Tag: Job Growth

10 Years After 9/11 – Creative Financing Fizzles

horvath

In early 2003 a reporter posed the question, “Looking back, what did you miss in forecasting the 2001 recession?” In hindsight, there were two signals of greater problems.

1. Colorado construction output began to decline in 2001.
2. Employment in the Colorado Financial Activities Sector moved counter to total employment during the 2001 recession.

At that time, it was difficult to understand these trends because they were not fully developed. In the months prior to 9/11, the economy had slowed, but remained strong. Very few noticed the slowdown in construction output and those who did thought it to be nothing more than a bump in the road.

By mid-decade it became more apparent that the strength of the construction industry was waning. T-Rex was winding down and the only major activity was a smaller highway project in Colorado Springs, the Comanche Power Plant in Pueblo, and a mixture of school construction additions or improvements. In addition, housing permits, and valuation began to level off.

By 2007, housing construction began to slip and by 2008 it was clear that the industry was faced with more than a “bump in the road”. Between 2007 and 2009, 1-in-6 of the private sector jobs lost were either in construction or construction-related industries.

In hindsight, more economists and bank officials should have questioned why employees were being added in the Financial Activities Sector during a downturn. When 9/11 occurred, the economy came to a grinding halt for several days. Americans were encouraged to keep spending in hopes the country could consume its way out of the recession. At the time, that seemed to be the right thing to do.

Creative financing products (HELOCS, 0% financing, interest only loans, reverse mortgages, and others) were designed to stimulate consumption. Demand for these products increased in popularity because they allowed Americans to purchase whatever they wanted. To meet that demand, financial employment expanded between 2000 and 2007.

In 2007 a series of problems began to surface, the popularity of these products dropped off, and employment in the sector reversed trend – sharply. The industry experienced a complete melt-down – collapse of large financial institutions, the bailout of major banks by national governments, bank consolidations and closures, declines in consumer wealth, failure of top businesses, volatile equity markets, declining property values, foreclosures and evictions, and much lower interest rates.

In hindsight it is now easy to see that in 2002 there were signals that greater problems lay ahead. Given the circumstances, it is also easy to see why we looked past those warnings.

©Copyright 2011 by CBER.

10 Years After 9/11 – Tourism Initially Hit Hard

horvath

Over the next six weeks this blog will look back 10 years at the change in the national and state economies. In particular, it will take a simplistic look at the possible impact that 9/11 may have had on Colorado’s Lost Decade.

There are analyses that suggest Osama bin Laden inflicted extended damage on the U.S. economy. These calculations show the direct and indirect costs of fighting two wars, tracking OBL and other al Qaeda for the past 10 years, and adopting increased security measures.

Others believe the long-term financial impact of 9/11 was minimal. These viewpoints suggest the 2001 recession was a normal part of the business cycle and the self-inflicted wounds from the financial and housing crises were far greater than the impact of 9/11.

The brief comments provided in this and subsequent blogs are not intended to prove or disprove these viewpoints. Rather, the intent is to show how different sectors of the Colorado economy reacted to 9/11, the financial crises, the housing bubble, and the 2001 and 2007 recessions.  In September this blogs will be summarized and compiled at CBER.co

We’ll begin the discussion by looking at the Leisure and Hospitality sectors.

Tourism was the industry that was initially hit the hardest by 9/11, more so in states such as Nevada than Colorado. Nevertheless, the impact in Colorado was felt immediately. In 2002 there was a drop off in DIA passengers, skier visits, and park visits. This was accompanied by an obvious decline in tourism-related employment.

Sector employment remained soft through 2004. Between 2005 and 2009 the number of leisure and hospitality workers has grown at a rate similar to total state employment. Although tourism employment was hit hard in the 2007 recession, it has since recovered at a faster rate than most other sectors.

On the other hand, employment in Colorado’s air transportation industry declined over the past decade. The sharpest part of the decline coincided with 9/11. A series of industry issues (consolidation, competition, increased productivity, pricing wars, etc.) were exacerbated by the unexpected decline in business. Despite a decline in air transportation employment, the number of passengers at DIA increased from about 39 million in 2000 to more than 51 million in 2010.

©Copyright 2011 by CBER.

Recession or Continued Weak Growth?

horvath

Employment data released in July showed that June marked the 9th consecutive month of job growth for the U.S. Over the past 18 months almost 1.8 million jobs have been added, yet total employment remains about 7.0 million below the January 2008 peak. From an employment perspective, the recovery has yet to gain traction.

Gary Shilling, economist and contributor to Forbes and other major business publications, has now indicated that a recession is on tap for 2012 On the other hand, the Conference Board feels the chances for a recession, based on the business cycle, are currently less than 1-in-6.

Shilling has cited the following factors as possible reasons for concern about the economy:
• Economic expansions typically last about three years and the U.S. is currently two years from the end of the last recession.
• Stimulus efforts have not had their intended impact.
• Weak job growth (mentioned above). The magnitude of layoffs has tapered off; however, hiring is on an as-needed basis.
• Solid corporate profits are not translating into solid wage growth.
• Personal consumption has not fully recovered. Wealthy consumers are the only group to have resumed previous spending patterns.
• Housing inventory is too high – there are 2 million homes on the market that aren’t moving. This in turn has reduced housing starts.
• A 20% decline in home prices is on tap for next year. If this happens, 40% of mortgages will be underwater and consumer will pull back.

Assuming that the Mayan’s doomsday projection doesn’t hold true, Coloradans can only hope that the Conference Board has a better pulse on the 2012 outlook than Shilling.

©Copyright 2011 by CBER.

Metro Counties a Drag on Colorado Economy

horvath

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.

The Employment Recession Has Finally Ended

horvath

When the NBER officially announced the end of the Great Recession, the general reaction was, “Oh really?” It was clear to most that while the technical recession was over, the employment recession was not.

More recently, it has been announced that the employment recession has ended, although unemployment remains high. In the case of Colorado, the rate has reached record levels and is higher than the U.S. Again, the general reaction has been, “Oh really?”

Yes, the country is in expansion mode again. (The unemployment rate is dismal, but it is a lagging indicator.)

There are clearly risks to the continued expansion; however, sufficient momentum appears to be in place to sustain growth in the near-term. Arguments supporting the expansion follow…

Mathematically, the recovery has to occur. Over the past three years Colorado had one of the worst performing economies in the country. At some point it has to improve and that time is now. The global economy is likely to expand by 4 to 5% this year and U.S. output growth will increase by at least 2.5%. Given that environment and Colorado’s assets, simple mathematics point to sustained job growth.

The country has experienced 7 quarters of heavily-stimulated Real GDP growth (Q1 2011 data has not been released, but it will be positive). Annualized real GDP growth for this period is in the range of 2.8%. Typically, solid job growth occurs when the economy expands at that rate.

As the recession drew to a close, companies increased output per hour at the expense of labor. The rate of productivity gains peaked in 2009 and 2010. The addition of labor will most likely be necessary for companies to experience further output gains.

As a result, the addition of jobs has begun. Nationally, March 2011 marks the sixth consecutive month of job gains. On average, increases for December 2010-March 2011 averaged 158,000 – not great, but a drastic improvement.

The Colorado growth pattern is a little more sporadic. Beginning in February 2010 job gains have occurred in 9 of the past 13 months and 4 of the past six months. While the path to prosperity is a little bumpy, job gains this year will push total state employment back to the 2001 peak.

Last year, healthcare led the state in job creation. At the end of the first quarter, it is projected to be up about 8,800 workers from a year ago.

The good news is that the sector has been joined by tourism, the extractive industries, and the Professional Business Services (PBS) sector for job creation. At the end of the first quarter, the three sectors will add 25,000 to 30,000 net jobs.
Colorado is coming off a solid ski season which, in part, has helped push tourism employment higher by about 8,200 jobs. Increased traffic at DIA points to solid growth in the industry. High gas prices may work to Colorado’s benefit, if it incents the state’s regional market to enjoy less expensive drive vacations to the state this summer.

The extractive industries comprise a small, but important sector because of the severance taxes  generated and jobs added in other industries. Year-over-year the sector is about 2,100 workers ahead of the same period last year. Sustained growth is likely to continue, particularly if the Niobrara oil patch proves to be a worthy producer.

The PBS sector has added about 8,200 workers over the past year. It is a mixed blessing that more than 40% of that increase is derived from Employment Services, i.e. temporary help. While these are typically not high paying jobs, gains in this subsector often point to expansion of other areas.

While the state may be at three years from recovering all the jobs lost in the Great Recession, we are finally on the path to that recovery. Sustainable growth, at some level, is on tap for Colorado.

©Copyright 2011 by CBER.

Risks to Recovery from Great Recession

horvath

The recovery from the Great Recession has now been in place in Colorado for about a year! Spin-masters have labeled the expansion as moderate, manageable, and modest. More accurately, the return to positive territory is less than robust, it is well below average, it is fragile, but it is gaining momentum.

Putting the Thesaurus aside, it is great to again report that job growth is positive. Year-over-year Q1 2011 wage and salary employment is likely to be about 15,000 jobs greater than a year ago.

While there is reason for optimism, the following risks have the ability to derail the expansion, or at least reduce its strength.

• Nationally, Q1 manufacturing employment is about 185,000 net jobs ahead of the same period last year. While the nation added jobs, Colorado manufacturers had mixed results and the bottom line was continued jobs losses for the year. Colorado’s woes are likely to continue as manufacturers post another loss in Q1.

• The story in the construction sector has a similar ring to it. Other states have begun their recovery, yet Q1 Colorado construction employment will drop to levels last seen in the mid-1990s. Although the number of single-family permits is expected to increase this year, Q1 Colorado construction employment will be about 7,000 lower than last year.

• Between February, 2006 and February, 2008, the S&P/Case-Shiller Home Price Indices for Colorado housing prices declined by about 12%. In 2009, they regained about half their losses before leveling off. This has an impact on individual homeowners who may be under water or forced to sell for other reasons. As well, the coffers of local municipalities will see flat or reduced revenue streams because property values have not increased.

• Between 2000 and 2010 inflation rose by an annualized rate of 1.6% (Denver-Boulder-Greeley CPI). Looking more closely, this rate is deceptively low. For the period mentioned, the annualized rate of growth for the following categories has been:
o Fuel 5.6%
o Electricity 3.9%
o Medical 3.9%
o Recreation 3.0%
o Natural gas 1.9%
Housing, the dominant component of the headline indicator, came in at 1.3%. For some families, price increases at these levels are an inconvenience, while for others they are problematic.

• Job creation is critical! Net changes in employment are the difference between gross job gains and gross jobs losses. Average quarterly job gains have been fairly constant for the upturns as well as the downturns during the past two decades. On the other hand, fluctuations in average quarterly job losses has been more volatile. In simplistic terms, the changes in net employment have usually been determined by the levels of job losses, rather than the levels of job gains. While this sounds very intuitive, the creation of jobs is clearly much more difficult than it sounds!

• There are external factors such as the triple disaster in Japan; the disruptions in Egypt, Libya, Yemen, Ivory Coast, and Syria; and the wars in Afghanistan and Iraq. The former will clearly be distractions, but they will likely have minor short-term impacts on the U.S. economy.

• Debt!

• President Obama introduced a final possible deterrent to the economy when he announced that he is running for re-election. This is not intended to be a political statement for or against the President, rather an observation that election campaigns, particularly those that are bitterly fought, often put the economy in a holding pattern.

These are significant risks! At the same time, there is reason to be optimistic. The upside will be examined in an upcoming post.

©Copyright 2011 by CBER.

Gap between U.S. and Colorado Unemployment Widens

horvath

The Colorado economy is a lot like the final two weeks of the 2010 Colorado Rockies baseball season – very ugly.

On a positive note, the word on the street is that both are going to be better in the near term (despite at opening day loss in extra innings).

On March 25, the Colorado Office of Labor Market Information (LMI) announced that the statewide seasonally adjusted unemployment rate had risen to 9.3% in February (the non-seasonally adjusted rate was 9.7%). By comparison, the national seasonally adjusted rate dropped further to 8.9%. Prior to January, the last time Colorado’s rate was higher than the U.S. was September 2005.

Seasonally adjusted unemployment rates for the state’s Metropolitan Statistical Areas (MSAs) are:
• Boulder  7.3%
• Fort Collins 7.9%
• Denver 9.4%
• Colorado Springs 10.1%
• Greeley 10.7%
• Grand Junction 11.0%
• Pueblo 11.1%.
These metros areas account for about 86% of the Colorado labor force. A majority of the state MSAs have unemployment at or above 9.4%.

There is more to the story…

Through February, year over year, seasonally adjusted data points to weak employment gains of 13,800 workers.

The areas of net job growth are:
• 11,400  Private education and health care
• 8,200  Tourism
• 8,200  Professional business services
• 2,200  Trade, transportation, and utilities
• 2,100  Oil, gas, and mineral extraction
• 800  Personal services
Employment in these 6 sectors is about 63% of all workers and 57.3% of total wages. The increase is about 32,900 workers.

The areas with continued declines are:
• -8,900 Construction
• -3,900 Financial Activities
• -3,200 Information
• -2,600 Government
• -500 Manufacturing
These 5 sectors have shown losses of 19,100.

It is good news that there is an increase in net jobs; however, there are 3 areas of concern:
• The weak level of net job growth is being driven by a reduction in job losses rather than a significant increase in job gains.
• Many of the jobs that are being added are not primary jobs.
• Many of the jobs being added pay lower wages and have less on an impact on the economy.

So, are we headed for continued improvement and another Roctober or lackluster economic growth and another October watching other teams play in the World Series? A few months from now we will have a much better idea where the economy and Rockies are headed.

©Copyright 2011 by CBER.

The Lost Decade – Colorado Sheds A Quarter Million Jobs As a Result of Recessions

horvath

This topic is being revisited (last discussed October 1, 2010). In early March, the Bureau of Labor Statistics released benchmark revisions for the Current Employment Statistics (CES) series for 2009 and 2010.

The Lost Decade (January 2001 through December, 2010)

  • Two recessions
  • 69 months of job gains
  • 51 months of job losses
  • Net loss 28,800 jobs over ten years

Now that the revised data is in, the employment pattern for the 10 years ending this past December is clear: DOWN, UP, DOWN, UP.

The recession, as defined by NBER, is irrelevant.

DOWN

The employment situation started off bad in January 2001. And it stayed bad for 30 months (this includes the 2001 recession).

NOTE: More jobs were lost in the 22 months in the months before and after the recession, as defined by NBER than during the 8 months of the recession (March through October 2001).

Net job losses (from peak to trough) -103,600.

UP

Beginning in July 2003, employment turned positive. Steady gains occurred over the next 58 months.

NOTE: Colorado was late entering the Great Recession (December 2007 through May 2009). The state posted net job gains of 11,600 during the first 5 months.

Net job gains (from trough to peak) +214,900.

DOWN

NOTE: During the last 13 months of the Great Recession, the state lost 109,500 net jobs.

The trend of monthly losses began in May 2008 and continued for 21 months, 8 months past the end of the recession.

Net job losses (from peak to trough) –151,100.

UP

Employment turned positive in February 2010 and posted slight gains for the remaining 11 months in 2010.

Net job gains (from trough to peak) +10,900.

NET LOSS 28,900 JOBS FOR THE TEN YEARS 2001 through 2010!

 

©Copyright 2011 by CBER.

Colorado Unemployment Rate Tops the U.S.

horvath

On March 10th, the Colorado Office of Labor Market Information (LMI) announced that the statewide seasonally adjusted unemployment rate reached 9.1% in January. By comparison, the national rate dropped to 9.0%. The last time Colorado’s rate was higher than the U.S. was September 2005.

These results are further indication that the state is lagging the nation in its recovery. Over the past year, the
national rate has declined, while the state rate has increased slightly.

A review of the 64 counties shows that 35 have a rate less than the state (9.9% non-seasonally adjusted). In
several counties with small labor forces there is unemployment of about 20%. In other words, both urban and rural counties have not been spared.

Colorado has 7 Metropolitan Statistical Areas (MSA) that cover 17 counties and account for 86% of the labor force. The unemployment rate (non seasonally adjusted) in 9 counties is less than the rate for the state.

A review of unemployment rates by MSA shows that the Denver-Aurora is the same as the state, whereas Boulder-Longmont and Fort Collins-Loveland fall below the state. The remaining four MSAs have rates (Greeley, Pueblo,Colorado Springs, and Grand Junction) above the state.

In addition, Colorado has seven Micropolitan Statistical Areas (MCAs) that cover 8 counties. About 5.5% of the
labor force works in these locales.

Five of the seven MCAs have unemployment lower than the state average (Durango, Edwards, Fort Morgan, Silverthorne, and Sterling). On the other hand, unemployment in Canon City and Montrose is well above the state average.Unemployment in 5 of the 8 counties is below 9.9%. In the remaining 39 rural counties, 21 had unemployment rates lower than 9.9%.

The aggregate rate of unemployment was greatest in the MSAs (9.94%), followed by the MCAs (9.70%), and the rural counties (9.58%). About one-third of the counties have unemployment below 8.0%.

On a more positive note, limited job creation began in the second quarter of 2010. If that growth continues, the state rate is likely to follow the national trend, and decline as the year progresses.

©Copyright 2011 by CBER.

Has the Colorado Job Creation Machine Stalled?

horvath

Most analyses of Bureau of Labor Statistics (BLS) employment data report net change in the number of workers. For example, Colorado lost about 25,000 jobs in 2010.

BLS also produces data series, based on the Quarterly Census of Employment (QCEW – private sector only), that report the following employment flows:
• employees added (establishments were opened); in 2009 this total was 101,869.
• workers added (firms currently in business); in 2009 this total was 369,773.
• employees lost (establishments contracted); in 2009 this total was 472,895.
• workers lost (firms closed); in 2009 this total was 111,574.
The sum of the first two categories measures gross job gains, whereas the sum of the latter two categories is gross job losses. In 2009 there was a gross gain of 471,642 jobs and a gross loss of 584,469 jobs.

The net change in employment is the difference between job gains and job losses. In 2009 the net change in employment was -112,827 workers. Total QCEW private employment for 2009 was 1,828,955 workers.

The magnitude of the net jobs lost is striking. It is a result of reduced job creation and increased job losses – the perfect storm on steroids. It should also be noted that in both 2008 and 2009 more jobs were lost by firms closings than were added by firms that were opened.

The following points stand out in an analysis of the jobs gained and jobs lost data:
• During the “go-go 90s” there was a high level of gross jobs lost and an even higher level of gross jobs added. There was a high level of job churn accompanied by strong net gains in employment.
• For the period 2002 through 2004, weak gross job gains were offset by much stronger gross job losses. There were net job losses of about 50,000 workers for this period.
• Gross job gains were comparatively weak for 2006 through 2008, although the state added about 170,000 net jobs over that period. There was a net increase in employment because of a decline in the number of gross jobs lost. In other words, job churn subsided. Workers were content to stay in the jobs they held at the time and fewer jobs were created, which increased competition for the available openings.
• It is especially disturbing to see the decline in the number of employees working for firms that were opened.
At this point, data for 2010 is available through mid-year. The good news is that there seems to be significant improvement in the number of gross jobs lost. On the downside, there is not corresponding improvement in the number of gross jobs gained.

For the moment it appears that Colorado’s wild-west entrepreneurial job creation machine seems to have stalled!

©Copyright 2011 by CBER.