Tag: Economy

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.

May Employment Numbers Disappointing, but not Surprising

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Several months after the 2007 recession began, some economists projected the economy would not recover until 2014. Six years sounded like it was much too long, particularly since the country had just gotten back on its feet from the 4 1/2 years of the 2001 recession and recovery. The most recent announcement by the Bureau of Labor Statistics (BLS) illustrates how the ongoing lack of primary job creation has caused the recovery to be so long and painful.

On June 1, the monthly BLS press release stated, “Nonfarm payroll employment changed little in May (+69,000). Employment increased in health care, transportation and warehousing, and wholesale trade but declined in construction. Employment was little changed in most other major industries.”

If Colorado is growing at the same pace as the U.S., the BLS will announce, later in the month, that the state will post a gain of about 1,200 jobs in April. (Colorado nonfarm employment is about 1.72% of the U.S. total.)

When this release hit the newswires, the equity markets tanked. In addition to the weak job gains, investors were worried about Greece’s debt problems, U.S. debt, the recession in parts of Europe, the slowdown in the Chinese and Indian economies, and much more. While these are clearly legitimate concerns, the decline in employment should not have come as a surprise. Past economic forecasts prepared by The Conference Board foretold of the pending dip.

TCB has forecasted that 2012 output will be at its lowest level in Q2. It stands to reason that subpar output will be accompanied by weak employment growth for April, May, and June. On a positive note, output (consumption, housing starts, and capital spending) is projected to improve slightly in Q3 and Q4. The average rate of output growth for the year will be about 2.2%. This suggests that employment will improve along with the increased output. Next year, 2013, will only be slightly better. The good news is that the trends are in a positive direction.

The recovery will continue to be painfully slow for a number of reasons:
• According to the TCB, output in advanced economies is growing at a rate of 1.3% – worse than the U.S. The emerging economies have stronger growth, 5.6%. Colorado companies that export agricultural and manufactured goods may have greater opportunities in emerging countries.
• The number of federal workers continues to decline.
• The intent of the stimulus funding was to create private sector jobs. Those jobs were supposed to kick in when stimulus funding was reduced. Unfortunately, too few private sector jobs have been created and funding is being diminished. This makes the stimulus efforts appear to be ineffective.
• Although revenues have improved for many state and local governments, their budgets remain tight. In Colorado, state employment is flat and local governments have fewer jobs than one year ago.
• Overall inflation has been kept in check; however, energy prices, and the prices of other commodities, are noticeably higher than when the recession started.
• The construction and housing markets have not rebounded as quickly as anticipated. Colorado construction employment is at the same level as it was in the mid-1990s, although it is finally trending upward.
• Companies have been able to meet their sales targets by investing in capital rather than labor. Productivity gains have allowed companies to maintain a competitive position without adding workers. At some point in the next 18-24 months this will change and companies may be forced to add workers.

The latest job numbers are disappointing, but not surprising. There will be slight improvement in the second half of the year, with continued volatility in 2013.

Continued patience is required. At the earliest, 2014 will be the year when stronger growth can be expected.

 

©Copyright 2011 by CBER.

Warmer Weather – A Source of Job Creation?

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Recently, a local economist hypothesized that the recent strength of the Colorado economy was correlated with a warmer winter. The rationale for this hypothesis was that warmer weather may have benefitted outdoor sports such as golf courses, biking, rollerblading, and so forth. In addition, the economist surmised that retail sales would be stronger because warmer weather was more conducive to shopping and increased construction activity.

On one hand, the warmer weather theory sounded plausible because the weather “seemed” milder this winter, but on the other hand it sounded like it was full of hot air.

Premise 1 – The winter was warmer.
If heating degree days are the defining factor for how cold a winter is, then the period October 2011 through March 2012 was negligibly colder than the prior year. For this six month period, the most recent October, December, and February were colder, the two Novembers were similar, and January and March were warmer this year. (A larger number means it is colder, more heat is needed to heat a building).

October 2010         174 heating degree days
November 2010     645 heating degree days
December 2010     789 heating degree days
January 2011          925 heating degree days
February 2011        863 heating degree days
March 2011             513 heating degree days
Total                      3,909 heating degree days

October 2011          312 heating degree days
November 2011      636 heating degree days
December 2011  1,058 heating degree days
January 2012           763 heating degree days
February 2012         935 heating degree days
March 2012              364 heating degree days
Total                       4,068 heating degree days

Possibly it seemed warmer, because there didn’t seem to be snow on the ground that often. A comparison of snowfall for the metro area shows that there was 2.5 times as much snow this past winter as the prior year.

October 2010         none
November 2010    1.5 inches
December 2010    3.3 inches
January 2011         8.0 inches
February 2011       5.3 inches
March 2011            2.5 inches
Total                      20.6 inches

October 2011         8.5 inches
November 2011    4.5 inches
December 2011 16.5 inches
January 2012        4.9 inches
February 2012    20.2 inches
March 2012         none
Total                     54.6 inches

It is truly a shocker to learn that the past winter was actually colder and wetter than the previous year. The timing of the storms, the lack of wind, or some other factor must have created the perception that it was warmer this past winter.

Even with greater snowfall in the metro area, snowpack is below average and 95% of Colorado is reportedly in drought conditions. Two significant forest fires have occurred and summer hasn’t arrived.

Conclusion: Premise 1 is FALSE.

Premise 2 – The warm weather resulted in increased participation for local sporting activities.
There is no easy way to prove this. HOWEVER, the lack of snow in the ski country, at the right times, was in part responsible for diminished lift ticket sales – a decrease of more than 7%. Ouch that hurts! Not only did the lack of snow hurt ski business it will play havoc with rafting businesses this summer.

Conclusion: #2 Possibly true in the metro areas, FALSE in ski areas.

Premise 3 – Warm weather means stronger retail sales.
This is an interesting concept that is difficult to prove. Cold and snowy weather on key shopping days have reduced retail sales during past Christmas shopping seasons, but there is no evidence that warmer weather has increased trade sales. Retail sales are noticeably higher compared to a year ago, but that is attributed to more people working than last year at this time. And in some cases, sales are higher because retailers have finally been able to raise prices. Sales may be higher in the metro areas, but they are probably below expectations in the ski country because of reduced traffic.

Conclusion: #3 – Possibly true in the metro area, FALSE in ski areas.

Premise 4 – Warm weather means increased construction activity.
For the six month period October to March there were 114,500 construction workers this year versus 113,300 last year. Last June, the Construction sector finally bottomed out from the 2007 recession and has been slowly adding jobs since. The big boost of construction jobs in January is more likely a result of improved economic conditions than warmer weather.

Conclusion:#4 – Inconclusive.

One of the fun things about economics is dissecting “grassy knoll” or “warmer weather” theories to see if they are true, partially true, or false. In this case, it is highly improbable that the “warmer” weather was a source of net job creation. The gains in revenue at Denver golf courses, bike shops, and shopping malls were offset by losses on the ski slopes and sales in mountain t-shirt shops, hotels, and restaurants. The warmer weather will also result in a dismal rafting season and increased costs for fighting forest fires.

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

©Copyright 2011 by CBER.

Leisure and Hospitality Leads the Recovery

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The Leisure and Hospitality (L&H) Sector has played a critical role in the recovery of the national and state economies. It is important because of the number of jobs added and because it is part of the economy in every county in the state.

Nationally, seasonally adjusted employment peaked in December 2008 at 13,560,000 workers. The number of workers declined with the Great Recession and in March 2012 employment surpassed that previous peak, reaching 13,587,000. It took 50 months for the sector to go from peak-to-trough-to-peak.

There was a similar pattern for Colorado. L&H employment peaked in May 2009 at 276,000. L&H Employment declined with the recession and in January 2012 it surpassed the prior peak at 277,800. It took 44 months for the state sector to recover.

While 50 and 44 months is a long time, it is possible that the overall state economy may take close to six years before it reaches the 2006 peak.

Nationally, the time from peak to trough was 24 months, or two years. During this time 637,000 jobs were lost. The recovery period was slightly longer, 26 months.

At the state level, the time from peak-to-trough was 20 months. About 16,000 jobs were lost during this period. The recovery period was 24 months.

It is depressing to consider some of these number; however, it is even more unsettling to think that these numbers describe one of the state’s stronger sectors.

For additional information on the overall state economy go to the cber.co website.

©Copyright 2011 by CBER.

Colorado’s Recovery is Broad Based and Includes Primary Jobs

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Within the past month, there have been several reports citing how Colorado has one of the faster growing economies in the country. This is good news, but it must be remembered that for several years local economists were saying, “Thank God for Nevada, if it weren’t for them Colorado would have the worst economy in the country.” Part of the reason for the comparatively “strong growth” is about 150,000 jobs were lost in the Great Recession and our current tepid growth looks great compared to job losses.

Case in point…  Job losses in Colorado’s Construction sector have been so severe that employment is at mid-1990s levels. The Manufacturing sector declined for 12 years. It is just now beginning to add jobs again. Despite the build out in the Retail Trade sector, employment has been volatile over the past decade. Today it is similar to the late 1990s and retail Trade jobs are up 4,600.

With increased population in the state growth is inevitable in these sectors.

The real story is that the Colorado recovery is broad-based and it is includes primary jobs (jobs that create wealth).

The recovery has been led by the Tourism and Health Care sectors. They are sectors that add jobs in all areas of the state. There are very few primary jobs in either sector. They account for 19,000 of the 47,300 jobs added when comparing Q1 2012 to Q1 2011.

The Manufacturing and Professional Scientific sectors have added a combined total of 7,700 jobs. Many of these are primary jobs.

Colorado has added 3,900 jobs in the Employment Services sector – The addition of temporary jobs is considered a harbinger that the economy is improving.

Only two sectors recorded significant job losses during this period. Combined, the Information and Local Government, excluding schools, sectors declined by 5,700 jobs.

For additional information go to https://cber.co.

©Copyright 2011 by CBER.

U.S. Employment Tapers Off – Another False Start?

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After three months of solid job growth, BLS released what seems to be a bad April Fool’s Day joke in the form of the March jobs report. After adding jobs at an average monthly rate of 246,000 for December 2011 – February 2012, total nonfarm payroll employment rose by only 120,000 in March.

In light of projections by analysts that job gains would exceed 200,000, this report begs the question, “Are we seeing another false start in job growth, as we did in the first half of 2010 and 2011, or was the March report just another bump in the seemingly endless road to full recovery?”

On Monday (April 9), the DJIA lost 130 points, or 1%. Is that a real answer to the question or just a partial answer?

On a positive note, jobs were added in the Leisure and Hospitality (39,000); Private Education and Health Care (37,000); Manufacturing (37,000); Professional and Business Services (31,000), and Financial Services (15,000) sectors.

Many of the jobs in the Manufacturing and PBS sectors are primary jobs, i.e. they bring outside wealth to the community and they create more support jobs than other sectors. It is good news when jobs are added in the Tourism sector because the industry touches most regions. Increased tourism jobs are an indicator that people have greater disposable income – and they are spending it.

Increased jobs in the Financial sector may be a sign that the woes of the industry may be behind us – with an emphasis on “may”. And then there is the Private Education and Health Care sector. Depending on our perspective this sector may be viewed as a perpetual job creation machine or nothing more than a bureaucracy builder.

The losers were Retail Trade (33,800) and Construction (7,500) sectors.

So is the latest report an April Fool’s Day joke? Employment growth is likely to continue, but not likely at the rate of 2250,000 jobs a month that is needed to significantly lower the unemployment rate.

 

©Copyright 2011 by CBER.

LEHD and Quickfacts – Commerce City – A Community with Atypical Demographics

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Are you a data geek looking for a fix? If so, have you tried the LEHD or Census Quickfacts databases?

The two databases contain information from the U.S. Census Bureau and the Bureau of Labor Statistics. They are combined in a way that allows data geeks, public and private leaders, and others to learn more about their local population and workforce and see what makes their local economy work (or not work).

To illustrate this point, let’s take a look at five examples of information that can be gleaned for Commerce City, Colorado. (Those in the Denver MSA think of Commerce City as the home of the refinery located along Highway 270.)

Example 1
In Colorado 24.5% of the workforce has earnings of $1,250 per month or less, 36.1% have earnings of $1,251 to $3,333 per month, and 39.5% have earnings of more than $3,333 per month.

In Commerce City 17.1% of the workforce has earnings of $1,250 per month or less, 34.2% have earnings of $1,251 to $3,333 per month, and 48.7% have earnings of more than $3,333 per month.

This begs the question, “What industries are driving the higher concentration of earnings in the upper wage category for Commerce City?”

Example 2
In Colorado 50.8% of the workforce is male and 49.2% is female.
In Commerce City 73.7% of the workforce is male and 26.3% is female.

So, why are there more men workers than women in Commerce City? What are the types of jobs that cause that difference?

Example 3
In Colorado 50.1% of the population is male and 49.9% is female.
In Commerce City 50.4% of the population is male and 49.6% is female.

OK? The mix of men and women in Commerce City is split about 50-50, but the workforce (example 2) is not. Where do Commerce City employers find the workers to fill their jobs? Where do the Commerce City women go to work?

Example 4
In Colorado the median value of an owner-occupied home is $236,600
In Commerce City, the median value of an owner-occupied home is $206,600

Earlier we learned that Commerce City has a higher percentage of workers in the upper earnings bracket. If that is the case, then why isn’t the value of the homes higher there? Or do the Commerce City workers in the upper bracket live somewhere other than Commerce City?

Example 5
In Colorado 35.9% of the workforce has a Bachelor’s degree or higher.
In Commerce City 19.8% of the workforce has a Bachelor’s degree or higher.

Again, we previously learned that Commerce City has a higher percentage of workers in the upper earnings bracket. If that is the case, then what types of jobs are they performing that pay well and don’t require a college degree? Or do the people with college degrees live elsewhere and work in Commerce City?

In the matter of minutes it is possible to create a profile about any local community in the United States. Once that sketch of a community is prepared, then another series of probing questions can be asked to address policy decisions regarding social, economic, workforce, or education issues.

What’s the story behind your community? Check out LEHD and Quickfacts to learn more.

 

©Copyright 2011 by CBER.

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

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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.

Where are all the Startups? – Are they Really a Job Creation Machine?

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Suppose your investment advisor called you and said, “Have I got a deal for you? I will sell you 12,027 shares of a fund at $6.10 per share. The total cost to you is only $72,918. Sound good?”

Your advisor continues, “This is a killer fund. In 17 years, the price per share will rise from $6.10 to $18.30. And, in full disclosure I am required to tell you the fund will buy back a few shares along the way.  Sound good?

You reply, “Sounds great, but could you tell me more about the number of shares that will be bought back along the way?”

The advisor nervously answers, “Well, you see…the price per share increases from $6.10 to $18.10. Sound good?” Very quickly the advisor continues, “And the fund will only buy back 9,348 shares. You will still have about 22%-23% of your original shares. Sound good? Can you sign right here?”

You say, “Let me get out my calculator. That means the value of the fund is only $48,987 after 17 years. Sound good?”

The manner in which jobs are created by startups has a similar rate of return. (For purposes of this discussion, startups will be defined as companies less than one-year old that have employees. The Bureau of Labor Statistics (BLS) has tracked the performance of these companies since 1994.)

From the BLS data it is possible to look at the number of firms, average firm size, total employment, and survival rates for the firms formed in 1994. The BLS data shows:

Number of Firms
• In 1994 there were 12,027 firms.
• In 2011 there were 2,679 firms.
Average Firm Size
• In 1994 the average firm size was 6.1 employees.
• In 2011 the average firm size was 18.3 employees.
Total Employment
• In 1994 the firms had 72,918 employees.
• In 2011 the firms had 48,987 employees.
Survival Rate
• In 1994 the survival rate was 100%.
• In 2011 the survival rate was 22.3%.

Do the numbers look familiar? If not, revisit the opening paragraphs.

Startups are critical to future of our country for a variety of reasons; however, they may not be job creation machine that we have been led to believe. They add jobs in year one, but that base declines in year 2 and erodes further over time. Sound good?

With the decline in the number of startups and survival rates, this is a particularly frightening model for economic growth in the state!

For additional information on startups and job creation go to https://cber.co/ or the report “Where Are All the Startups?”

 

©Copyright 2011 by CBER.