Wednesday, May 9, 2018

Federal Reserve Confirms My Analysis

I have a lot more to say about school choice, a topic I will get back to on Monday. In the meantime, I have good news: the Federal Reserve confirms my analysis of the Wyoming economy. 

As I have explained in the last couple of days, the Trump economy has given us a little bit of economic margins. The minerals industry is experiencing a rebound, though it is still far below where it was a few years ago. Meanwhile, the rest of the private sector is basically at a standstill.

Now the Federal Reserve Bank of Kansas City essentially reaches the same conclusion as I have (thank you to the reader who sent the link):
Wyoming’s economy is stabilizing after a steep downturn, but it will face continued challenges going forward, including with its workforce. That was part of the message from Federal Reserve Bank of Kansas City executives. Tuesday to Cheyenne residents during an economic forum here. Alison Felix, vice president and Denver branch executive, spoke about the state of the national and local economy in general. Nathan Kauffman, assistance vice president and Omaha branch executive, spoke about rural and agriculture-based economies in the seven states in the Kansas City bank’s region. The last year saw a turnaround in Wyoming’s economy after a multi-year slump that followed a drop in energy commodity prices, Felix said. As energy prices begin to bounce back, she said unemployment is low, several sectors are adding jobs, and occupancy rates are up for lodgings across the state. Economic indicators are still less positive than before the economic bust that began in late 2014, but Felix said things are in relatively good shape.
To characterize this as a "turnaround" is to engage in mechanistic, routine thinking. The term, as used by economists, implies a new growth period that will somehow, automatically, take us back to previously enjoyed heights of economic activity.

It is also wrong to characterize the state of the Wyoming economy with the words "things are in relatively good shape". Beyond the rhetoric, though, I am glad to see that the Fed, in its analytical work, has reached the right conclusion about the state of the Wyoming economy. They confirm what we saw yesterday, namely that the minerals industry is really the only source of measurable economic growth. 

A review of the latest Bureau of Labor Statistics data confirms this point. Table 1 reports the total number of hours, in millions, worked per week in private businesses across the state:

Table 1

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Jan 7.94 7.82 7.13 7.34 7.57 7.56 7.49 7.64 7.06 6.81 7.04
Feb 7.96 7.80 7.14 7.24 7.44 7.65 7.79 7.87 6.97 6.67 7.03
Mar 8.09 7.59 7.12 7.26 7.41 7.59 7.74 7.76 6.95 6.71 7.14
Apr 8.06 7.41 7.27 7.57 7.78 7.48 7.72 7.70 6.71 7.02
May 8.29 7.66 7.53 7.75 7.82 7.90 7.96 7.91 7.05 7.16
Jun 8.86 7.83 7.87 8.11 8.30 8.43 8.51 8.25 7.22 7.57
Jul 8.96 7.97 8.15 8.31 8.48 8.22 8.39 8.33 7.39 7.80
Aug 9.02 8.21 8.34 8.33 8.30 8.33 8.58 8.46 7.44 7.72
Sep 8.77 7.73 7.97 8.22 8.43 8.26 8.31 7.88 7.21 7.47
Oct 8.57 7.47 7.84 8.22 8.11 7.96 8.25 7.76 7.23 7.51
Nov 8.44 7.52 7.61 7.80 7.94 7.88 7.95 7.55 6.85 7.20
Dec 8.21 7.27 7.47 7.74 8.11 7.86 7.91 7.25 6.72 7.08

As the March numbers across the years indicate, we are almost 1 million hours short of where we were ten years ago. It is not as bad as it was last year, but these numbers confirm what we saw yesterday, namely that we have landed and are in a new state of stability. 

Table 2 explains the same BLS data, for the month of March, by separating minerals from the non-minerals private sector. There is an increase in total number of hours worked in both sectors...

Table 2

Total private Minerals Non-min.
2008                 8.09                 1.32             6.77
2009                 7.59                 1.16             6.42
2010                 7.12                 1.06             6.06
2011                 7.26                 1.16             6.10
2012                 7.41                 1.24             6.17
2013                 7.59                 1.14             6.45
2014                 7.74                 1.23             6.51
2015                 7.76                 1.13             6.63
2016                 6.95                 0.82             6.13
2017                 6.71                 0.79             5.92
2018                 7.14                 0.90             6.24

...but if we look more closely, we see once again that the increase is skewed toward the minerals industry. Of the 425,630 hours that the private sector has added over the past 12 months, 112,260, or 26.4 percent, were in the minerals industry. At the same time, in 2017 that industry accounted for only 12 percent of all hours worked in the private sector. 

There is one last piece to add to the puzzle, namely average hourly earnings. Table 3 reports March numbers, again with the same breakdown of the private sector. It is noteworthy that there seems to be a decline in hourly earnings in the minerals industry, even as their total earnings rise. The non-minerals part of the private sector appears to be on the opposite track:
  
Table 3

Minerals Non-min
2008 $27.52 $19.50
2009 $28.46 $19.93
2010 $28.70 $20.15
2011 $27.60 $20.62
2012 $29.18 $21.33
2013 $30.79 $21.86
2014 $33.93 $21.41
2015 $34.36 $21.41
2016 $35.89 $21.54
2017 $35.65 $22.03
2018 $33.85 $23.49

This could be a sign that mining companies can find the workers they need with relative ease. Given the earnings difference, with a 44-percent premium vs the rest of the private sector, the decline in average hourly earnings is yet another indicator of how tepidly the rest of the Wyoming economy performs. 

By contrast, the 6.6-percent increase in hourly earnings in the non-minerals private sector is the strongest in ten years. Since there are no real reasons for this increase inherent to the Wyoming economy, this is more than likely yet another indicator of how the Trump bump in the national economy is also affecting us. 

To sum up: the latest employment and earnings numbers from the Bureau of Labor Statistics confirm that the Wyoming economy is stable, with growth essentially concentrated to the minerals industry. Alas, my long-standing policy recommendation remains in place: 

1. No tax increases whatsoever. None. Nichts. Nada. Nej. Njet. Perhaps our legislators would be interested in adding their names to my tax pledge?
2. We need deregulation and structural spending reforms to permanently reduce the size of government. 

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