State Gross Domestic Product (GDP)
In This Together – Not Really!
Recently the Post and Courier published an article on South Carolina 2009 GDP. (See GDP Discussion.) Wells Fargo’s Mark Vitner provided the color commentary:
“This recession was very much centered on housing, manufacturing and financial services, and those three industries are much more important to the South than the nation as a whole.”
The Devil is in the Details
Unfortunately, this article is about South Carolina and not “the South.” What particularly grabbed my attention was the reference to financial services. I did not believe that South Carolina financial services were much more important within the state than to financial services in the United States as a whole. In fact a little research, apparently not provided to Mr. Vitner, indicates GDP is significantly LESS as a percentage of the South Carolina total than of the United States – 6.6 percent versus 9.7 percent. Another surprise is that manufacturing is a significantly LARGER portion of the state’s GDP than the national figures – 18.4 percent versus 12.7 percent (PDF).
Summary
The bottom line is this: We are not like the national economy. It is a poor comparison because South Carolina is too small. More appropriately, the reporter compares South Carolina with Georgia and North Carolina but misses Florida, the big dog in the region. At least at the macro level, South Carolina’s numbers are better than our neighbors’.
And that’s something to build on.
2010 October Unemployment
Forecasting Unemployment
The Bureau of Labor Statistics recently posted October unemployment statistics for South Carolina. The state’s unemployment actually dropped, which is a positive sign and was not expected. It tends to be difficult to forecast any trend from one set of data, especially when we hope for a better economy but have no way to know whether that hope is grounded.
History of September to October
I thought I would do a back of the envelope review of the employment change trend from September to October. As to be expected, it is all over the place, but there are some interesting relationships that become apparent and are typically glossed over in monthly reports. (PDF) What is revealed is the link between labor force, employment and unemployment.
From 2005 to 2007, employment and the labor force moved together. The result of the way these two variables interact is the third category, which is unemployment. In 2008 the bottom fell out of employment, with unemployment shooting to the moon and the labor force making a steady march south. In 2010, it seems that employment has overshot the capability of the labor market, so it is reasonable to expect that employment will moderate going forward.
Final Thoughts
What I do not like is the potential for the labor force to make a strong comeback and for employment to flatten. The result would be more unemployment. The best case is continued strong employment, which decreases unemployment while allowing the labor force to expand at a moderate pace.
Update 12.03.2010
Jobs Byte – Some times I get it right!
GDP Explained (Third Quarter 2010)
The Quarterly Data Mind Melt
Gross Domestic Product (GDP) is a huge data set managed by the Bureau of Economic Analysis (BEA). On a quarterly basis, I receive a number of emails announcing the latest data from the BEA. Most economists, including Dean Baker, give concise analyses of these data. But even with one page summaries, I wonder where these data come from and what exactly they are talking about, since the analysis is usually out of context. Furthermore, the data are national in scope and tell very little about what is going on in my state or the relationship between the national data and the state or regional economy.
Third Quarter 2010 Perspective
The third quarter briefing is an excellent example of how these data are developed over a period of time. In fact, the “advance” third quarter numbers are actually estimates, not final numbers. (Most skim over this fact.)
“Real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 2.0 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the ‘advance’ estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.7 percent.”
A technical note describes assumptions, data and how “advance” estimates are calculated. The method is described in detail, which is one of the truly great features of these data. This release goes on the state:
“The change in real private inventories added 1.44 percentage points to the third-quarter change in real GDP after adding 0.82 percentage point to the second-quarter change. Private businesses increased inventories $115.5 billion in the third quarter, following increases of $68.8 billion in the second quarter and $44.1 billion in the first.”
These statements allow the reader to delve deeper into the data set. But where did these data come from? The BEA has a number of interactive tables so you can explore the data in more detail. The $115.5 billion is found in Table 5.6.6B., “Change in Real Private Inventories by Industry, Chained Dollars” (PDF). This happens to be an important number because most economist, including me, believe inventory building is not sustainable. Therefore subtracting inventories 1.44 percent from the total growth, final GDP is a measly .6 percent, close to zero. Likely not what most are looking for.
You may have noted recent news stories of the private sector trying to move-up or expand Black Friday? That’s because retailers hope to decrease the temporary inventory bubble they have created.
National, State and Local Comparisons
If you are like me, national data is fine, but I like to know how they sync with the regional economy. State and local data lag behind national data by about two years (PDF). That is quite a long time. However, there are a number of ways an analyst can create an index comparing national and state level data, with reasonable assumptions, to produce a current trend for the regional economy. That would be particularly helpful here in South Carolina when discussing automobile inventories and the effect an increase in inventory has on both short- and long-term investment and employment.
Jobs Necessary to Hold Unemployment Rate Constant
I like to share solid “dataexplained” when I find it. Here is a piece from Dean Baker’s Blog:
“This one should not be all that hard but the papers have numbers all over the place. Let’s turn to our old friend, arithmetic, to shed some light on the topic. The Congressional Budget Office tells us that the labor force is growing at the rate of 0.7 percent a year. The current size of the labor force is 153.9 million. This implies that we need about 1.1 million jobs a year to keep even with the growth of the labor force. (The number would be a bit less if the 6 percent share of self-employed in the labor force held constant.) That translates into a bit over 90,000 a month.
The 151,000 jobs reported for October is about 60,000 more than is needed to keep the unemployment rate from raising. At this pace it would reduce the pool of unemployed workers by 720,000 over the course of a year. With a gap of about 10 million jobs at present, this rate of job growth would fill the gap in around 14 years.
In order to fill this gap in a reasonable period of time, say 3 years, we would need job growth of 370,000 a month. This would bring the economy back to normal levels of unemployment by late 2013, six years after the onset of the recession.”
This article identifies key inputs needed to understand your local employment market. With these input identifiers, an analyst is able to compare a regional employment geography, to national employment as a whole.
Boeing’s Effect on Employment Distribution – Shannon-Weaver Diversity Index
I was interested in the effect the Boeing employment (aircraft manufacturing) would have on the Charleston county industry diversity. So I used the Shannon-Weaver Diversity Index Calculation, a measure of the extent to which the employment of a region is distributed among its industries. It ranges from 0 – perfect inequality, or no diversity – to 1 –perfect equality or diversity. This index is deployed in IMPLAN® Version 3.0, which describes the distribution of employment in any given study area.
A geographic region with a high level of diversity will typically be more robust, and adapt more quickly to changes in the broader economy. Geographic regions with a lower diversity index are more vulnerable to economic change. For example, a region dependent on one major employer such as a military base, paper or textile mill. A shift in the economy that affects the dominant industry can result in either windfall employment gains or catastrophic losses.
Charleston County’s Shannon-Weaver Diversity Index is .68624 without Boeing employment. The index with Boeing, an estimated 4,000 employment increase, is .68836 – or a jump of about 0.03 percent. With the addition of Boeing jobs, Charleston County increases it industry diversity. If we do the same analysis with food and drinking places in Charleston County, except in this case decrease jobs by 10,000, the index moves from .68624 to .69438, or a 1.2 percent gain. That also reflects a more diverse industry base.
This brief analysis shows that Charleston County is under-represented in aircraft manufacturing and over-represented in food and drinking places, given our industry mix. Economic development opportunities lie on the fringes of dominant industries that are looking to increase their supplier base or demand base, while emerging industries take advantage of established local industries that can service new ventures.
