Thursday, October 20, 2016

Right and Wrong About the Wyoming Crisis

The Economic Analysis Division of the Department of Administration and Information has published its Economic Summary for the second quarter of 2016.  It is a gloomy picture, though presented in the usual dry econo-speak. Two highlights:

Wyoming experienced a decline of 2.8 percent (or 8,050 jobs) in total employment in the second quarter of 2016 compared to one year earlier, a smaller decrease than the previous quarter. Wyoming’s unemployment rate, [sic] climbed to 5.6 percent in the quarter, the highest since the fourth quarter of 2011, while in the U.S., it remained at 4.9 percent. Most industrial sectors in the state experienced job decreases during the period.

Wyoming’s total personal income declined 1.5 percent in the second quarter of 2016 from the previous year. U.S. personal income increased 3.2 percent during the same period. [Emphasis added]

Thinly disguised in these bone-dry statements is an economic crisis in full swing. Our job market is going in the opposite direction of the country as a whole, and it is no longer just a matter of minerals jobs. Bureau of Labor Statistics (BLS) data shows that for every job Wyoming loses in the minerals industry, our state loses one job in the non-minerals private sector. This has now led to the awkward situation where our unemployment rate is higher than the national rate, a situation we have not been in for a very long time.

Even more conspicuous is the decline in personal income. It is a logical consequence of job losses, but the discrepancy vs. the rest of the country is striking. Looking strictly at income from work, the latest numbers from the BLS suggest that Wyoming could be losing more than $1 billion in household earnings in 2016. That is a lot of money not being spent in local stores, on home improvement, gasoline, at motels, restaurants, car dealerships, shopping malls, dentists, gyms...

There is more economic data out there that confirms our state’s deep economic problems. In the past five years our state has lost $2 billion in economic activity, adjusted for inflation. That means $2 billion less in private-sector production, sales, earnings and investments. That is a 5.6 percent decline, a significant number over such a short period of time. It is even more problematic given that during the same period, the U.S. economy as a whole expanded by some two percent per year.

If our economy had kept up with the national economy, we would have been a thriving state now. If we had just stayed afloat – in other words, if our state GDP had remained unchanged from 2011 to 2016 – we could have had 12,500 more private-sector jobs in our state than we do today.

In short: Wyoming is on a long economic downslope that has turned steeper in the past 12-18 months. In this situation it is imperative that our legislators and our governor understand just how serious the situation is. They need real, solid economic analysis to pass appropriate reforms and put our state back on track to prosperity again.

With this in mind, it is baffling, frankly, to see the comments from Jim Robinson, principal economist for the Economic Analysis Division. Speaking with the Wyoming Business Report, Robinson paints an incomprehensibly rosy picture of the economy, summarized as “the worst may be over for the state”.

Robinson suggests two pieces of evidence to back up his statement. First, jobless claims for mining workers “are finally decreasing”, he explains. Superficially, this looks like good news, but the actual meaning is, simply: people who lose their mining jobs may not stay in Wyoming. If they leave the state and find jobs elsewhere, they obviously will not file jobless claims in Wyoming. But even if we take it as an indication that the mining industry is “flattening out”, this is entirely expectable in a serious economic downturn. Every economic crisis has its trough where the economy finally settles, stabilizes – and remains for a long period of time.

In other words: just because we reach the bottom of a deep hole does not mean that we have started to climb out of it, nor does it mean we can climb up again.

Jim Robinson’s other piece of evidence that “the worst may be over” is perhaps even weaker. Explains the Wyoming Business Report:

There are other gains: personal income for quarter two of 2016 improved as increases in property income and transfer payments more than offset the decline in net earnings.

Statistically, an increase in property income is positive as it boosts private income. However, when put in its proper economic context this piece of information loses its credibility as an indicator. The Wyoming economy is in a serious macroeconomic downturn, with household income declining, jobs being lost and people’s future looking very uncertain. In this situation people prefer to rent rather than own their homes, meaning they can pack up and leave much more easily than if they have to sell their house on a stagnating real-estate market. Alas, it is only logical that rental property owners make more money.

The last piece of evidence, that transfer payments are on the rise, should not even be mentioned in this context. Transfer payments are tax-paid entitlements: is the principal economist of the EAD really suggesting that it is good for Wyoming that a larger share of personal income is in the form of government handouts? If so, his performance is bordering on macroeconomic malpractice.

The EAD’s macroeconomic report is a solid, informative publication. Unfortunately, Jim Robinson’s interpretation of it obscures the actual economic message of that same report. He probably does not mean to give our elected officials plausible crisis deniability, but that is indeed the bottom line of his contribution.  

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