Monday, January 8, 2018

Wyoming Economy Stable but Vulnerable

On December 20 the Bureau of Economic Analysis (BEA) released the latest set of data on state-level personal income. We also have some interesting new numbers from the Bureau of Labor Statistics (BLS). Together, these numbers tell us that:

a) The new state of stability is now visible across the economy;
b) This is not a recovery, not by a long shot;
c) It will take a sustained period of strong growth to get us back to where we were only a few years ago.

Let us begin from the top. The BEA numbers over personal income in the third quarter of 2017, show an uptick in net household earnings of a kind we have not seen since we climbed out of the Great Recession. The third-quarter increase was 2.4 percent over the same quarter in 2016, the strongest number in two and a half years. It was also the second quarter in a row with a positive number (the Q2 figure was 0.2 percent) and the fourth quarter in a row with a positive trend. 

This is good news, of course, because it means that the decline in employment is over and that employers in general feel more confident that they will be able to keep the workers they still have. 

Contributing to the good news is the fact that work-based income is slowly reclaiming its position in personal income. For almost two years, from the first quarter of 2015 to the third quarter of 2016, personal current transfers - predominantly unemployment benefits, Medicare, Medicaid, Social Security and welfare programs - increased their share of personal income in Wyoming. The share grew from 11.9 percent to 13.5 percent and remained there through the first quarter of 2017.

Since then it has declined marginally, to 13.3 percent. This is not an improvement to celebrate, but the very fact that the upward trend is broken is positive in itself. The question is whether or not work-based income or investment-based earnings will expand in place of transfers: 

Figure 1
Source: Bureau of Economic Analysis

If we break down personal income on a per-capita basis, it becomes clearer that we are in a state of economic stability. After having declined solidly for a year and a half, per-capita personal income has now expanded three quarters in a row:

SourceBureau of Economic Analysis

There is still a long way to go for personal income. Its annual level of $56,423 in the third quarter of 2017 was still lower than it was in the third quarter of 2014. Wyoming workers will not recover three years of lost income gains, plus inflation, overnight. This will take time, and it will require a firm hand on the wheel - especially in the governor's mansion. We must not do anything to unsettle the stability that has now reached most corners of our state's economy.

We can find more evidence of an easily-disturbed state of stability in the latest Bureau of Labor Statistics numbers for Wyoming. In addition to employment, they also report average weekly wages for some aggregated industry categories. The latest numbers, from November clearly show just how frail our new state of economic stability is:

Employment is down 0.9 percent compared to November 2016. This was a disappointment compared to September and October when employment increased by 1.4 and 2.3 percent, respectively. With the exception of those two months, the construction industry has cut jobs every month since May 2015. From November 2014 to November 2017, construction lost 2,800 of its 23,700 jobs.
Wages were up 2.8 percent in November, the second month in a row with a year-to-year improvement. 
The contrast between the wage and employment trends is an example of what makes a state of stability unstable, so to speak. It is most certainly a suggestion to all our legislators not to rock the economic boat. 

Education and Health Services:
Employment has been stable or in weak decline since April last year. While health care has been a job creator over many years - bucking our state's overall jobs trend during the Great Recession - the current stagnant numbers are a cause for concern. It could be a lingering effect of Obamacare, but it is also possible that our government sector here in Wyoming is contributing by means of a slowly progressing socialization of our hospitals. Regardless, a stagnant jobs trend in education and health care means that some professions that require college degrees, fail to help create jobs for young Wyomingites in professional careers. 
Wages are increasing, again showing an industry in a state of cautious stability. With a 5.7-percent growth in November, Education and Health Services wages have now been above previous-year wages by, on average, 4.5 percent for an entire year. 
It is unlikely that we will see any surge in jobs in this sector until we have some solid deregulations in both education and health care, but once that happens, this sector could create thousands of new jobs in a short period of time. 

Leisure and Hospitality:
Employment was down in November by 900 jobs, to 29,300. This was the 24th month in a row with a job loss in this industry, totaling a loss of 1,500 jobs in two years. 
Wages have been trending upward since June, but as of November they are still 2.4 percent below where they were three years earlier. 
It is difficult to predict the future of this industry: on the one hand, the strong national economy should create an increase in spending by out-of-state visitors; on the other hand, this industry, with its volatile earnings, is sensitive to higher taxes.

Employment is actually looking good here. Coinciding with the start of the Trump administration's deregulation efforts, the negative jobs trend turned positive this past summer. As I have reported earlier, this was primarily a matter of an improvement in support functions. A more detailed analysis of this sector will follow. 
Wages, interestingly, have not increased as solidly as employment in the past few months. While mining employment was on average 12.4 percent higher in May-November of 2017 compared to the same period in 2016, wages were only three percent higher. 

Trade, Transportation and Utilities:
Employment in this industry, which at 52,500 workers has more than 2.5 times the workforce of the mining industry, is not looking too good. Employment has been down on an annual basis for 25 months in a row now, and there is no sign of stabilization. In fact, trade, transportation and utilities companies have cut 3,200 jobs since the peak in November 2014
Wages, showing a positive trend, are somewhat of a relief. Late in 2016, a trend of declining wages turned positive and has remained so since then. November's average $781 weekly wage was a 5.3-percent improvement over the same month in 2016. This suggests that we may see some stabilization on the jobs front in early 2018; since average wages represent a market price for the industry's workforce, a divergence between wages and employment cannot continue forever. 

Professional and Business Services:
Employment fell for 25 months in a row in this industry. November represents the first month since September 2015 with a positive number (of ever so small at 1.2 percent). Over more than two years of declining employment, this industry lost 2,700 of its 19,000 jobs. 
Wages are also a matter of concern in this industry. Having declined by 2.1 percent on an annual basis in November, they are now 5.5 percent below where they were three years earlier. 
This industry would take a beating from a services-based sales tax, which in turn would drive more college-degree professional jobs out of our state.

With wages and employment trends contradicting one another in most industries - professional and business services being a notable exception - we have good evidence of a state of economic stability. This stability: a) can remain for quite a while, b) will not morph into another economic boom without regulatory reform, and c) will most certainly fall apart and turn into an economic tailspin if Taxmageddon makes it through the state legislature. 

Let me reiterate the first point: with relatively small means on the regulatory side, with a firm stance against tax hikes and an open mind toward market-based education and health care reforms, our next governor could turn Wyoming into an economic powerhouse. That said, our next governor could also make a small number of big mistakes, such as signing Taxmageddon into law while leaving our state's regulatory burden untouched. That would, plain and simple, be lights out for the Cowboy State. 

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