Sunday, December 29, 2013

Georgia's small metro areas struggling

In 2013, Georgia’s employment growth has been concentrated in two surprisingly different parts of the state – the Atlanta metro area and the rural portions of the state.

Using seasonally adjusted nonfarm employment data provided by the U.S. Bureau of Labor Statistics, Georgia has added 83,600 jobs for the first 11 months of 2013, an increase of 2.1 percent.

The Atlanta metro area, which includes 28 counties, contributed 52,700 jobs, an increase of 2.2 percent.

In comparison, the rural counties in the state added another 26,400 jobs, an increase of 5.1 percent.

Small Metro Areas Growing Smaller

In contrast, the Brunswick metro area has lost 500 jobs so far this year, Warner Robins is down 500 jobs,

After the Atlanta area, the four largest metro areas in Georgia are Augusta (GA-SC), Savannah, Columbus (GA-AL), and Macon. These areas contain more than 590,000 jobs.

So far this year, the four areas combined have shown a net increase of 2,000 jobs, two-thirds of which occurred in the Macon metro area, which added 1,300 jobs.

Altogether the state’s metro areas excluding the Atlanta area have added only 4,500 jobs over 11 months, an increase of less than half a percentage point.

As a result, the state's smaller metro areas continue to suffer even as the state as a whole continues its jobs recovery. 

The non-Atlanta metro areas have not seen a significant recovery of traditional manufacturing The downturn in the Federal budget has affected areas such as Hinesville-Fort Stewart and Warner Robins, while the shrinking of the state's workforce has also contributed to this stagnation.

Smaller metro bases have been unable to take advantage of the job growth related to business services, health and education, and leisure and hospitality that has benefited the Atlanta metro area. 

Unless these smaller metro areas find ways to tap into these service-based industries, they may continue to shrink in importance.

Table 1. Nonfarm job growth for 11 months ending in November 2013, seasonally adjusted
(in 1,000s)
Statewide Georgia

  Data provided by U.S. Bureau of Labor Statistics

Wednesday, December 25, 2013

More on the Mystery: Job growth is good, so why is Georgia’s labor force declining?

Georgia’s nonfarm employment has shown good increases, even acceleration, in both 2012 and 2013. Since the beginning of 2012, Georgia’s nonfarm employment has risen by 159,100 jobs (not seasonally adjusted), an increase of 4 percent. 

Thanks to an acceleration in 2013, the state’s nonfarm employment has actually risen faster than the nation’s, which increased 3.5 percent over the same period.

Georgia's Nonfarm Employment, 2012 - 2013, not seasonally adjusted

The mystery is the decline in the labor force. Georgia’s labor force (number of employed plus unemployed) has actually dropped by 69,824 (– 1.45 percent) over the same period. 

Georgia's Labor Force, 2012 - 2013, not seasonally adjusted

(Graphs and data from the U.S. Bureau of Labor Statistics)

Even though labor force growth has been sluggish at the national level, it is positive, up by 1.1 percent, so what is happening in Georgia is different than for the nation as a whole.

There are several possible answers, but no definitive ones.

Possibility #1: The data are correct and the problems lie elsewhere

If you start with the assumption that the data and estimates are accurate, then parts of the state’s potential employees (noninstitutional population of 16 years of age or greater) continue to drop out of the labor market. In bad economic times, this is expected as people become disappointed and give up. Disappointed potential workers may retire early, go to school in hopes of gaining more education for re-entry into the job market at a later date, or even sit at home and not try to work.

One would expect that as the job market improves, these workers would be drawn back into the job market, either as newly employed or as actively work seekers (defined as unemployed), the two groups that make up the labor force number.

So why aren't they being drawn back into the rising employment market in Georgia?

Wages remain too low to attract workers back to the jobs? The cost of being employed is too high for the wages being offered (transportation costs, child care costs, etc.)? People are so disappointed by their past labor experience that even the offer of employment cannot bring them back into the job market?

One thing we can be pretty sure about is that it is not high unemployment benefits. First, Georgia’s unemployment benefits are relatively meager, and secondly, people receiving unemployment benefits must look for work, so they would be in the unemployed category, and thus included in the labor force numbers.

Possibility #2: The problem lies with the data

If the data are faulty, then the answer may not be in the labor market, but in the survey data. Either the nonfarm employment data is reflecting too much increase so jobs are being created at a slower rate than the data indicates, or the labor force data are faulty and people in the labor force are not being counted accurately.

The nonfarm employment data is a relatively robust survey even at the state level. More often than not, during upswings in the jobs cycle, employment is under counted rather than over counted as new businesses are created but not picked up by the survey of employers in a timely manner. It is very unlikely that the nonfarm survey (known as the Current Employment Statistics or CES) is over counting jobs.

That leaves the Local Area Unemployment Statistics (LAUS) survey as the potential cause of the miscount. LAUS is as much a statistical model as a survey. Even at the national level, 60,000 households surveyed monthly is a relatively small sample, and when it is broken down at the state level, statistical modeling must be used to offset the small sample size.

As with all models, the potential for statistical error is a real issue, and revisions in the numbers would not be unexpected, even large revisions.

One hint that this might be a statistical issue is that the labor force downturn really begins in January 2013. Through December 2012, the data have been benchmarked to reflect revised population controls and model re-estimation. The fact that the labor force data begins slipping downward after this re-estimation has occurred is suspicious.

Can the mystery be solved?

The good news is that all the surveys will undergo their annual benchmark in 2014, and the information will be clearer at that time. The bad news is that it forces policy makers into a state of paralysis if they need to wait for more definitive information, a condition that led to the data being made available monthly to specifically avoid this sort of situation.

Alternatively state policy makers can go ahead and draw their own conclusions about the lower labor force data and its implications for state income and sales tax revenues, as people out of the labor force are likely to spend at a lower level and pay state income at a lower level than those bringing home steady paychecks.

The answer is important to the state and its finances, but it is one more situation where the data shows the limitations under current survey constraints.  

Friday, December 20, 2013

Mystery: Job Growth is Good, so Why are People Continuing to Drop Out?

In November, the number of nonfarm jobs in Georgia rose by 14,500 (seasonally adjusted) to 4,072,200. The rise was equal to the number of jobs gained in September after a fall in October, according to the revised data from the U.S. Bureau of Labor Statistics.

Nonfarm Employment in Georgia, 2003 – 2013, seasonally adjusted

Supplied by the U.S. Bureau of Labor Statistics

The Construction industry added 4,400 jobs over the month (an increase of 3 percent), while Leisure and Hospitality jobs increased by 2,900 and Wholesale Trade jobs rose by 2,400.

The increase came despite a loss of 1,900 jobs in the Business and Professional Services sector, which has been one of the largest contributors to the state’s job growth.

Lower Unemployment Rate, Fewer People in the Labor Force

Georgia’s unemployment rate dropped from 8.1 percent in October to 7.7 percent in November, seasonally adjusted. The decline came as the number of unemployed dropped by 20,322 while the number of employed declined by 2,607 resulting in 22,929 people dropping out of the labor force.

Georgia among top growth states over-the-year

Over the 12 months (November 2012 – November 2013), the state has added 91,400 jobs, which is an increase of 2.3 percent and places Georgia in the top states for over-the-year job growth this month, behind North Dakota (+4.0 percent) and Florida and Texas (+2.5 percent each) and tied with Idaho at +2.3 percent.

For the 11 months this year, Georgia has added 83,600 jobs, an increase of 2.1 percent. So far this year, industries in Georgia with outstanding growth have been Construction (+12,700 jobs, +9.1 percent) and Professional and Business Services, which despite this month’s loss, has added 22,800 jobs this year for a 4 percent growth rate. Education and Health Services has added 17,600 jobs (+3.5 percent) and Leisure and Hospitality Services has added 17,400 jobs, an increase of 4.3 percent since the beginning of 2013.

Unemployment Rate drops as people drop out of the Labor Market

Since the beginning of 2013, Georgia’s unemployment rate has declined from 8.7 percent to 7.7 percent (seasonally adjusted). The decline occurred as 93,872 people dropped out of the labor market. Unfortunately, unlike national statistics, at the state level there are no current population statistics so we cannot determine labor market participation rates or the precise number of people not in the labor force.

Labor Force in Georgia, 2003 – 2013, seasonally adjusted

Supplied by the U.S. Bureau of Labor Statistics

The Mystery Continues

It is fair to say that without any indications of a decline, the state’s population is continuing to grow at some rate, so we can assume that the lower unemployment rate does not tell the whole picture.

Comparing the two charts in this article, you can see how nonfarm job growth is rising even as labor force numbers decline.

While the reasons for someone dropping out of the labor force can vary, generally, a declining labor force with a rising population is not a good combination, nor one that shows increased optimism about the job market.

It is easy to cheer lower unemployment rates, but when they are caused by people dropping out of the labor force, that is not an encouraging sign. Such folks have fewer resources, and not only does the lack of work caused harm to those individuals, their decline in spending also damages the overall economy.

In some sense, a rising unemployment rate, if caused by people returning to the job market, will be a greater cause for celebration than this slow decline as people give up.

Either sustained job growth will draw people back into the labor force or the job growth numbers will slow as people out of the labor force reduce their spending to offset their diminished income.

The two charts must reconcile at some future point.

While there are no state-specific data to draw upon, it appears from the national data that many of the long-term unemployed cannot find a means to re-enter this job market and may not be benefiting from this upturn in the economy.

Hopefully, sustained job growth will create opportunities for those seriously damaged by the Great Recession but that will have to wait for more months of data.