Tuesday, September 19, 2017

Wyoming Economy Stable but Weak

It is time for another Jobs in Wyoming update. The Bureau of Labor Statistics has released preliminary employment data for August, and the overall message in these numbers is, as I have been saying six months now, that:

a) Our state's economy is stabilizing; 
b) The new stable state of economic activity is, in all likelihood, a new long-term level of stability; call it a "new normal" if you will; and
c) There are no reasons, based in either macroeconomic theory or observations of job trends, that suggest we will return to higher levels of economic activity. 

Therefore - and I cannot emphasize this strongly enough - our legislators must not inflict new damage by raising taxes. Leave the private sector alone to find its footing. 

The overall numbers - non-farm employment, total private employment and total government employment - all convey the picture of a new state of stability, with an underlying tone of weakness underscoring how fragile this new stability actually is. Total non-farm employment for the month of August was 284,600, down by 900 persons from the same month last year. However, for the first time since the Dawn of Man (well, almost...) this is actually a somewhat encouraging number. Here is why:

-Private sector employment is up by 600 from August last year to August this year; and
-Government employment is down - yes, down, from 67,700 to 66,200 over the same period.

This is the first time in the past eight years that I have seen this kind of positive trend in our state's employment numbers. It gets even better when we get into the details of government employment: for 13 months in a row, now, total state and local government employment has been below the same monthly figure from a year before. As of August 2017 there were 57,800 employees with our state or with local governments, the lowest number for that month in seven years. 

The state has been down in employment for 15 months in a row now, which is much needed. To find a similarly small workforce as the one our state government had in August - a total of 14,000 employees - you have to go back to 2003.

With their 43,800 employees, local governments here in Wyoming have returned their workforce to about the same level as they had in 2010. 

The private sector, we might add, with its 218,400 employees, is halfway between the employment numbers for 2005 and 2006. In other words, while the state has done a good job of re-sizing its workforce, our local governments are still quite bloated compared to the private sector. This is the reason why our Government Employment Ratio (GER) remains the highest in the country. Here is a 20-year overview:

Figure 1
Source raw data: Bureau of Labor Statistics

The bold line marks a 12-month moving average, which gives us a good idea of the trend beyond seasonal variations. During the strong minerals expansion in 2005-2007, there was hope that the GER would fall to more normal levels, but when the Great Recession set in, that did not happen. Only the private sector lost jobs at that time. Then we had the weak recovery in 2012-2014, when the private sector made a brave effort at recovering. Unfortunately, that came to an abrupt end, first with the drop in minerals prices and production, then with a general macroeconomic decline spreading through the rest of our state's economy. 

At that point, Governor Mead's relatively restrained hiring policies (compared to his predecessor) had taken effect, but local governments did not respond as they should have. In terms of showing even a modicum of fiscal conservatism, they did not wake up to smell the coffee until recently. And, as the GER trend indicates, this has so far not yielded any substantial adjustment of the size of our government to what the private sector can afford. 

An obvious question at this point would be: why is the GER a problem now, when we had the same relative size of government employment in the late 1990s - and things were just fine back then, were they not?

While the comparison is understandable, it is false for two important reasons. To begin with, back then we had a strong national and global economy, with U.S. GDP growth reaching, even exceeding, four percent per year. International trade - including minerals - was growing at even higher rates. Demand for minerals products was solid, keeping the private sector of the Wyoming economy in relatively good shape. Long story short: there was more padding in the private sector to pay for a government of this size.

That still does not make it right to build a government of such generous proportions, but even on a mountain downslope, your relative position matters.

Secondly, the Wyoming economy was on more of a long-term track of stability at that time. Not even the Millennium recession changed much in terms of private employment. Even better: as the private sector continued to grow in the 2000s, government showed hiring restraint for some time. This worked as somewhat of a relief for the private sector, a relief that came to an abrupt end as governments of all sizes in our state went on a hiring spree under the Freudenthal administration. From 2003 to 2011, the number of state and local government employees increased by 20 percent, from 50,000 to 60,000, disrupting the slow trend of decline in the GER that began after the Millennium Recession. 

Back, again, to the employment numbers for August of this year, we can note some interesting details about individual industries:

--Minerals has increased its total employment, compared to August a year earlier, by 2,400 heads; this is part of a trend of stabilization that we saw the first signs of in March-April; total minerals employment is currently 20,300;
--There is no increase in oil and gas extraction employment, and coal mining jobs remain flat in year-over-year comparison;
--The only part of minerals that has added employment is the support-activities side, where there are 1,900 more people employed now than a year ago (for a total of 8,200); 1,700 of those new jobs have been added in support activities for oil and gas, where they now have 6,800 people employed;
--Construction employment is essentially flat at 22,400, though heavy and civil engineering construction is still trending downward, now at 5,500 compared to 7,100 employees two years ago;
--Manufacturing remains flat with 9,400 employees, roughly keeping up with last year's numbers;
--Somewhat worrying is the fact that wholesale trade continues to weaken: they have now seen a decline in employment for 26 months in a row; at 8,100 employees, the downward trend appears to be tapering off, and probably will stabilize by the end of the year, but until it does, this remains a point of concern in our economy;
--Retail trade remains another source of concern; earlier this year I pointed to a weakening trend in retail employment as a number to be watchful of; at 31,600 employees, this industry is slightly below last year's numbers (except in August) and, given its function as a gauge of consumer confidence, it tells us that we should remain worried about how Wyoming families in general are doing;
--On the transportation side, truck transportation jobs have declined, from 5,000 in August 2014 to 3,500 today; the decline has stabilized and will probably improve slightly in the coming months, but only slightly;
--Another industry that I had raised a red flag for is financial services; there, though, the decline in jobs we saw last year and early this year has ended: with a slight uptick over August last year, and no decline for four straight months, this industry, with 11,100 employees currently, appears to have made the adjustments needed to cope with a smaller Wyoming economy;
--Professional and business services are still in decline, a clear indication of overall weakness in our state's private sector; this industry includes scientific and technical services, architects, engineering consultants, business management consultants, and other administrative and support functions; having lost almost 2,000 jobs in two years (now at 17,700) this industry tells us that our businesses, while slimming down to stay afloat, are in absolutely no shape to take on any new costs of any kind.

This last point is hugely important: when businesses are long-term oriented and have a bottom line that is stable and positive, they can think more broadly about their existence and hire outside consulting services - or experiment with re-organizations and growth-oriented outsourcing. This is when the industry called "professional and business services" grows. When it declines, it means that businesses cut away whatever less-necessary costs they can cut away, in order to focus on their core. 

Any new taxes on our businesses - such as a Gross Receipts Tax or a re-defined Gross Products Tax - will add a cost much the same way as consulting services would. The only difference is that a new tax is not optional. If our businesses cannot afford a voluntarily accepted addition to their costs, they certainly cannot take on a tax, especially since a tax is mandatory.

That's all for today. Thanks and please check back Thursday for another exciting article on the Wyoming economy! 

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