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Monday, April 10, 2017

The Wyoming Economy: Facts and Fiction

When we discuss the Wyoming economy, it is important that we use the relevant kind of data. For understandable, but erroneous, reasons people tend to rely on the unemployment figure as a key indicator of how well or poorly our economy is doing. As a matter of fact, Wyoming is a very good example of how this particular variable can be directly misleading.

There is also a lot of conventional wisdom floating around in the discussion about our economy.
For example, the false notion that when an economic slump comes to an end, a recovery automatically begins. This business-cycle theoretical mindset originates in the 1950s and has little, if any relevance today.

One of the big consequences of these two errors in economic thinking - that unemployment is a key indicator of economic strength and that recessions are always followed by recoveries - is that our elected officials continue to make fiscal policy decisions that do little good, and sometimes even further harm the economy.

As an example of the implications of these errors in economic thinking, consider this story from the Casper Star Tribune on March 28:
Wyoming’s jobless rate was down slightly in February, but in a number of counties there are indications that people have moved away or have given up their job search, according to numbers released Tuesday morning. At the same time, the per capita personal income in Wyoming last year was ninth-highest in the country, a separate study showed. The data from the two studies indicate Wyoming’s economic slump may not be worsening. It may be, in fact, improving. The unemployment rate was 4.7 percent in February, down from 4.8 percent in January – a slight decrease that’s not statistically significant, said David Bullard, a senior economist with the Research and Planning section of the Wyoming Department of Workforce Services. Compared with last year, however, the unemployment rate is significantly down, Bullard said. In February 2016, it was 5.3 percent.
Here is a different take on the same kind of news. In February 2015, there were 216,400 private-sector employees in Wyoming. In February 2016 that number had fallen to 205,600. In February this year, there were only 199,700 private-sector employees left. That is a loss of 16,700 private-sector jobs in two years. 

How do these two numbers compute? How can unemployment go down while we lose 7.7 percent of our private-sector jobs in two years? 

Simple. People who lose their jobs find something to do out of state, or they stop looking for work altogether. Neither is an improvement to the Wyoming economy. 

To put some perspective on the elusiveness of our state's unemployment figure: the loss of 7.7 percent of all private-sector jobs is a more serious decline in employment than what the U.S. economy went through during the Great Recession:
  • In 2007, 115.8 million people were privately employed;
  • In 2010, at the very bottom of the recession, that number had fallen to 107.9 million.
This is a loss of 6.8 percent of all private-sector jobs. Compare that to 7.7 percent in Wyoming, and then take into account that it took three years for the national economy to go from peak to trough. We have lost more jobs, relatively speaking, in two thirds of that time. 

Technically, we have lost 70 percent more jobs per year during our decline from 2015 to 2017 than our nation's economy did from 2007 to 2010. In an economy with this bad a jobs trend, and where jobs are being lost in almost every private industry, why would those who do lose their jobs stick around? 

In this situation, to cheer the low unemployment rate is like pointing to an unbroken window in a burning building.

Another problem with the fixation with unemployment is that it leads into the other false-notion mindset mentioned earlier, namely the idea that once an economic decline ends, there is automatically a recovery under way. Part of the reason for this false idea is that people tend to use another superficial, and misleading number: average statewide earnings. The Tribune again:
Also released Tuesday, was a U.S. Bureau of Economic Analysis ranking that found Wyoming’s average per capita personal income was $55,212 in 2016, compared with $49,571 nationally and $46,635 in the Rocky Mountain region. Colorado, Utah, Idaho, Montana and Wyoming are in that region. But the state’s income slipped 1.7 percent from 2015 levels at a time when other Rocky Mountain states and the nation increased on average by 3.7 percent and 3.6 percent respectively, according to the federal government data.
What the Tribune did not report, but I noted, was that the 1.7-percent decline was the worst in the nation. I will leave it to the Tribune reporter Laura Hancock to explain why she did not mention that part of the personal-income news; as far as we are concerned here on this blog, the worst-in-the-nation personal income number is the real macroeconomic indicator. It is also the one piece of information that our legislators need to pay attention to. As I explained a week ago:
The blunt message for our state legislators in these numbers is that the well, from which they expect to squeeze more tax revenue, is slowly drying up. It does not matter if they consider raising property taxes, or sales and excise taxes, or if they propose an income tax; the money paying for those taxes comes from the same source.
The Tribune avoids telling the real story of our personal-income situation, and focuses instead on the average number, which again is skewed by an incomplete picture of our economy. The paper does note that minerals jobs "tend to pay well above the average" and that "the state’s low population compared with other states and the impact of mining ... skew the numbers", but they do not reveal just how much of an imbalance we are talking about. Again, it is up to us here on Wyoming Prosperity to set the record straight:
  • In February 2017 there were 199,700 private-sector employees in our great state;
  • A total of 18,600 of them worked in the minerals industry, leaving 181,100 (91 percent) in other industries;
  • On average, the minerals-industry employees earned $1,445 per week;
  • On average, the non-minerals employees in the private sector earned $716 per week.
In other words, 91 percent of the private workforce earn about half of what the remaining nine percent earn. 

What does this tell us about the future of our state's economy? To be able to intelligently answer that question, we need one more piece of information: the balance of job losses between minerals and non-minerals industries. From February 2015 to February 2017 we lost 7,900 minerals jobs. During the same period we lost 8,800 non-minerals jobs, also in the private sector. This means, plainly, that over the past two years, for every 100 jobs we have lost in the minerals industry we have lost 111 non-minerals jobs. 

In the past year, February 2016 to February 2017, there has been clear shift: for every 100 minerals jobs lost, we have lost 228 non-minerals jobs. 

So, again, what does this mean for the future of our state's economy?

The answer to this question has two parts. First, I have, on several occasions, pointed out that our economic downturn is coming to an end. I have also, on as many occasions, made clear that this flattening-out of the business cycle is not a reason to believe in a recovery. The reason for this is both theoretical and empirical:
  • Theoretically: We know from macroeconomic theory that deep, fast declines in economic activity destroy so much confidence in the private sector that it takes a very long time for it to build up again. If government maintains policies designed for high-level macroeconomic activity, those policies tend to further depress the private sector under these circumstances. 
  • Empirically: Our state government is doing exactly what it should not be doing, namely sticking to tax and spending policies designed for an economy at its very peak. Furthermore, the fact that we have lost massive amounts of jobs in the non-minerals industry, and that this side of the private sector has dominated recent job losses, clearly tells us that we have an economywide crisis. It will not be helped back by the recovery in a single industry, even if that industry happened to be minerals. We need a statewide macroeconomic emergency plan (the architecture of which I have shared on numerous occasions).
All of these facts suggest that our economy will remain in a depressed economic state until our state government abandons its current "ride it out" mindset.

The second part to the answer to why we won't see an automatic recovery is, simply, that the recovery must come from somewhere. The average non-minerals, private-sector job pays approximately $37,000 per year, a low number by national comparison. With 91 percent of all non-government workers earning this much on average, there is not much purchasing power out there, in our state. In order to spark a recovery, we need to put a lot more money back into the private sector; we need to give confidence back to employers who are struggling to pay their remaining employees; we need to inspire those who still have a job to hang on to them, continue to invest in their families' future here in Wyoming - and to believe that it is worth the while to develop their professional future, rather than to pack up and leave.

We need A New Chapter for Wyoming. And we need it now. But we will never get there unless our elected officials, our journalists and other assorted pundits wake up and realize what is really going on in our state. The best way for them to do that is to abandon conventional thinking, start looking at our economy as it is - and to join the fight to put our state back on track to prosperity.

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