Tuesday, December 23, 2014

What Falling Oil Prices Mean for the Utah Economy

Tyson Smith, Regional Economist

The recent drop in crude oil prices and corresponding plunge in prices at the pump have been major stories this holiday season. At a time of year when many Americans are opening their wallets, they have been pleasantly surprised to find a little extra cash that was saved the last time they filled their tanks. Inflation adjusted crude oil prices are down more than 40 percent from December 2013 (falling from $100/barrel to $57/barrel), which translates into the lowest gasoline prices in more than five years. According to AAA, the average price for one gallon of gasoline in Utah today is almost $2.50; nearly one-dollar cheaper than it was in July of this year. This decline represents a savings of about $25 per week for my two-car household.

AAA Fuel Gauge Report
The map to the right shows that Utah’s retail gas prices are still above the national average of $2.39 a gallon. Gas prices in the state have historically trailed the national trend, which suggests there is room for local prices to fall further.

While saving money at the pump is the most obvious benefit of cheaper gasoline, lower oil prices impact the economy in several ways. For example, petroleum-based products (plastic and rubber) are manufactured using crude oil, and those products are shipped to customers using planes, boats and trucks that run on gasoline and diesel fuel. Profits increase for businesses that use oil in the production or delivery process when the cost of that input decreases. As profit margins grow, these companies are more likely to invest in new capital and hire more workers.

Monday, December 22, 2014

Profiling Utah’s Population With Advanced Degrees

Mark Knold, Supervising Economist

The 2013 U.S. Census Bureau’s American Community Survey (ACS) provides information to profile the educational makeup of Utah’s various cities and regions.

Educational attainment is not uniform across Utah’s various metropolitan areas. Neither are the various occupational mixes. Occupations have various levels of educational need; therefore, an area’s occupational mix will regulate a local area’s educational makeup.

A doctor position generally asks for a medical PhD. For my economist positions, I ask for a bachelor’s degree. Someone hiring construction laborers will probably look for high school completion, or less depending on the need. The point is an area’s occupational structure is what builds the area’s educational profile.

For example, the Vernal area’s economic foundation is built upon oil, natural gas and mining type occupations. These are good-paying labor positions, but they generally do not require someone with a bachelor’s degree to fill most positions. They will commonly accept an education level below a four-year undergraduate degree. Therefore, one would expect that the Vernal area would not be over-saturated with people who hold a bachelor’s degree or higher. The occupational mix will not support a large quantity of bachelor degree holders. The ACS data in the figure below shows this to be so.

Click graph to enlarge
From this figure, we see that the Park City area has Utah’s highest population percentage with a bachelor’s degree or higher. It is not always the occupations in the immediate area that establishes the population’s educational foundation, but also what occupations are easy to commute to. The Park City area’s jobs themselves do not ask for such a high proportion of high-educational attainment. Instead, it is the proximity and easy commute to the Salt Lake City metropolitan area that supports this high-education conglomeration. There are many higher-income Utahns who work in Salt Lake City and choose to live in the mountains. It is common knowledge that higher education levels lead to higher income levels, and with higher incomes, one can be more discerning as to where one lives. The Park City environs are a high-amenity region, and thus it attracts the higher-income crowd, which is also the higher-education crowd.

Logan carries the next highest education percentage due to it hosting a major university, Utah State. The Provo area, which has two universities, also has a high education percentage. The Heber area carries the same distinction as the Park City area, in that it is a high commute community for the close Salt Lake and Provo metropolitan areas.

The remaining areas don’t offer any surprises in their educational percentages. Similar to Vernal, Price is a rural-isolated metropolitan area characterized with mining and power-generation jobs, among others — the majority of which don’t generally require a bachelor’s degree or higher.

Friday, December 19, 2014

Santa's Helpers

Click graph to enlarge
The holiday season is upon us and while many people are focused on holiday shopping, economists are analyzing how that shopping affects the economy. The money flies out of consumers’ wallets straight into cash registers, and retailers hire workers to support that temporary increase in customers. The magnitude of the holiday retail activity can be a powerful indicator of how confident consumers feel about the overall economy.

Since 2000, retailers in Utah have expanded their workforce an average of 5.1 percent over the holiday seasons (October to December). The weakest year was 2008 at the height of the recession when only 3,584 retail jobs were added. In 2006, the strongest year for seasonal hiring, 8,997 jobs were added. In that year, overall job growth was at 4.8 percent and the unemployment rate was 2.9 percent. It had been a good year economically speaking and consumers had the disposable income to spend. 

Forecasts for this year put the seasonal retail employment growth just slightly below last year. Currently the state is experiencing stronger job growth and a lower unemployment rate than that of 2013, and early employment estimates put the seasonal retail hiring at roughly four-tenths of a percentage point below last year. Wage growth has been somewhat weak this year, which put some drag on the holiday economy.

Or perhaps the naughty list is just a little longer this year.

Thursday, December 11, 2014

Utah Has Enough Skilled Workers?

Mark Knold, Supervising Economist

Utah has more skilled workers than the Utah economy demands. That is the conclusion of a lengthy report by the Paris-based Organization for Economic Co-operation and Development (OECD) [1] referenced in the LA Times. (Follow the link to OECD in the LA Times article; go to page 354 in the OECD report).

The OECD report is titled “Job Creation and Local Economic Development.” It involves four major sections: 1) how labor market policies and training can contribute to local job creation, 2) entrepreneurship and enterprise creation, 3) local economic strategies and systems, and 4) profiles of 35 country’s economies, including the United States.

In the United States section is a map classifying each state, with each evaluated by what OECD calls skills supply and demand. Skill supply is based on the amount of the labor force with post-secondary education. Demand is represented by the distribution of occupations in the state economy and those occupations’ education requirements. The idea is that knowledge of occupations and what skill or education quantity they employ are the proxy for labor skill (education) demand.

There are four outcome possibilities in the state analysis. “High skills equilibrium” means a state has a high amount of post-secondary educated workers, and a high amount of skilled occupations to absorb that high skill supply. A “skills deficit” would be a state with a high amount of occupations asking for advanced skills, but a labor force with not enough post-secondary education to fill that need. A “skills surplus” is a labor force with high post-secondary education, but an economic structure with not enough occupational types that demand and correspondingly absorb this supply of education. Lastly, “low skills equilibrium” is a state with a low supply of post-secondary educated workers, but an economy that isn’t asking for a lot of post-secondary education. In other words, the economy is asking for a lot of low-skilled workers, and the labor force has plenty to offer to it.

Utah is labeled as a “skills surplus” state, one of only four with that classification. In other words, our labor force holds a higher skill package overall than what the Utah economy’s occupational structure is asking of that labor force. The report did note that Utah had increased its skill demand between 2006 and 2012, meaning the occupations that do ask for higher education levels increased in Utah across that interval. Yet, the gains were not significant enough, therefore Utah was given a “skill surplus” classification.
[1] Wikipedia lists OECD as an international economic organization of 34 countries founded in 1961 to stimulate economic progress and world trade. It is a forum of countries committed to democracy and the market economy, providing a platform to compare policy experiences, seeking answers to common problems, identify good practices and coordinate domestic and international policies of its members.