Friday, August 15, 2014

Beyond Recovery

Carrie Mayne, Chief Economist

In November of 2012 Utah had finally crawled out of the job deficit hole created by the Great Recession. The full volume of job loss, roughly 79,000 was gained back by that time and since then our economy has grown by another 75,000 jobs. The contraction took roughly 21 months to play itself out, and recovery occurred over the next 30. Since then, job growth rates have been strong and employment expansion has happened across the full spectrum of business sectors.

Utah’s Great Recession story has been told many times, but what may be news to some is that the recovery hasn’t played out equally in all the different employment industries. Of the 17 private sector industries, eight of them followed a similar pattern as the full job market: recession, recovery, and now expansion. The Natural Resources and Mining industry, thanks to strong oil and gas markets, has just recently returned to its pre-recession employment level. Three industries were blind to the recession and experienced no job losses: Education, Health Care, and Arts, Entertainment, and Recreation.

Despite strong job growth as of late, five industries still show net deficits compared to their pre-recession peaks. Three of the five (Construction, Finance and Insurance, and Real Estate) have clear ties to housing and were likely overheated prior to the recession. As such it is no surprise the employment levels in these industries have not returned. Due to significant structural changes that occurred before and during the recession, Manufacturing is also in a job deficit that will likely not fully recuperate given the new industry conditions.

So while job growth accelerates and the Great Recession has become distant memory for the Utah economy, there are some devils in these details that help us appreciate that not all things are equal in the state’s job market.

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Thursday, August 14, 2014

Personal Consumption Expenditures: A new tool to add to your economic-analysis repertoire

Economists evaluating a local economy like to track the indicators that provide vital insights into the business cycle. Luckily for us, the U.S. Bureau of Economic Analysis has just released prototype estimates of personal consumption expenditures for states, a product that until now was only available at the United States level.

In the national arena, this particular data piece is a subset of the national income and product accounts that measure gross domestic product. According to Mark Doms, Under Secretary of Commerce for Economic Affairs, “The creation of these new economic statistics makes clear how much consumers in each state are spending, as well as what they are buying, in a geographically detailed picture that didn't exist before."

What exactly are personal consumption expenditures (PCE)? They represent actual and imputed household consumer spending for goods and services. In other words, PCE is a measure of goods and services consumed by individuals (as opposed to businesses or governments). It accounts for roughly two-thirds of gross domestic product and is obviously the primary engine of the country’s economic growth. Yeah, it’s important.

Previously, this data item has only been available for the United States in total. However, the Bureau of Economic Analysis has just provided state-level estimates for review and comment. The results are certainly interesting.

There is a caveat though. As with much of the Bureau’s local-level information, personal expenditure estimates for states are rather dated. It takes a significant amount of time to collect and tabulate the information. The most current estimates are for 2012. However, as the past performance of the economy is a relatively good predictor of future patterns, we can learn a lot from the trends of the previous business cycle.

A few interesting points from the recently-distributed personal consumption expenditures for Utah follow:

Tuesday, August 12, 2014

State and Local Government Job Growth 2000 to 2013

By Jim Robson, Senior Economist

Over the past 13 years, the Utah economy has grown by 20.1 percent—a period that included two recessions. Over this same period, state and local government payrolls increased by 26.2 percent. In spite of two recessions, state and local governments recorded job increases in each of the 13 years. How do we account for a 13 year job growth rate for state and local government of 26.2 percent when overall payroll jobs in Utah grew at a lesser amount of 20.1 percent? The key is understanding that most education in Utah is provided by government entities, and with Utah’s continually growing youthful population and expanding education needs, education accelerates the government job growth.

Education is a dominating proportion of both state and local governments. Most of the state’s K-12 school districts are local government entities. Also, most of the state’s higher education facilities are state government-owned. Therefore, education is a large part of the state and local government employment makeup.

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The figure at left profiles the major components of state government. State government comprises around 5.5 percent of all Utah employment, and over half of this is in higher education. This includes state colleges, universities and applied technology centers. These education institutions, while receiving state government revenue support, obtain a majority of their funding from tuition and fees. Since 2010, state higher education employment has been moving up, with its highest level in 2013 of 3.27 percent.

In the next figure, education (grades K through 12) is also the largest employment proportion in local governments. Local governments account for around 9.5 percent of all Utah jobs, and well over half of these are education jobs.

One major factor for faster state and local government job growth compared to overall job growth has been the effect of two recessions in a relatively short period of time. Recessions reduce the demand

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for most goods and services, but generally not education. Population growth is the determiner of education demand, and even while the recession’s loomed, Utah’s youthful population continued to grow.

As the current recession rebound develops, a rebalancing of private sector to state and local government employment will naturally occur. The remaining figure shows the proportion of total jobs that state and local governments comprise. The government proportion ranges from a low of 13.7 percent in 2007 (when the private sector was booming) to a high of 15.2 percent in 2011 (when the effects of the Great Recession were in full bloom). The proportion of government jobs increases in conjunction with each recession, and this proportion falls during higher growth periods of private sector expansion.

Government jobs have proportionally grown faster over the past 13 years than has non-government jobs. But the need to educate more and more Utahns is the driving factor behind this aggressive state and local government employment growth.
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Thursday, August 7, 2014

GDP UPDATE: Rebound in Q2

Tyson Smith, Regional Economist

In a blog post last month, I dug into the implications of the decline in first-quarter Gross Domestic Product (GDP).

The article suggested that readers should not panic over the single quarter drop of 2.9 percent, while at the same time it cautioned that the significant drop should not be dismissed. The argument is that changes in quarterly GDP are erratic and prone to large variations from the initial estimate to the second (and final) quarterly revision. However, quarterly GDP declines of 2 percent or larger are somewhat rare, and in the past have been correlated with recessionary trends.

Ultimately, the article pointed to extreme weather and positive economic data in several other areas – most notably the labor market – as reasons for optimism that GDP would rebound. 

Last week’s GDP press release seems to support the notion that the first quarter drop in GDP was an anomaly, and not a trend. Second-quarter GDP estimates rebounded strongly, showing 4 percent growth from the previous period (seasonally adjusted). And the final revision of the first-quarter GDP data revealed an upward revision to negative 2.1 percent.

Both the initial second-quarter estimate and the revision of the first-quarter estimate represent positive news for the health of the national economy. And given that Utah’s GDP normally grows faster than the national average this news is likely amplified locally. However, the same caveats that were applied to the negative news of the first quarter also apply to last week’s positive data.

For one, the initial estimates undergo two rounds of revisions that often yield dramatic adjustments to the data. It is highly unlikely that second-quarter GDP growth will remain at 4 percent after two rounds of corrections. Recent history shows us that it is almost a 50/50 bet as to whether the final revision will be above or below the previous estimate.

Secondly, the burst of economic activity in the second quarter may have been a reaction to the poor weather of the first quarter, and not a sustainable trend over the long term. In other words, consumers may have delayed their consumption for a few months, and the pent up demand resulted in a flurry of transactions once the weather improved.

Finally, while there continue to be positive economic indicators pointing toward future growth, expansion in some vital sectors has started to wane. The housing sector in particular has experienced a bit of stagnation to start 2014. Many economists thought that the housing market gains that started in 2012 and escalated in early 2013 pointed to a strong recovery in 2014, but so far this has not been the case. Recent housing construction, sales and price data have been disappointing (even though, in some cases, these data continue to move in a positive direction).

It is still possible that the drop in first-quarter GDP is an indication that the national economy is weakening. But, the data released last week increases the likelihood that it was an anomalous event that will not hurt growth going forward. Economists remain cautiously optimistic that the country will finish the year with moderately-strong GDP growth.

Tuesday, August 5, 2014

For Rent: Rental Vacancy Rates in Utah

John Krantz, Research Economist

The housing market is a key component of the economy. A strong housing market (construction and sales) contributes to robust economic growth while an interruption can pull the economy into a recession, as occurred preceding the Great Recession.  Two measures of a housing market’s health are homeowner and rental vacancy rates. Low rates signal to investors that additional housing or rental stock may be necessary, and the resultant construction helps empower economic growth.

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The U.S. Census Bureau measures Utah’s vacancy rates each calendar quarter.  It defines the homeowner vacancy rate as the percent of homeowner inventory currently vacant and for sale. The rental vacancy rate is similarly defined—the percent of Utah rental inventory vacant and for rent.

From an economic standpoint, these rates’ signal to investors and the construction industry the demand for additional homes or rental properties. For example, a low rental vacancy rate expresses a high demand for rental properties, which kindles investor evaluations that additional apartment space may be profitable. Apartment construction activity follows, stimulating the economy.

Historically, Utah tends to have lower vacancy rates than the U.S. average; hence Utah has a healthy history of construction activity (the Great Recession not withstanding). Yet in the first quarter of 2014, Utah’s rental vacancy rate leapt above the U.S. average, equaling Mississippi for second highest in the nation at 13.9 percent. Only Alabama was higher at 16.1 percent. In the third quarter of 2013, Utah’s rental vacancy rate was only 8.8 percent, implying an increase of 5.1 percentage points in the first quarter of 2014.

Is this rapid rental vacancy rate change a market transformation or an anomaly?  The Census Bureau estimates are based on survey sampling, so there is always the possibility of collecting a non-representative sample, and thus an anomaly. However, if the higher rate were to hold in subsequent quarters, it would signal some sort of market-based shift. This might naturally slow construction of more apartment stock in the immediate future.

In dialogue with those involved in the Utah housing rental market, the Census data comes across as an anomaly. Particularly in Utah’s metropolitan corridor, many speak of dynamic rental-building opportunities. There are many proposals for rental expansions in front of local authorities. These are savvy investors with money on the line, and making such proposals if the Utah apartment rental market was overly vacant does not harmonize with sound investment strategy.

This high rental vacancy rate might be a short-run phenomenon, with the rate returning to the historical average over the next several quarters. It may come under revision and be exposed as an anomaly. Given Utah’s history, it is hard to envision this increase being a market-shift long-term trend. But the course of this vacancy rate’s trend throughout the remainder of 2014 will set the stage for the rental construction picture in 2015 and beyond.

Tuesday, July 29, 2014

Public Assistance Usage and Employment Patterns in Utah’s Refugee Population

Natalie Torosyan, Research Economist

Each year, hundreds of refugees are resettled in Utah and receive assistance from a variety of sources. Among those sources is the Department of Workforce Services (DWS), which provides some form of public assistance or employment service to the majority of refugees in Utah. The Workforce Research and Analysis division at DWS recently published a research paper that profiles the segment of the refugee community in Utah served by DWS.

Refugees can access a number of public assistance programs through DWS. The public assistance programs that are described in this research paper are the following:
  • Supplement Nutritional Assistance Program, commonly known as food stamps
  • Medical
  • Child Care
  • Unemployment Insurance
  • Financial, which includes the Family Employment Program, Refugee Cash Assistance and General Assistance Cash Program
During the first four years after arrival in Utah, a refugee could have potentially received 48 months of public assistance from each of the programs listed above, or 240 overlapping months if taking each program individually. When summing the total number of months of public assistance across all of the different programs, refugees’ average public assistance usage was 42 months. The figure below, taken from the paper, plots the average public assistance usage and average four-year wages by country of origin. The size of the bubble indicates the proportion of the total refugee population that comes from a particular country of origin. The plot shows that Iraqis, the largest group of refugees, receive the most public assistance on average. The relatively small population of refugees from Cambodia tends to earn the highest wages during the first four years.

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The research paper also includes an analysis of industry sectors of employment, out-migration from the state, and the impact of the recession on the refugee population of Utah.

The full report can be accessed here.

Thursday, July 24, 2014

An Alternate Look at Utah’s Per Capita Personal Income

Mark Knold, Supervising Economist

In listings of the 50 states, Utah consistently ranks near the bottom in yearly per capita personal income. The knee-jerk conclusion is that Utah has low wages, or that what you can earn in Utah is muted. But is that a fair perception? What Utah’s per capita measure needs is a more transparent look.

Quickly we’ll define some terms. Personal income is the total income earned throughout Utah in a given year. In all states, the most prevalent way to generate income is through earnings from a job. But income can also come from retirement payments, dividends from investments, rental income, unemployment benefits, social security payments, or selling other assets (to pawnshops and on eBay, among others). It is the total extent of income amassed by Utah residents. Per capita is to take that total income and divide it by Utah’s total population. That brings it down to an individualized level that can be compared to other states. But what if you have the highest proportion of children in your population than any other state, as Utah does? Children generally don’t earn income. That is naturally going to lower your per capita calculation in relation to other states.

Generally, people 18 and over are the ones who generate a state’s total income, so let’s divide each state’s total income by the 18-and-over population. That way, we are only including the population segment that contributes to total income. Adjusting for age noticeably improves the picture for Utah.

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The image to the right has two graphs: the graph on the left highlights Utah’s position within the total-population per capita ranking in yellow; the graph on the right readjusts Utah’s position with just the 18-and-over population. Utah noticeably moves up in the rankings. In fact, Utah’s 45% increase between its general per capita value ($36,274) and its 18-and-over value ($52,501) is the largest percentage gain for any state. The more children you remove from the equation’s denominator, the more gain in per capita value.

That is not the end of the story. One could do an additional adjustment for the cost-of-living variations across states. Applying cost-of-living indices from this site and adjusting each state’s 18-and-over per capita accordingly, Utah advances even further, now finding itself in the middle of the pack.
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With the elimination of the non-income group (those below 18) and an additional adjustment for the various costs of living in each state, the story of Utah’s per capita income is brought into better proportion.

Even then, it is possible to add one more caveat. If you were to fill a room with a random sample of 30 year olds, and another equal-size room with a random sample of 50 year olds and calculate in each room the per capita income, which room would you expect to have the higher income? Due to 20 more years of work experience and earnings power, you should expect the 50-year-old room to have the higher income. That comparison is analogous to what you get when you compare Utah to the national average (which means most other states). The graph below shows that Utah has a higher percentage of its income-earning age at the younger end of the spectrum than does the nation as a whole. If it were possible to further adjust state incomes by age of income earners, Utah would probably inch up even more.

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Utah’s per capita income measure is cited regularly. Yet without a proper understanding of that variables’ nature and Utah’s unique underlying characteristics, a mistaken inference is often forthcoming.

Tuesday, July 22, 2014

GDP: Looking Back at Q1 and Looking Forward to Q2

Tyson Smith, Regional Economist

Last month, the Bureau of Economic Analysis (BEA) revised down its first quarter 2014 Gross Domestic Product (GDP) estimates. GDP measures the total value of all goods and services produced in the economy during a given period, and is one of the broadest indicators of economic activity. According to the BEA, the U.S. economy shrank 2.9 percent in the first three months of the year.

Since then, economic journalists like Andrew Flower and Ben Casselman at have written extensively about the GDP estimates and the contraction’s potential impact. The question is: how much weight should we put in a single quarter of negative GDP change? The opinion among journalists, economists and financial experts is mixed. While there are few people willing to assert that the “sky is falling”, the news is certainly unwelcome considering the multi-year sluggishness of the recovery.

The Pessimistic Assessment:

First, let’s state the obvious; an expanding economy is better than a contracting one. While GDP is not a flawless measure of national economic health, it does correlate with increases in consumer spending, business investment and individual wealth. What makes this downward revision particularly alarming is the size of the contraction. The original estimate had GDP down 1 percent then, in June, the BEA moved it even further to negative 2.9 percent.

“Negative quarters are rare outside of recessions,” explains Casselman. “There have been only two other non-recessionary quarters since World War II when the economy shrank at a rate over 2 percent.” In both of those cases, the negative quarters immediately preceded a recession.

The following chart shows how the fall in GDP last quarter compares to recent history. The decrease is the largest of any outside of the recession. However, it is worth noting that GDP fell over 1 percent in the first quarter of 2011 and bounced back substantially thereafter.

Friday, July 18, 2014

Survey vs. Census—Revisiting the Data Timeliness and Accuracy Discussion

Carrie Mayne, Chief Economist

New data from the Quarterly Census of Employment and Wages was released since I last wrote about comparing the more timely survey data to the “true” but lagged census employment data.

With the addition of data for January, February, and March of 2014 we can see the pattern of undercounting jobs continues in the survey, although the margin is somewhat smaller starting in 2014. Has the survey become more accurate? Well, each year in February the survey estimates are refined through a benchmark process. Past years’ estimates are revised using the latest employment census data, and the model used to create the estimates going forward is recalibrated using the new information. As a result, we tend to see a pattern in the survey estimates where early months are fairly accurate but as time passes the accuracy wanes. In March for example, the difference between the census employment count and the survey estimate is only 300 which is essentially decimal dust when you are tracking 1.3 million jobs. But March is estimated only a few months after the model is benchmarked.

The June jobs estimate is 1,355,900, 3.5 percent growth above June of 2013. Now that we are out six months from model benchmarking we have to wonder: how accurate is that estimate? Forecasts based not on surveys but generated from models of historical employment patterns estimate June employment growth to be between 3.4 and 3.5 percent. This leads us to believe that even with half the year under our belts the survey estimates could still be on track. On the other hand, digging into the detail we see some signs of potential overestimating. Take for example construction employment. The most recent census data (March) shows construction employment at 73,325 which constitutes 6.7 percent growth over March of 2013. The June survey estimate has construction employment at 82,300, growth of 9.2 percent year over. As the weather warms up from March to June it is commonplace for construction employment to ramp up. But has it grown by almost 10,000 positions in three months? It seems more likely that the June estimate is slightly high.

Ideally, the monthly survey data would accurately estimate employment growth across the state and for all industries. But no statistical model or survey is perfect, so assessing the model’s accuracy whenever possible is essential.