Tag: Economy

U.S. Employment Situation – The Good, The Bad, The Ugly

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The recent labor report from the BLS brings back memories of the Clint Eastwood classic, “The Good, the Bad, and the Ugly.”

The Good – In February, March, and April an average of 220,000 jobs were added each month.
The Bad – In May the original estimate was that 54,000 jobs had been added. It was hoped that the downward trend would simply be a bump in the road.
The Ugly – The number of jobs created for May was revised downward to 25,000 with an addition of 18,000 in June.

These are not the kind of job gains that economic recoveries are built on. It is estimated that 100,000 to 125,000 jobs must be added each month to prevent unemployment from rising. If you account for the number of older workers who have remained in the workforce, that number might be bumped to 150,000 to 175,000. It is necessary to add between 200,000 and 225,000 jobs each month, on a sustained basis, to lower the unemployment rate.

The private sector posted gains of 57,000, while budget strapped governments reduced their payrolls by 39,000. The net is +18,000 employees.

The financial sector declined by 15,000 followed by construction at 9,000 workers. In addition, the temporary help services sector shed 12,000 workers. The sector, which is often considered a harbinger of broader hiring, declined for the third consecutive month.

On the positive side of the ledger the most significant sector gains were as follows:
• Leisure and hospitality 34,000 employees
• Health care and social assistance 17,400 employees
• Professional and business services 12,000 employees
• Wholesale trade   7,100 employees
• Manufacturing   6,000 employees
• Retail trade   5,200 employees
• Other services   5,000 employees
• Transportation and warehousing   3,600 employees.
Note: Not all sectors are included in the above overview.

While there is optimism for improved economic activity in the second half of the year, the reports cast doubts about job expectations. Employment growth appears to be nothing more than a necessary evil in the new economy that is driven by technology, globalization, a housing bust, and struggling financial markets.

Clint Eastwood, where are you when the country need you the most?

©Copyright 2011 by CBER.

Contribution of Consumer to Real GDP Continues to Increase

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There are an abundance of data sets that are useful in evaluating the performance of the U.S. economy. If only one could be used to measure overall performance it would be Real GDP, or the inflation adjusted output of the economy. The current Real GDP is approximately $13.4 trillion.

There are 4 components of the GDP. Mathematically speaking GDP= C+I+G+X.

The following analysis briefly looks at the change in the composition of output for each of these four components over the past two decades. As such, it is not intended to depict the total amount of output or changes in that output.

Consumers (C) are the primary drivers of the U.S. economy. As can be seen, the importance of the consumer has increased:
• Q1 1990 Personal consumption was 65.8% of Real GDP.
• Q1 2001 The go-go 1990s treated the consumer well – too well. Consumption rose to 69.4%.
• Q1 2003 Consumers were encouraged to keep spending as a way to pull the country out of the 2001 recession. Consumption rose to 70.2%. Creative financing helped sustain auto sales and allowed home owners to use their dwellings as ATMs. As a result consumers saved less, spent more, and  became overleveraged.
• Q1 2008 The Great Recession and the accompanying housing bust caused sharp declines in Investment (I). That decline increased the importance of government and consumer spending (70.3%).
• Q1 2011 The reliance on consumers continued as housing markets remained weak and government spending tapered off. Consumption rose to 71.1% of Real GDP.

Investment (I) includes business spending and the housing markets. The ups and downs of the contribution of investment follow:
• Q1 1990 Investment was 15.4% of Real GDP.
• Q1 1992 After the 1991 recession, investment dropped to 13.1%.
• Q1 2000 Investment rose during the go-go 1990s to 17.4%.
• Q1 2002 The 2001 recession pushed investment down to 15.5%.
• Q1 2006 With the recovery, business activity increased and investment rose to 17.7%.
• Q1 2009 Investment dropped to 11.7% as a result of the Great Recession and the fallout in the housing market.
• Q1 2011 With the recovery, a slight rebound has been seen. Investment has risen to 12.5% of Real GDP.

Government (G) spending was 20.3% of real GDP in Q1 1990. Shortly after, expenditures related to the first Iraq war and the 1991 recession temporarily drove the percentage up slightly. For the remainder of that decade, the strength in personal consumption and investment decreased the relative importance of government spending. Its percentage of real GDP declined to 17.5% in Q1 2000. Since then, it has risen steadily as a result of the wars in Iraq and Afghanistan and efforts to offset the effects of two recessions. Government spending was 20.2% of real GDP spending in Q1 2011.

Finally, net exports (X) have subtracted from Real GDP, i.e. there has been a trade deficit for over 20 years. In Q1 1990, Real GDP was -1.6% of Real GDP. As the trade deficit increased, net exports reached -5.9% of Real GDP in Q1 2006. In Q1 2011, net exports were -3.8% of Real GDP.

This zero sum analysis illustrates how declines in the relative importance of one GDP component require increases in the relative importance of other components. In short, this analysis shows the role of the consumer (C) in the recovery and the drag placed on the economy by the decline in the contribution of investment (I), particularly the housing market.

Looking to better times in the months ahead and an economy that has more balanced output.

©Copyright 2011 by CBER.

Colorado Legislative Council – Momentum Building

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In late June the Colorado Legislative Council (CLC) released its quarterly update of the state economy Focus Colorado: Economic and Revenue Forecast. The report included mixed economic news – most of it good.

Nationally, there was reduced optimism compared to the CLC March forecast, with output growth revised downward from 3.2% to 2.6%. The Conference Board and Kiplinger have recorded downgrades of similar magnitude for real GDP. Other revisions include stronger employment growth and improved wage and salary projections.

The analysis of General Fund Appropriation budgets for FY 2010-11, FY 2011-12, and FY 2012-13 illustrates the fiscal challenges facing the state legislature. While funds from various sources are projected to increase, general fund appropriations will remain in the range of $7.2 to $7.3 billion for each of these periods.

On a positive note, CLC has upgraded its 2011 employment outlook from 0.7% to 1.1% or 24,400 jobs. They expect just under 40,000 jobs to be added in 2012. The forecast also points to slightly improved retail trade sales, income growth, and construction activity. On the down side slightly higher inflation is on tap.

The risks to continued growth remain significant. Consumer confidence remains low, constrained by concerns about debt, inflation, monetary policy, and weakness in the housing and construction markets. Despite these concerns, it is generally believed that these are factors that will prevent the economy from growing at a faster rate in the near term. Finally the chances of a recession are thought to be slim, less than 1-in-5.

At last, the majority of indicators are pointing to gradual improvement for the remainder of the year and solid job growth in 2012.

 

©Copyright 2011 by CBER.

Colorado’s Construction Problems Date Back to 2000

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Colorado’s construction industry has struggled for more than a decade!

Between 2007 and 2009 the construction and related industries accounted for the loss of 1-in-6 private sector jobs. Many believe that construction began its tumble in the middle of the decade. Employment and total valuation peaked in 2006 at 167,800 and $16.8 billion respectfully.

A closer look at Real GDP data shows that the downturn in Colorado’s construction sector actually began in 2000 and has been on a steep downhill path since. At that time the construction industry’s contribution to state output was $15.5 billion, or about 9% of the state’s private sector Real GDP (in 2005 chained dollars). Last year that contribution had dropped to $8.2 billion or about 4% of the private sector output total. From 1997 to 2010 the sector posted an annualized decline of 2.8%.

This decline in output is relevant for two reasons. First, the construction industry affects all of Colorado. More than half of the state’s counties have a higher than average concentration of construction workers. Second, a case can be made that the industry hasn’t bottomed out yet.

Unfortunately, about the only viable solution is time.

©Copyright 2011 by CBER.

Metro Counties a Drag on Colorado Economy

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Colorado added 6,200 net employees during the 10-year period (2001 to 2010). This is in sharp contrast to the previous 10 years (1991 to 2000) when the state gained almost 700,000 workers.

During the go-go 90s, payrolls in the Denver MSA increased by more than 355,000 followed by gains of about 95,000 in rural Colorado. Almost 93,000 jobs were added in El Paso County (Colorado Springs MSA) and another 57,000 in Boulder County (Boulder MSA).

At the risk of being repetitious… the state added only 6,200 workers between 2001 and 2010.

During this period the Denver MSA lost 20,000 workers, the Boulder MSA shed 4,900, and Colorado Springs payrolls decreased by 3,600. Employment in the state’s top three MSAs declined by 28,500 workers. The drop-off in Denver and Boulder began in 2002 and continued throughout the decade, whereas it started in 2007 for Colorado Springs. This was around the time Intel and other high-tech and semiconductor companies left the area.

At the risk of being repetitious… rural Colorado and the smaller MSAs were the only areas to add workers during the decade. Given the weakness in Colorado’s three major metro areas, it seems why the state is struggling to add jobs at a sustained level in 2011.

©Copyright 2011 by CBER.

Rural Employment Growth Rate Outpaces State MSAs

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After a promising start in 2000, employment in all parts of the state suffered from back-to-back recessions. This brief analysis shows that the rate of growth in the rural areas outpaced the metro areas.

Presently, the breakdown between the Metropolitan Statistical Areas (MSAs) and rural areas follows:

MSAs

  • 1.9 million workers.
  • 86.8% of total workers.
  • 17 counties.

Rural

  • .3 million workers.
  • 13.2% of total workers.
  • 47 counties.

Despite modest job gains after the first downturn, declines resulting from the second recession dropped statewide employment to 2001 levels.

Seasonality is more evident in rural areas because there is a small base of workers. As a result rural employment is more volatile.

Colorado employment is forecast to increase by 15,000 to 25,000 jobs this year, or in the neighborhood of 1.0%. The rate of growth for rural areas is expected to be slightly higher than in the rural areas.

©Copyright 2011 by CBER.

Manufacturing, Information, and Professional Business Services Drive Colorado Economy

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All industries play different and important roles in our economy. Some pay high wages or create new jobs, while others provide services that generate tax revenue.

Economic developers welcome the creation of any job, but they emphasize the recruitment and retention of companies that have primary jobs. A primary job brings in money from outside the local community and often pays higher than average wages. As a result, these jobs create wealth and other local jobs.

In Colorado most primary jobs are in the Manufacturing, Information, and Professional Business Services sectors. They account for about 29% of total state private sector employment and 35% of the state’s private sector Real GDP. Colorado’s Advance Technology cluster is a subset of these three sectors.

In recent years, the Mining and Logging sector has employed about 1.5% of total private sector workers, yet it has accounted for about 6% of the state’s private sector output. The Real Estate and Finance group of sectors are also small from an employment perspective; however, they make a significant contribution, 23%, to the state’s private sector output.

Tourism and retail are important for different reasons. First, they touch the economies of all 64 counties.
Colorado’s scenic mountains provide the state with a distinctive competency, that cannot be replicated. Sales tax from the retail sector are a funding source for special districts and state and local governments. These sectors are important because they employ about 1 out of every 4 workers. Combined, they are responsible for about 11% of the state’s private sector output.

Finally, industries such as health care, personal services, utilities and the remaining sectors are important
because they add to the quality of life. These and the remaining sectors employ 35-40% of private sector workers, while being responsible for about 25% of private sector output.

The above analysis is based on 2009 data. The Bureau of Economic Analysis is scheduled to release its 2010 data within the month. Watch for more in-depth analysis at www.cber.co.

©Copyright 2011 by CBER.

Weak U.S. Employment Report – a Trend or a Bump in the Road to Recovery?

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The BLS recently announced that U.S. employment in May rose by just 54,000 workers on a month-over-prior month seasonally adjusted basis. This is a sharp departure from the average monthly gains of 200,000+ for the previous three months. Clearly, the lackluster Q1 real GDP growth of 1.8% was too weak to stimulate increased job gains in the second quarter.

On a positive note, May was the 15th consecutive month of job gains in the private sector, with an addition of 83,000 in May. At the same time, the public sector shed 29,000 jobs as state and local governments scramble to address either budget cuts or inadequate revenue gains. This is the seventh consecutive month of declines for government employment.

Most of the gains (+51,000) came from the service producing sectors, while the goods producing sectors added only 3,000 jobs. Construction and housing woes continue to be a serious drag on the national economy.

Simplistically speaking, about 100,000 jobs need to be added each month to keep up with increases in the population. The unemployment rate will increase when fewer jobs are added.

About 200,000 jobs are required to bring the unemployment rate down significantly. At that rate (200,000 jobs added each month), it will take about three years to return to the peak employment of 2008.

In 30 days we will know if this dismal report was a sign that the economy has slowed or if it is a blip in the road to recovery. In about two weeks, the Office of Labor Market Information will provide their update for the state. Stay tuned.

©Copyright 2011 by CBER.

Got Jobs? Colorado Economy Stalled

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Got jobs?

The Colorado Office of Labor Market Information recently released data that shows that four-month average employment for the state was 12,500 workers above the same period in 2010. The private sector posted a gain of 14,700 employees while total government employment decreased by 2,200.

Over the past four months, a group of industry sectors have increased their payrolls by 32,800 jobs (see chart below). These sectors account for 60% of total employment.

At the top of the list of gainers are tourism (+10,300) and private education  and health services (+9,900). The next three sectors are the extractive industries (+2,800), wholesale trade(+1,900), and higher education (+1,800).

Nationally, the recovery is shaping up differently than in Colorado. The leading U.S. sectors are professional and business services (PBS), tourism, health care, and manufacturing. Job growth in the Colorado PBS and manufacturing sectors seems lackluster compared to the U.S.. Companies in both sectors are part of the state advanced technology cluster, a key driver of the economy.

Meanwhile, the other 40% of the sectors has shed 20,300 jobs. Construction jobs continue to top out the list of industries shedding jobs (-8,800), followed by financial activities and the information sector, both posting losses of 3,600 jobs. Local education, PK-12, has dropped 2,200 workers while the federal government payrolls are down by 1,700. The decrease in federal employment is an anomaly. A number of temporary jobs were added in mid-2010 to complete the decennial census.

Fortunately, the movement of the state economy is different than movement of an airplane, where “stalling out” can have disastrous consequences. At the moment, a recession is unlikely; however, it is frustrating to endure a two-year recovery (jobs and output) that is moving forward at a “stalled pace.”

©Copyright 2011 by CBER.

Colorado Photonics Cluster Outperforms Job Growth for State

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Can you remember the names and order of all the planets?

Ball Aerospace announced that task just got tougher. In a presentation at the May 18th meeting of the Colorado Photonics Industry Association (CPIA), the local aerospace company discussed their role in the search to find habitable planets.

Pictures taken from a satellite built by Ball, as part of the Kepler project, have confirmed 15 new planets and their composition. That is just the beginning. About 1,000 additional potential planets have been discovered and are being evaluated. Expectations are that 80% will be classified as planets.

A second segment of the CPIA program included a presentation on the performance of the Colorado economy and a review of the Governor’s Bottom-Up Economic Development plan. That discussion focused on the importance of Advanced Technology in Colorado and the growth of the photonics cluster.

The AT cluster is a subset of the Information; Manufacturing; and Professional, Scientific and Technical Services sectors. About 20% of the state’s private sector workers are employed by companies in these three sectors, yet they account for about 35% of the state’s private sector Real GDP.

By comparison, tourism accounts for about 5% of Real GDP and retail is 6%. Both sectors are important to the state in different ways.

The tourism sector is an important part of the economy for the state’s 64 counties. Major attractions include Rocky Mountain National Park, Mesa Verde, mountain sports, and shopping at Cherry Creek mall.

Retail is important to local governments. They derive between 50 to 75% of their total revenue from retail sales taxes. As well, the state and special districts rely on retail sales taxes as their primary source of revenue.

The economic review concluded with a look at an analysis of data  that showed the growth of the photonics cluster between 2004 and 2010. Cluster growth for this six year period exceeded total state growth in all but one employment size category.

In short, the cluster benefitted from growth of renewable energy companies, but suffered from the decline of the state’s semiconductor industry. The analysis illustrates the importance of enabling technologies and how they play a key role in the success of companies in a wide array of industries.

©Copyright 2011 by CBER.