SC State Unemployment March 2011
Issue
I do not review these data every month because unemployment data is more useful when the analysis focuses on the labor trends. Unfortunately, the Post and Courier is more interested in reporting hype and misinformation than telling us what the data actually says. This is a shame since they are wasting people’s time, including economist Frank Hefner’s, who I am sure pointed out what I am about to say, based on his comments:
“College of Charleston economist Frank Hefner said the unemployment rate does not tell the whole story. The recovery in the past year has been slow, he said, and fewer people are in the workforce, such as those individuals who are discouraged and no longer looking for work.”
The bottom line, which Dr. Hefner eluded to, is there is no reason to be “elated” about in this jobs picture!
Incorrect Analysis: Again
Jezzz. I constantly feel that I need to correct the Post and Courier on this point! Mixing data sets to fit the story misleads the reader. Adjusted and unadjusted unemployment numbers are two completely different data processes – apples and oranges. State adjusted employment for the month of March increased by 3,746. A little different than the 15,700 noted in the article! (PDF)
Unemployment Analysis: Current Employment Statistics Benchmark
This analysis uses data from the Bureau of Labor Statistics. Stated above, South Carolina gained 3,746 jobs in March. The major sticking point, however, is the labor force dropped by 3,199 persons from February to March, and by almost 18,000 from March 2010. Three numbers come together to create the unemployment rate: labor force (LF), employment and unemployment. It is not possible to adjust one with out adjusting one of the others. If we assume a LF scenario that is neither growing or declining – very conservative considering South Carolina’s population is growing – we see the unemployment rate remained flat at 10 percent from February 2011 to March 2011. See PDF.
Regardless of the meager employment growth, some is better than none! However, employment changes by the minute in the state. So what does the final employment picture look like for March? The Current Employment Statistics program (adjusted) provides clues to the result of all those changes from month to month and year to year. These data explain why an accounting professional the Post and Courier interviewed may be challenged in finding employment. The business services industry, accountants included, actually declined in employment from the previous month. Even so, over the past year there has been an improvement of almost 20,000 jobs in this major sector. Unfortunately, 94 percent are not in the accounting field! Where was the growth? It turns out it is right where it has been and should be this time of year, in leisure and hospitality.
Conclusion
It appears that the current recovery, which is already lagging significantly behind other recoveries, is going to be slow at best. With an increase in commodities prices (essentially a excise tax on disposable income – i.e. fuel) and the loss of 10,500 jobs in government employment this past year, “elated” would not describe the way many people feel about the current state of economy.
State and Local Government Employment
Issue
The Richmond Federal Reserve recently published an informative article on the recession and government tax shortfalls. The analysis included the affect on government employment. “State and local governments employed nearly 20 million workers in the U.S. That is about 15 percent of total payroll employment in the nation, more than the manufacturing and construction industries combined. As a result of the fiscal duress, state and local governments have been cutting jobs and more are likely to follow.” (PDF)
Economic Impact: Cutting Government Workers
I am not sure anyone would argue that an efficient and productive government is not a good thing for almost everyone. However, arbitrary employment cuts have a significant negative affect on an economy.
As an example, a Targeting Economic Development study using Analytic Hierarchy Process (AHP) showed the impact of government workers. Cox et al. (2000). The study showed that within a three-county region in Virginia, that the State and Local Government, non-education, sector created 32 jobs per million dollars of output. It was the No. 1 industry for this region out of the top 20 studied. The industry also had the 15 lowest average wages of the top 20 but the highest value-added effect (total Virginia/dollars of output) of 1.30. The next-closest industry, oil and gas, was 1.17.
Value-added includes employee compensation, proprietor income (i.e. self employment), other property-type income (i.e. rents and profits), and indirect business tax (i.e. sales tax paid to business). So if government cuts employment, indirect and induced dollars flowing to private sector industries are significantly reduced.
Conclusion
Having an efficient and productive workforce is important for both the government and private sectors. Random cutting, however, will lead to direct negative economic impacts in the private sector at a time when we are all looking for a sign of an improved economy.
Michael Porter vs States Governor’s
This is a great article from Martin Schram on states budget deficits and productivity. Dr. Michael Porter told the governors productivity, “sets standard for whether your particular state is going to succeed.” ”If you are productive you can be prosperous. If not, you can’t.” To be productive a state needs to invest in education and infrastructure. If not they will be regulated to the back of the pack both nationally and globally!
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.
South Carolina August 2010 Unemployment
The Recession is Over?
The Post and Courier decided to laugh-off the August monthly unemployment rate a missed opportunity to provide readers with information they could use to understand the unique employment issues in South Carolina. Recently the National Bureau of Economic Research (NBER) Business Cycle Dating Committee announced the recession was over in June 2009.
The key question is: How can that be so, when unemployment numbers continue to climb? The answer is that recession dating involves looking for a low point in time – not whether the presumed recovery is significant or even sustainable. It is therefore important not to confuse dating the end of a recession with the hope for a job tomorrow, especially with the employment hole we are in here in South Carolina.
This statement from the committee provides insight into how NBER analyzes business expansions or contractions:
“It places particular emphasis on measures that refer to the total economy rather than to particular sectors. These include a measure of monthly GDP that has been developed by the private forecasting firm Macroeconomic Advisers, measures of monthly GDP and GDI that have been developed by two members of the committee in independent research (James Stock and Mark Watson), real personal income excluding transfers, the payroll and household measures of total employment, and aggregate hours of work in the total economy.”
The Busted Recovery in South Carolina: By the Numbers
The Minneapolis Federal Reserve provides state level analysis of how the last recession compared to others (PDF - Table 1). South Carolina is not faring well and is lagging considerably in employment compared with historical patterns. That’s not good news for the job seeker.
In fact, if we look at unemployment rates for South Carolina compared with other recessions (PDF – Table 2), in June 2009 state unemployment was almost twice as high as in the past two recessions. The good news is the unemployment number could be significantly higher if it were not for a labor force that has declined by 36,000 people since June 2009. If the labor force had maintained its level from the date of the “end of the recession,” unemployment would now be more than 12.5 percent. Unfortunately, this does not bode well for unemployment as we move into the fall and winter months, since people are likely to drift back into the workforce searching for seasonal jobs.
Hotel Occupancy and Revenue Per Room
The Issue
The Post and Courier recently published and article on the regional hotel occupancy forecast for 2011. We are not exactly sure how they derived these numbers, but they are important enough in this community that we need to shed some light on the impact of these data.
I am not convinced there is going to be a rebound in occupancy levels with national growth recently being reported to be under 2 percent. Having said that, those results are probably statistically insignificant as a result of noise in the data. In addition, we always need to include this caveat in South Carolina hotel research: With any inkling of a hurricane, all bets are off. This is one reason that August, September and October tend to be very volatile months, with occupancy slipping from highs achieved in the first six months of the year.
Demand, Occupancy and Money: The Trifecta of the Hotel Business
To make forecasts in the hotel industry, a researcher needs historical occupancy data. My source is the venerable STR Global. There definitely is seasonality to these data, so I stay with the annual data which are adjusted slightly by STR at the end of each year.
I reviewed two data sets: occupancy and revenue per available room (RevPAR). I chose to compare three geographies; Charleston/West Ashley, the state of South Carolina and the entire nation (PDF). It appears that Charleston has done a better job of managing occupancy than the state as a whole, but has paid the price in a lower RevPAR. Instead, it opted for market share. In a market with declining demand, hotels need to create and execute a strategy to grab market share. However, if hoteliers believe there is going to be a measurable increase in demand, keeping prices high likely would be the winning strategy. As capacities creep to more than 80 percent, they can demand higher room rates. Unfortunately, this is not likely the baseline scenario going into 2011.
Community Economic Impact
A back of the envelope calculation nets the following impacts: On average there about 6,ooo hotel rooms in STR’s study area. A calculation using annual RevPAR, occupancy and days returns a gross annual income of $147 million. A small adjustment of just 1 percent in occupancy increases this number by $2.1 million. In 2005 the average daily rate, sightly different than RevPAR, was $128.61 with occupancies at 70 percent. Those numbers result in $51.5 million positive difference in revenue.
Therefore, from a community standpoint, it is important to consider the effect policy has on these numbers. As we can see, small changes in the customers perception of Charleston and/or the state of the economy can and do have significant impact occupancy and room rates, which ultimately affect the community as a whole.
Unemployment and Productivity
Productivity Enhances Job Growth
The Post and Courier recently published an article on unemployment and productivity. The article suggests that productivity is a cause of unemployment. In fact, it is the other way around! Being more productive (efficient), means gaining market share, which creates an opportunity for more employment. The alternative, low productivity and inflated cost structure, decreases employment.
Demand: The Lost link
The link between productivity and employment rests with demand. Decline in demand shrinks employment. The best example is the housing market. A productive builder may be able to capture a greater market share, but that share is in a declining market. The overall effect is that his employees work longer hours with the same technology (they do more with less). But the industry sheds workers due to limited demand, not because of increased productivity. Wages during this time stay flat or decline due to thin margins and little growth potential.
Show Me The Data
Two data tools that assist us in this discussion are Current Employment Statistics (CES) and Labor Productivity databases from the Bureau of Labor Statistics (BLS). CES tracks hours worked, while the labor productivity database tracks hours as well as output. A quick glance at these data indicate that – sure enough – hours have increased. Output per person is up while earnings have declined and employment has shrunk. The astute observer will, however, note that hours have been dropping since 2007 and likely rebounded recently only in response to the need to rebuild critical inventory levels. I would expect hours to continue their slide in the short term.
Easy to Cut, Hard to Invent
Looking forward, cutting cost is easy: Don’t sign the check, reduce the crew, punish vendors for late shipments – the list is endless. But what is needed now in part, is new products that create demand. In the long run, this is the only way employment will increase.
All of which means businesses have plenty of hard work cut out for them.
Discouraged Workers
A recession can really change people’s attitudes about looking for work, and many become discouraged (PDF). Unemployment rates in South Carolina are hovering between 10 and 12 percent. But another way to look at that is 9 out of 10 people are actually working! In addition, even with high unemployment, there is still considerable churn in the market place, meaning that jobs are being filled and vacated every day.
So what is the problem? One issue is that the right work is more difficult to find, and takes more time to find, which is discouraging. Matching one’s skills to a job is challenging especially when jobs skills for work are in a constant state of flux. Unlike some employed workers, who may receive retraining assistance from their employer, the unemployed need to finance their own retraining with no guarantee of a job at the end of the training.
Another reason is that the employment picture is likely worse than reported in the media. For example, if we hold the workforce steady at April 2009 numbers, 2,185,673 persons, (people don’t just disappear) and use that number to calculate unemployment in June 2010, holding employment constant, the unemployment rate jumps to 12.2 percent not the current South Carolina adjusted rate of 10.7 percent.
As employment data is published in the coming months, it is important to keep in mind these variances:
- Where we were and where we are now,
- Whether the gap is shrinking or growing and
- The effect this has on unemployment prospects for both the employed and the unemployed.
By keeping these points in mind, we will have a better feel for the current labor situation going forward.
June 2010 South Carolina Unemployment
The Post and Courier wrote and excellent article on the June employment situation here in SC. By focusing on the labor force, the P and C is highlighting a major issue not only for our state but for the country. From the labor analyst perspective, one of the disturbing trends is the “discouraged worker”. The Bureau of Labor Statisics defines Discouraged workers (Current Population Survey) as:
“Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.” The data suggests a worsening situation on the labor front.
Here is a table (PDF) with the BLS discouraged worker annual data. I would like to think these data are about to turn, especially with the number of temporary workers being hired. However, one issue which may prevent that, is the skills gap.
South Carolina May 2010 Unemployment Numbers
Problem- Not Really
I had some questions on the May unemployment numbers which did not seem to make sense to me. The article posts the state unemployment rate. Further down in the article however, a key piece of information reveals the rate quoted was an adjusted state rate.
Issue
In this case it makes a big difference, since the state rate is mentioned in conjunction with the regional unemployment rates. Once this point was brought to my attention, I realized the error of my thinking. Local unemployment rates are not adjusted! So when comparing local and state rates one needs to compare the state unadjusted data with the local data. This process yields similar results with both local and state rates moving in the same direction. In the case of the May data, adjusted state data was quoted (correctly) with unadjusted local data. The result is unemployment rates moving in opposite directions (in this case) since in reality we are comparing apples and oranges.
Conclusion
Even though the adjusted state rate is the most commonly reported rate in the media, I tend to use unadjusted just for this reason, I want to compare it to the local rate. Another reason, which is a little old fashioned, is because the state data will be adjusted again at the end of the year, smoothed in this case. Also as I describe in my Unemployment Definition, I am focused on the overall trend and do not get to hung up on an individual data point. Key point is to make sure we do not compare or imply the state adjusted rate is related to the local unemployment rates.
