Friday, January 26, 2018

WY Economy: Some Growth, No New Jobs

On Wednesday, the Bureau of Economic Analysis released the latest state GDP numbers. Superficially, it is good news for Wyoming: year over year, inflation-adjusted GDP grew a remarkable 4.5 percent, a growth rate we have not seen since early 2009. With $1.5 billion in economic activity added in one year, things should look solidly upward, should they not?

Before we get to the bad news, first a rundown of the good news.
There was growth in 14 industries, and a decline in only five of them. Furthermore, government contracted its spending by 1.1 percent, reflecting a newly acquired taste for fiscal restraint among those who spend our tax dollars:

Table 1
SourceBureau of Economic Analysis

Change Share of state GDP
      Mining 18.7% 28.5%
      Arts, entertainment, and recreation 13.6% 0.7%
      Manufacturing 5.7% 6.4%
      Professional, scientific, and technical services 4.4% 2.6%
      Information 4.3% 1.8%
      Retail trade 3.6% 5.7%
      Real estate and rental and leasing 3.4% 11.5%
      Administrative and waste management services 3.1% 1.3%
      Other services, except government 2.8% 1.4%
      Finance and insurance 2.4% 2.4%
      Wholesale trade 1.4% 3.9%
      Management of companies and enterprises 0.9% 0.3%
      Health care and social assistance 0.9% 4.0%
      Transportation and warehousing 0.5% 6.0%
      Accommodation and food services -1.0% 2.9%
  Government -1.1% 14.5%
      Educational services -2.9% 0.2%
      Utilities -4.6% 2.4%
      Construction -8.3% 4.2%
      Agriculture, forestry, fishing, and hunting -23.9% 1.0%

Now for the not-so-exciting side of these numbers. To begin with these growth numbers once again reveal the slanted profile of the Wyoming economy. As the second column shows, the strongest growth took place in the sector that contributes the most to our state GDP. The production value of the minerals industry is as big as the total production value from the next four private industries combined.

This means that a growth spurt in minerals production easily makes it look as though the entire economy is taking off: in reality, the increase in minerals production, measured in inflation-adjusted dollars, represents the entire increase in state GDP, all on its own. Minerals production grew by $1.63 billion, with all other private industries only increasing by a combined $330 million. Adjusting for the decline in government spending, we end up with the minerals expansion actually representing 104 percent of the growth in GDP.

Don't get me wrong: I am happy that there is a stabilization in the economy, and that the minerals industry is again making some money. I just don't want anyone to overplay this and start partying - or spending - like it's 1999. 

There is yet more evidence that these numbers are not the numbers of a sustained recovery. In December I reported on wages and employment at the county level, concluding that employment was generally a little bit better but earnings were actually somewhat weaker. These are typical indicators of an economic stabilization, and nothing more than that. To further emphasize this point, let us take a look at the latest Bureau of Labor Statistics data over private sector employment here in Wyoming, for 2016 and 2017:

Table 2
Source: Bureau of Labor Statistics

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 207.6 205.6 205.6 205.8 209.5 216.4 219.0 217.8 212.7 207.9 202.6 202.8
2017 199.5 199.2 200.1 201.0 207.9 215.3 219.4 218.8 212.2 207.8 202.9 205.1
Difference -3.9% -3.1% -2.7% -2.3% -0.8% -0.5% 0.2% 0.5% -0.2% 0.0% 0.1% 1.1%

During the third quarter of last year (marked), when our state economy went through its growth spurt, there was hardly any movement in total private-sector employment. The fourth-quarter numbers, which admittedly are partly preliminary, indicate very little movement upward. 

Furthermore, a more detailed look at industry-level BLS data - which I will get back to next week - shows that while the minerals industry has finally hired more people again, the big services industry, which has seven times more employees than the minerals industry, actually ended 2017 with fewer employees than it had a year ago. (This is the industry that our state lawmakers want to hit with a 4-4.5 percent sales tax.)

We can only say that our economy is strengthening again when GDP growth numbers and employment are improving together. Until that happens, my conclusion remains: we are in a new state of economic stability, but it is fragile and can easily come to an end if our lawmakers do something stupid. 

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