but slightly stronger output growth in the second half, that means the glass is half full.

Nationally, is the glass half-empty or half-full?

On average, Colorado nonfarm employment is about 1.72% of the U.S. total. If Colorado grows at the same pace as the U.S. the July 20th press release will reflect a gain of about 1,400 jobs. At the moment, Colorado is currently recovering from the recession at a slightly faster rate than the U.S. It would not be surprising if Colorado added 2,500 to 3,000 jobs for June.


©Copyright 2011 by CBER.

Colorado High Tech Job Growth Flat for Past Year

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Colorado’s high-tech cluster played an essential part in the growth of the state economy for the past 20 years, particularly between 1994 and 2001. At its peak in 2001, it employed more than 216,000 workers, or 9.67% of total employment.

Today that number is roughly 175,000, the same that it was when the recession officially ended in mid-2009.  High-tech employment accounts for 7.67% of total workers.

The cluster, as defined by Colorado’s Labor Market Information agency, actually continued to decline after the recession. It bottomed out in March of 2010 at 169,300 workers. Over the next 15 months more than 6,000 jobs were added and 176,000 high-tech workers were employed in July 2012. Cluster employment has been relatively flat since then.

Colorado’s telecommunications sector continues to experience declines resulting from consolidations. As well, it has recently been announced that Abound Solar is going into bankruptcy, the addition of a proposed General Electric facility will be delayed and another GE facility will reduce its workforce. In addition the Aerospace and Clean Energy Park in Northern Colorado was scrapped. Unfortunately, the volatility associated with the fledgling renewable energy cluster comes as no surprise. Proposed defense cuts could play havoc with the state aerospace industry.

Current projections for Real GDP growth are less than 2.0% for the next year. Continued lackluster job growth in the high-tech sector is likely.

 

©Copyright 2011 by CBER.

Gross Firm Openings Flat Since Late 2003

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The Business Employment Dynamics (BED) data set produced by the Bureau of Labor Statistics reports gross changes in employment and firms on a quarterly basis. Several weeks ago, this blog reviewed gross changes in employment and found that job creation declined during the Lost Decade. As a result, the net change in jobs was decided by the level job layoffs or closures rather than job creation at new or existing firms.

This post will provide insight into the recovery from the past two recessions from the perspective of firms. It will look at gross openings and closings, a subset of gross firm gains and losses. Gross openings include new firms, firms that have been inactive, and seasonal firms. As such they include entrepreneurs and others. Gross closings include firms that are ceasing operations permanently, temporarily, or on a seasonal basis.

The following analysis shows Colorado gross opening and closings with averages for the following periods.

• Q1 1993 to Q4 2000 (32 quarters or 96 months).
– In this period of expansion, gross firm openings exceeded gross firm closings in 31 of the 32 quarters.
The 1990s were a period of innovation and growth. There was significant job churn. Gross firm openings and closings increased at similar rates and were highly correlated.

• Q1 2001 to Q2 2003 (10 quarters or 30 months).
– In this period of decline, gross firm openings exceeded gross firm closings in 9 of the 10 quarters.

• Q3 2003 to Q1 2008 (19 quarters or 57 months).
– In this period of recovery, gross firm openings exceeded gross firm closings in 16 of 19 quarters.

• Q2 2008 to Q4 2009 (7 quarters or 21 months).
– In this period of decline, gross firm closings exceeded gross firm openings in 6 of the 7 quarters.

• Q1 2010 to present (7 quarters or 21 months).
– In this period of recovery, gross firm gains exceeded gross firm closings in 4 of the 7 quarters. The average of gross firm openings has been flat since Q3 2003. The deciding factor in net firm change was the decline in the number of gross firms closed.

Since 2003 the average number of gross firms opened has remained flat. The average number of gross firms closed determined whether the net change was positive or negative. This lack of firm openings explains why the job recovery from both recessions has been so weak.

©Copyright 2011 by CBER.

The Colorado Economy is Outperforming the U.S.*

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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.

Slow Recovery Driven by Lack of Job Creation

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Most employment data sets report net jobs gains (gross job gains minus gross jobs losses). The Business Employment Dynamics (BED) data set produced by the Bureau of Labor Statistics reports gross changes in employment on a quarterly basis and provides insight into the recovery from the past two recessions.

Gross job gains occur when jobs are added by existing companies (openings) or new companies (expansions). Gross job losses occur when companies lay off some of their workers (contractions) or all of their workers (closings).

In the chart below the light blue lines represent quarterly totals for job gains and the light red lines represent quarterly totals for job losses. The data covers from Q3 1993 through Q3 2011 (this is the most current data).

Average gains and losses are calculated for the periods of expansion and decline. The heavy horizontal blue lines represent average gross gains for the period and the heavy horizontal red lines represent average losses for the period.

The following analysis shows Colorado gross job gains and losses with averages for the following periods.
• Q1 1993 to Q4 2000 (32 quarters or 96 months).
– In this period of expansion, gross job gains exceeded gross job losses in each of the 32 quarters. The

1990s were a period of innovation and growth. There was significant job churn. Gross job gains and gross losses increased at similar rates and were highly correlated.
• Q1 2001 to Q2 2003 (10 quarters or 30 months).
– In this period of decline, gross job losses exceeded gross job gains in 8 of the 10 quarters.

• Q3 2003 to Q1 2008 (19 quarters or 57 months).
– In this period of recovery, gross job gains exceeded gross job losses in all 19 quarters. The average job gains for the previous decline were similar to the average job gains for the recovery. The average level of job losses, layoffs or closures, determined whether the net change was positive or negative.

• Q2 2008 to Q4 2009 (7 quarters or 21 months).
– In this period of decline, gross job losses exceeded gross job gains in all 7 quarters. Gross job losses rose significantly while job creation took a nosedive.

• Q1 2010 to present (7 quarters or 21 months).
– In this period of recovery, gross job gains exceeded gross job losses in 6 of the 7 quarters. During the recovery, the deciding factor was the decline in the number of gross jobs lost. The increase in gross job gains was minimal.

Since 2000 the average number of gross jobs has steadily declined. The average number of gross jobs lost has been the determining factor in whether the net change was positive or negative. This lack of job creation, with new firms or existing companies, explains why the job recovery from both recessions has been so weak.

©Copyright 2011 by CBER.

Are Construction Jobs being Added Too Quickly?

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The lack of growth in the Construction sector and problems in the housing market are reasons for the lackluster recovery of the economy. In April, 2012 there were 117,900 Colorado Construction workers, virtually the same as in March 1997.

Over 57,000 construction jobs were lost as a result of the Great Recession and an oversupply of construction workers. The recovery has begun; however, only 9.8% of the lost jobs have been recovered.

By comparison, Healthcare and Higher Education did not experience a downturn. Tourism jobs dropped off slightly but have returned to pre-recession levels. The Extractive Industries; and Professional, Scientific, and Technical Services will reach 2008 peak levels later this year.

When all sectors are considered, about 55% of all lost jobs have been recovered.

It is great news that workers are being added to the payrolls, but does the state still have a surplus of construction workers?. This question is asked because the Construction sector should have a location quotient near 1.0 (the location quotient is a ratio comparing the local concentration of workers to the national concentration).

In January, 2012 the location quotient jumped to 1.23 and has remained near that level since. This means the state’s concentration of construction workers was about 23% greater than the U.S. average.

To put this in a historical perspective, the construction location quotient was less than 1.0 in 1990. It had dropped to this level because the state residential and commercial markets were overbuilt during the 1980s. The state experienced a housing bust and negative net migration for five years.

The strong expansion during the 1990s was supported by the increase in the number of construction workers. By January, 2000 the location quotient reached its peak at 1.46. Over the next 12 years, the number of construction workers declined relative to other sectors and the location quotient gradually dropped to 1.17 in August 2011.

The comparative lack of construction activity will probably prevent an oversupply of construction workers. For example office vacancies remain high enough that there is not demand for significant new construction. There is one major speculative office site being built-in Colorado; it is located in Broomfield.

Current activity appears to be in reaction to demand:
• There has been a greater need for multi-family units than single family housing, resulting in new apartments, condos, and townhouses in certain areas.
• There is demand for infrastructure improvements. Construction continues on FasTracks and improvements to the 36 Corridor are on tap for this summer. (It should be noted that different skills are needed for building houses and infrastructure).
• Finally, the expansion of the extractive industries drives construction activity, in areas such as the Niobrara shale field.

The good news is that jobs are being added. Hopefully they will increase at a rate that doesn’t result in an oversupply.

For a more complete update on the recovery of the Colorado economy, go to https://cber.co/.

 

©Copyright 2011 by CBER.