Friday, April 11, 2014

County by County Economic Diversity

Mark Knold, Supervising Economist

In the Summer 2013 issue of Statewide Local Insights, the feature article addressed the industrial diversity of the Utah economy. The analysis concluded that Utah has a very diverse economic base. This means its distribution of employment is desirably spread out across various industries. In other words, Utah has its industrial eggs in many different baskets. Through a grading tool called the Hachman Index, Utah’s economic diversity measured 97.6, meaning the Utah economy is 97.6 percent as diverse as the United States economy. The United States economy is viewed as the most diverse standard against which to measure a local economy and its industry employment distribution.

Peering more deeply into the Utah economy shows where that diversity is located. Taken as a whole, the Utah economy is quite diverse, but when you dissect the Utah economy by individual counties, you instead find more industrially-concentrated economies. The majority of the state’s diversification comes from Salt Lake County alone, which accounts for nearly half of all Utah employment. Add in the industrial diversity of fellow metro counties Davis, Utah and Weber—now 80 percent of the state economy—and the state’s overall diversity emerges. These four counties are the chief contributors to Utah’s economic diversity.

Click graph to enlarge
The graph lists Utah’s counties in descending order of their Hachman Index. Saying exactly where a county goes from being diverse to non-diverse is open to debate. Here we use a general rule that an economy at 80 percent (0.8 on chart) or more of the United States diversity will be labeled as diverse. This is a loose criterion, but is based upon observing the variation in economic performances across time. Economies at 80 percent or above have less economic variation; they weather the ups and downs of the business cycle better. Given this threshold, 23 counties are below, ranging from Tooele County’s 77 percent to Duchesne County’s 9 percent.

A diverse economy is an outcome of market factors of a given region. Rather than being artificially created, a local economy’s industrial diversity is developed organically depending on the size of the population and the endowment of natural resources. Thus, it is less likely for small population counties to be economically diverse given that they simply have a smaller distribution of residents and resources. So naturally, Utah’s numerous small counties will have less diverse economies.
Mapping the diversity reveals a regional look. The core of high diversity in the Wasatch Front metropolitan counties stands out. The counties surrounding those within the Wasatch Front then offer the first lower level of industrial diversity as part of their proximity to the urban population mass.

Tuesday, April 1, 2014

Labor Underutilization in Utah

by Jim Robson, Senior Economist

The official monthly seasonally adjusted unemployment rate for Utah in December 2013 was 4.1 percent of the labor force. To be unemployed and part of the labor force, a person must be available to take a job and have actively sought work in the past four weeks. The estimate of unemployment is based primarily on the monthly Current Population Survey (CPS) as the major input to a model that includes other indicators of the labor force for Utah. The CPS sample size is relatively small for state level estimates. By using a 12-month accumulation of CPS data, reliable estimates for Utah and other states can be made. In addition, averaging a full year of data eliminates seasonality issues.

Click graph to enlarge

Monday, March 10, 2014

Tourism Employment in Utah

Mark Knold, Supervising Economist

Even a casual understanding of an economy will lead to the conclusion that certain industries have a bigger impact than others within certain geographic locales. Tourism is often cited as an important part of the Utah economy. Yet surprisingly, for the state as a whole, tourism is not a make-or-break industry. Nationally, leisure and hospitality accounts for 11 percent of all employment. In Utah it is only 9.3 percent. Yet for certain parts of the state, tourism is indispensable.

Click image to enlarge
Tourism within an area translates into jobs. For some Utah counties, those jobs are the foundation of the local economy.  Take the tourism away and the economy collapses—in some counties it disappears. Supporting Utah’s local tourist-dependent economies was the impetus behind Utah stepping in last October to temporarily fund Utah’s national parks during last October’s federal government shutdown.
   
The impact of tourism jobs to an area can be gauged by comparing the percentage of leisure and hospitality jobs in a local economy against a baseline percentage—in this case the United States average. Statistically this is called a location quotient (LQ). Equal percentages yield a ratio of 1. An LQ of 0.8 to 1.2 is roughly average. LQ’s higher than 1.2 raise tourism to above-average importance.
   
The graphic shows tourism’s significance for each Utah county. Many counties (light yellow) show no overt significance.  No one doubts tourism exists along the Wasatch Front, but it is easily balanced by the diversity of employment across other industries. Rural counties in this classification are largely devoid of significant natural features and national parks, or have other prominent industries.


Labor Market Illuminated: A Graphical Tool

Eric Martinson, Economist

Today, the Federal Reserve Bank of New York unveiled an effective tool that helps users to better understand the dynamics of the labor force. “The labor market is far more complex than a few indicators, like the unemployment rate or payroll growth, can capture. Understanding the workings of the labor market requires closely following the evolution of different aspects of the labor market. In this page, we have presented various important labor market indicators, in eight main categories, to provide a complete snapshot of the labor market.” There is even a ‘labor mismatch’ index which tries to gauge the extent to which there is any mismatch between the labor supply (i.e., workers) and labor demand (employers). The mismatch, it has been argued, may be due to a gap between what a particular job asks for in terms of skills and what skills those applying for the position may or may not have.
 
Source: New York Federal Reserve Bank - http://www.newyorkfed.org/labor-conditions/


Click on the following link for the new tool: Eight Different Faces of the Labor Market

Friday, February 14, 2014

Job Turnover Rates in Utah

Eric Martinson, Economist

A question recently entertaining some labor supply and demand discussions is whether turnover rates are different according to age groups. The idea is basically this: some posit that the younger generation does not seem to have a mindset of “loyalty” or attachment to firms. The younger generation seems more likely to “job-hop” or to constantly be in a mode of shopping for the next job. The extent to which this mentality is pervasive in younger generations would be complicated to get at for a number of reasons, but it is a valid and interesting question.

One source of information that may lend itself to answering this question, at least in part, is job turnover data from the U.S. Census Bureau’s Local Employment Dynamics (LED) program. It provides a measure of turnover which is defined as follows: “The rate at which stable jobs begin and end. It is calculated by summing the number of stable hires in a reference quarter and stable separations in the next quarter, and dividing by the average full-quarter employment.” In this context, “stable” is someone who stays with the same employer through an entire calendar quarter. Important to note is that these data are defined as jobs which begin and end, they do not specify whether the ending of a job is due to a lay-off or a voluntary separation.


Thursday, February 13, 2014

Demand for Housing and the Economic Effects of the Housing Recovery

Tyson Smith, Economist

At the end of 2013, DWS Economists Lecia Langston and Jim Robson explored housing prices during the recession and recovery (here and here).  Their research shows that Utah home values  declined faster than the national average during the housing crisis,  then recovered faster than the rest of the nation after the market bottomed out in mid- to late-2011. Furthermore, median home values in the state have consistently been above the national median over that time.

Click on Graph to Enlarge Image
Home price trends tell an interesting and valuable story about the recovery. Growth in home values increases the net wealth of home-owners and injects confidence into the consumer market.  Expansion of consumer wealth and confidence encourages consumption, which generates economic growth.

However, the question remains, what drives changes in housing prices? Classical economic theory defines the price of any product or service as a function of supply and demand1. Figure 1 highlights the turnaround in the demand for housing. Housing sales in Utah and the United States plummeted 38 and 46 percent, respectively from their peaks in 2005. Home sales started to pick up momentum in 2011 and 2012, which corresponds directly with increases in housing prices. The surge in housing demand put upward pressure on prices while simultaneously diminishing inventory, which further inflated housing prices.

Thursday, February 6, 2014

Utah Quite Attractive to Venture Capitalists

Mark Knold, Supervising Economist

I recently came across an article that shows “Where U.S. venture capitalists are placing their bets.” The article includes this map of the United States with bubbles showing the dollar amount of venture capital invested in that state during 2013.


Thursday, January 30, 2014

Why no “Farm” in Nonfarm jobs?

Lecia Parks Langston, Senior Economist

When economists at the Utah Department of Workforce Services talk about jobs, we typically refer to “nonfarm” or “nonagricultural” jobs. Do we have some sort of inborn economist-prejudice against agricultural jobs? Definitely not. Trust me, we love data of all sorts. We’d adore having counts of each and every piece of employment. However, the “jobs” data we collect and analyze is primarily a by-product of the administration of unemployment insurance laws. These laws require employers subject to Utah’s Employment Security Act to report wage/employment for the management of the unemployment insurance program. Typically, if a business employs workers, it is subject to the Act.

Click to Enlarge

Thursday, January 23, 2014

Utah Has Fourth Most Diverse Economy in the Nation

Eric Martinson, Economist

Utah’s recovery from the Great Recession in 2008 has been one of the strongest in the nation. Among a few different reasons behind the speedy recovery is that we have an economy that mirrors the nation in its mixture of industries. In fact, Utah’s economy has been consistently ranked as one of the nation’s most diverse. With manufacturing in the northern Wasatch front, a varied services sector in Salt Lake County, the tech hub in Provo-Orem, mining/oil and gas in the Eastern region, and leisure and hospitality in Summit County and in south-southeastern Utah, it is not hard to see the diversity in Utah’s economy. But how can one make a quantitative assessment about the extent to which a state’s economy is more diverse than another’s? One answer is the Hachman Index (see here for more).

The Hachman Index is a tool that simply divides the ratio of industry employment in a state by the same ratio at the national level. Then each state industry comparison is adjusted for its relative employment size within Utah (called influence or weighting), and the cumulative package produces the Hachman Index. By holding the state’s economic diversity relative to the nation’s, this index allows us to evaluate which states’ economies mirror the nation’s industrial structure the most. Based on this scale, Utah’s labor economy is the fourth-most diverse. With an index number of 0.97, Utah has an industry structure that mirrors 97 percent that of the United States’. Such a varied labor economy helps to spread the risk and fallout of industries who may suffer shocks from time to time.