Archive for the ‘job growth’ category

The Business Tax Discussion NH Should Have

June 23, 2015

What to do about New Hampshire’s business taxes is near the top of lawmaker’s agenda in the Granite State. Many policymakers are concerned that the business tax climate is contributing to a fundamental erosion of New Hampshire’s business climate that is reflected in lackluster employment and revenue growth. Reports that NH has recently outperformed  New England and the U.S. in gross state product (GSP) growth highlight the disconnect that can occur between economic metrics of output (GSP) and measures that more directly affect individuals in their daily lives, such as employment and wage growth. Better than regional or national average growth in GSP is good but state-level GSP numbers are relatively imprecise and should not obscure the fact that employment, wages, and state revenue growth have all been disappointing in NH by the standards of the past few decades. Sustained, disappointing employment and revenue growth since the end of the recession have prompted well-meaning lawmakers in NH to consider a number of policies to accelerate growth in the state.

NH and US emp Growth

Business Taxes Seen as Key

Business tax rates impact business decisions but I don’t believe they are the fundamental factor behind NH’s disappointing economic performance. Lawmakers should consider “what to do about business taxes” but that consideration should go well beyond current tax rates and regulations. Lawmakers should also be concerned with the long-term prospects (revenue yield) of business taxes because business taxes are the largest source of general revenue supporting state government.  New Hampshire’s fiscal structure is fundamentally tied to the performance of the state’s business taxes.  As importantly, lawmakers should be concerned with how NH’s business taxes will interact with key economic and demographic trends to influence the state’s future economic performance. The chart below shows combined quarterly business profits and business enterprise tax collections on an annualized basis and illustrates that nearly six years post-recession and more than seven past their high mark, business tax revenues in NH have not fully recovered. Some of the failure of revenues to rebound following the recession is a result of changes in the state’s business tax rules and some is the result of total private sector wages and salaries (the largest portion of the BET tax base) that declined in  2009 and 2010. Whatever the reason it highlights concerns about the viability of business taxes as the primary source of support for state government. I don’t believe that either raising or lowering rates is likely to improve the performance of business tax revenue enough to alleviate those concerns or even result in revenue gains that match those seen in the first half of the 2000s.

NH Business Tax Revenue

The Business Tax Burden in NH

Using tax rates to measure burdens over time is not a true measure of the impact that business taxes have on companies. Comparing state business tax climates using rates is problematic because of the various provisions of each state’s tax code that affect nominal rates. Here I assess business tax “burdens” using an economic measure – business tax collections as a percentage of private sector gross state product (GSP). This metric documents the state’s business tax burden placed on the total value of private sector goods and services produced in a state. Even using this measure of “burden” is problematic because it does not include all of the taxes, fees, and charges that may apply to a business in each state. Nevertheless, when it comes to addressing the primary sources of tax burden and the ‘headline taxes” that are identified with a state’s business climate, it is a better measure than looking at just business tax rates.

As the chart below shows, as a percentage of GSP, business tax burdens have nearly doubled in New Hampshire since the early 1990’s. Much of that is the result of the addition of the Business Enterprise Tax in 1993, as well as increases in the BET’s rate from 0.25% to 0.50% in 1999, to 0.75% in 2001. But some is also the result of increases in the rate of the business profits tax (BPT) which began the time period shown at 8.0% (from FY 92 through FY 93), dropped to 7.5% in FY 94 and hit a low of 7.0% (from FY 95 through FY 99) and finally rose to its current rate of 8.5% in FY 02. Importantly, the chart also shows that business tax revenue as a percentage of private sector gross state product has fallen since the recession and is now at a level seen at the beginning of the last decade. Again, changes in rules and a decline in wages and salaries both play a role in that decline. For comparison purposes the chart also shows the percentage of GSP that corporate income taxes take in Massachusetts, however, as noted, a number of other taxes are applied to or affect business in addition to corporate income taxes.

Taxes as a pct of GSP

What’s Ailing the NH Economy?

I don’t believe there has been a substantial, fundamental erosion of the ‘business climate” in NH. Slow labor force growth is by far the largest factor contributing to New Hampshire having gone from a leader to a laggard in job growth. That labor force issue is much broader and more complicated than the simplistic and too often noted “young people moving out-of-state.” The chart below shows that labor force growth has slowed more in NH than nationally in recent decades. Where once NH enjoyed a significant advantage in labor force growth, the state now lags the nation as a whole. Above average labor force growth is what allowed NH to have exceptional job growth in the 1980’s and much of the 1990’s.

lf growth 3 time periods

Labor force growth (largely via in-migration of skilled, educated individuals and families from other states) provided NH with a resource advantage for decades. Slow labor force growth is now capping the amount job growth that is possible in the state. Some believe the state’s labor force would experience stronger growth if more job opportunities existed in NH and that simply reducing business taxes will make that happen. While that is true to a degree, today, businesses rarely locate where there is not clearly a sufficient supply of needed labor. A sharp rise in help-wanted advertising in NH in recent years even as private sector employment growth has remained relatively constant and disappointing (chart below) shows that in the near-term at least, demand for labor does not necessarily increase its supply.  Significantly, the chart also shows that after a rapid rise in help wanted advertisements that was not accompanied by a noticeable increase in the rate of private sector job growth, help wanted ads have begun to decline in what may be a sign that employers, because of labor supply constraints, are increasingly looking  elsewhere for labor.

help wanted june 2015

The demand for labor does generally increase the supply of labor but when the supply is growing slowly everywhere (especially in the Northeast where NH has typically attracted much of its increase in labor force), supply will respond accordingly. Increasingly businesses follow labor rather than the other way around and they do not rely on their demand to increase labor supply.  Looking ahead, population and demographic projections show that both nationally and in NH, the working age population (defined here as age 18-64) will show almost no growth over the next 25 years. Competition for labor among businesses will become more intense and to keep and attract a labor force businesses will have to offer more than just the promise of a paycheck. I would argue that states and communities will also have to offer more (in terms of amenities – natural, social, civic, cultural, and services) to attract and retain the labor force needed for employment and economic growth. Evidence of the importance of amenities to labor supply (and employment growth) can be seen in the differential employment growth between some of NH’s regions such as the Seacoast (which has had higher population, labor force, and employment growth and which has several high amenity communities) and other regions of the state.

New Hampshire can improve its business taxes and business climate but whatever reforms are enacted, alone, are not going to overcome demographic and labor force imposed constraints on employment growth in the state. Lawmakers should, however, seek to assure that business taxes do not worsen key constraints on the NH economy moving forward.

The Longer-Term Problem

NH’s combination of a traditional tax on the profits of business profits (the business profits tax or BPT), along with its “business enterprise tax” or BET (on the combined compensation, interest, and dividends paid by businesses) may well exacerbate some of the disadvantages the state’s economy will face as a result of national and state demographic trends, making it more difficult for NH to overcome key constraints on employment growth in the state.

Reducing business tax rates that many see as too high is a near-term solution to a longer-term problem. The longer-term problem is slow or no labor force growth nationally and in NH in the coming decades that will limit profit growth everywhere but which will also place additional burdens on NH businesses. The labor force problem and NH’s reliance on business taxes will present NH businesses and state government with challenges that are unique to the state.

Wages and salaries are generally lower for comparable positions in NH than they are in Massachusetts. At one time it was easy to justify that wage differential because of large differences in the cost of living between the two states. Today, the cost of living differential between the two states has narrowed and NH is considered a high cost-of-living state. The U.S. Bureau of Economic Analysis (BEA) produces a “regional price parity index” Regional Price Parities (RPPs) measure the differences in the price levels of goods and services across states for a given year. RPPs are expressed as a percentage of the overall national price level (100). As the chart below shows (apologies for the poor quality – I lifted it directly from a BEA publication), NH (seen in red) has become a high cost state (largely because of housing costs), nearly as costly as Massachusetts.

price parityIn a state (NH) with living costs that are increasingly comparable to Massachusetts, workers in NH can be expected to seek wages nearly comparable to wages available in Massachusetts. For the most part, however, NH employees do not receive wages comparable to wages in Massachusetts and that contributes to some of NH businesses inability to hire needed workers and to NH’s modest job growth, despite increased job openings in the Granite State.   It may also be a contributing factor to NH’s significant drop in its unemployment rate with only modest job growth (the unemployment rate is a residency-based measure that considers only whether or not a resident of NH has a job or not, regardless of where that job is located).  Little or no growth in the labor force in the coming decades will increase competition for workers and will put more pressure on NH businesses to narrow wage and salary differentials with other, higher-cost states, if higher-skill jobs located in NH are going to grow. The catch 22 is that higher wages increase the BET liability of businesses at the same time they can reduce profitability (if productivity isn’t rising along with wages). A growing disconnect between the profitability of businesses in NH and the tax burden placed on them is not likely to be an incentive for businesses to compete for labor in a era when it is ever more scarce.

Higher wages would not be a problem as long as productivity increases justify wage growth. When workers produce more they should see higher wages. Productivity growth has been modest over the past decade and shows little sign of accelerating. Thus increasing wages will likely mean slower profit growth for businesses in NH and elsewhere. I think we have seen the high mark nationally for corporate profitability for some time. But in NH, the higher wages needed to attract labor will also increase the business enterprise tax (BET) liability of companies. If profitability is indeed more modest because of faster wage growth and modest productivity growth, the BET liability of NH businesses relative to their business profits tax (BPT) liability will increase. An ad valorem tax on a resource (labor) in short supply with a rising price and that is paid regardless of the profitability of a business may increase (or cushion from decline) state revenue for a time but it also seems like a disincentive for businesses to pay the wages necessary to compete for labor and to hire in New Hampshire over the longer term.

New Hampshire’s tax structure has never really been a boon or an advantage for business but it has been attractive to large numbers of individuals and families over the years and it contributed to growth in the state’s labor force via inter-state migration into NH. Growth in key demographic groups within the labor force – skilled individuals with higher levels of educational attainment  and regardless of their age ( two wage-earner, college educated, married couple families with children characterized the typical inter-state migrant to NH) made New Hampshire a much more attractive place for businesses to operate. The in-migration of “talent” fueled the state’s transition to a more sophisticated, technology dependent economy. But there is less state-to-state migration everywhere today and national and regional population, demographic, and labor force growth make it much less likely that NH will continue to realize those benefits from its fiscal structure. In the coming decades as competition for labor increases because of limited growth in the labor force, stronger wage growth will be needed to attract a limited pool of labor. Taxing compensation (as NH’s BET does) will increase tax liabilities for many NH businesses even as higher wages limit their profitability.

It is time for a discussion of NH’s business taxes, but that discussion needs to involve a lot more than just tax rates, credits, and how the rules apply to publicly traded companies.

More on Shifting Economic Activity in NH

April 17, 2014

My post on the “Shifting Locus of Economic Activity in NH” back in January generated a lot of interest and emails. That post has more views than any other post on this blog over the past year and half. Admittedly that’s setting a pretty low bar as far as blog readership honors go. Nevertheless I want to thank my family as well as those with an interest in flying, swarming insects and an inability to spell “locust” in their search engines for making it possible.


As I noted in my first post on the topic, I believe there are a number of economic and demographic indicators that support my contention about the shift in economic activity. Still, there are some (many?) in the Granite State who disagree. In the spirit of giving the public what it wants and sparking debate, I present another of what will be several posts on the topic.
Some themes essential to my thesis are: that the ability to attract and retain talent (skilled individuals with higher levels of educational attainment) is the critical ingredient responsible for the shifting of activity in NH – as well as the key ingredient for producing a dynamic economy anywhere; and that communities offering amenities and services desirable to “talent” and at a relatively more affordable price are keys to attracting talent. I think price (the ability to offer desirable amenities and services at a relatively more affordable price lower than other communities that offer similar amenities) has been important. But I also think that patterns of economic activity in NH and throughout the country demonstrate that unless your community or state is sitting on a valuable store of fossil fuels or minerals, being cheaper isn’t enough to generate more robust economic activity. One interesting artifact of the debate over local government fiscal policies is the mistaken belief that communities spend more when they contain a higher percentage of lower-income residents. In fact, just the opposite is true – expectations for services, quality, and amenities, along with their costs, generally rise as communities (primarily cities – small and large) generate more economic activity and become wealthier. This typically creates a lot of conflict in communities that are experiencing new economic successes and associated demographic changes and can make sustaining a higher level of economic activity difficult for a community.
Getting back to the evidence that supports my contention about economic activity in NH, the previous decade has not been kind to NH or most states in terms of job growth. I documented the Seacoast’s increasing share of NH’s employment and in key industries in my prior post on the topic.  Here, and in future posts, I will look at some of the demographics of that job growth to support my thesis. The chart below shows the percentage change in jobs among individuals of all educational levels (age 25 and up) in different counties and the State of NH between 2003 and 2012, as well as the percentage of jobs held by individuals with at least a BA degree.

County Job Growth
Similar to my prior post, the chart shows that job growth has been higher in the Seacoast (defined here as Strafford and Rockingham Counties because of data availability while the prior post used data at the community level) than in either Hillsborough County or the State as a whole. More importantly, the chart shows that the rate of job growth in the Seacoast among those with at least a BA degree has exceeded the rates for either Hillsborough County or the State by an even wider margin. Strafford County has seen an especially large increase (largely in Dover – my domicile in the interests of full disclosure) but its much smaller employment base makes larger percentage changes easier to obtain. Again, however, it is not just job growth but the nature of that growth and the shifting of talent that is the key.
The Seacoast accounted for a higher percentage of the state’s net job growth between 2003 and 2012 (chart below). The percentage of the state’s net job growth accounted for by the Seacoast was 70% compared to 46% for Hillsborough County (note the percentages add to more than 100% because some counties had negative job growth during the time period).

Share of States Job Growth
Almost half of the net job growth in NH among workers with a BA degree occurred in the Seacoast. Hillsborough County still has a larger percentage of job holders in the state with a BA degree or higher (37% to 31% in the Seacoast) but that percentage has slipped by almost 1% over the time period, while the Seacoast’s percentage has increased by 1%. Still even shifts occurring at seemingly glacial speed are very powerful. I suppose it is possible that the Seacoast has just been more successful in adding jobs which overqualified BA’s are filling. Based on my initial examination of job growth by industry, I don’t think that accounts for the relative differences, but in future posts I will examine that and other possibilities.

The Locus of Economic Activity in NH is Shifting

January 21, 2014

I gave a presentation last month during which I argued that the locus of economic activity in New Hampshire is shifting to the Seacoast.  That is a provocative statement destined to offend the population centers of Manchester and Nashua and quite likely the individuals elected to represent them. Provocation isn’t my intent, it rarely is, but is often the result nevertheless.  This shift will take years to become more apparent but the evidence for its occurrence appears across a range of important economic and demographic metrics.  Over the past decade, private sector job growth in the combined Portsmouth and Dover/Rochester NECTAs** has outpaced growth in either the Manchester of Nashua NECTAs.  The Seacoast is home to only about 15% of private sector employment, but that percentage is growing.  The shift is not really about the job growth numbers because the Seacoast will always have smaller employment numbers than will the population centers of Manchester and Nashua.  It is about how so much more of the innovation and transformation that is occurring among businesses and industries in the state’s economy is occurring in the Seacoast region.

NH Regional job growth

Alone, the increase in private employment in the Seacoast relative to the Manchester and Nashua regions would not be that significant.  Rather, it is the increasing share of innovation and growth in key industries that the Seacoast is capturing that indicates the locus of key economic activity is shifting.  As the chart below shows, the Seacoast region has marginally increased its share of New Hampshire’s private sector employment since 2004, but it has, in relatively short time, substantially increased its share of finance and insurance industry employment, information industry employment, as well as both health care and manufacturing employment.  Annual town-level data stops in 2012 but with the coming addition of technology dependent, international companies like Safran, the manufacturing trend appears to be continuing.   The one key industry where the Seacoast has not gained share is in professional and business services.   This is a large, important, and growing sector of the New Hampshire economy.  In most states, key professional and business services firms often locate in the state’s largest city.  Major NH Law firms, engineering firms, advertising agencies, and many of the other industries that comprise this sector still seem to prefer to be centrally located and have their main offices in the state’s largest city, Manchester.  Having a main office anywhere other than  the largest city seems to signal, to some, that a business is “regional,” that it does not serve the entire state or the larger New England region. The Seacoast is also capturing a smaller share of retail employment, which is surprising given its location along two state borders.  It is not that retail is declining in the region but rather that it has grown faster elsewhere in the state.

Seacoast share of industries

Manchester and Nashua are still home to more companies in key industries than is the Seacoast and that will be true for some time, maybe always.  Still, there was a time when the Greater Nashua and Manchester areas were the technology and manufacturing center of New Hampshire and almost all important developments in manufacturing and technology industries occurred there.  These regions remain the technology leaders by numbers, but more key developments and new companies in technology and manufacturing are  occurring in the Seacoast.  The development of the Pease Tradeport into a premier location for industries of all types, along with the presence of a major research university (UNH), have played important roles in the shift.  But what is really sustaining the trend is the ability of the region to attract the talent (skilled individuals with higher levels of educational attainment) that companies in emerging, growing and higher value-added industries desperately need.   As I say far too often, brains are the most valuable resource in the 21st century.  Skilled, well-educated people have the most economic opportunities and they are the most mobile members of society.  Where they choose to locate, robust economic growth is likely to follow.  Examining Census data indicates that skilled individuals with higher levels of educational attainment have increasingly chosen to live in the Seacoast, and that has provided a key source of competitive advantage to the region.  The chart below shows how the population of individuals with a bachelor’s degree or higher has changed in some NH cities over the past two decades.  The chart shows that on a percentage basis, Portsmouth and Dover, by far, had the greatest increase of individuals over the age of 25 with a bachelor’s degree among their populations.  Somersworth, although beginning with a lower concentration of individuals with a bachelor’s degree, had the next largest percentage increase in subsequent decades.  Among the largest cities in the Seacoast, only Rochester has not seen a substantial increase in its population with a bachelor’s degree or higher.

Changes in Ed Attainment

If the Seacoast continues to increase its concentration of “talent,” then the locus of economic activity in the state will continue to shift toward the region.  Communities in the region continue to attract skilled individuals with higher levels of educational attainment because, to varying degrees, most have been able to provide a mix of services and social, cultural, and civic amenities, at a price more affordable than communities in other states.  But if being the “cheapest” place to live were the key, the Seacoast would not be thriving.  Rather, it is the combination of services and amenities at  relatively more affordable price (providing a good value) that has been attractive.  Many communities and regions are looking to thrive.   Like all regions in New Hampshire the Seacoast has heard, and for the most part heeded, the call for fiscal restraint (although you can never spend too little for some or too much for others), but most of its communities have looked for ways to continue to provide or increase the quality of their services and the amenities (natural, built, civic, social and cultural) they offer.  It is more difficult for urban areas to attract and retain the skilled individuals with higher levels of educational attainment that are increasingly the key to a vibrant economy because urban cities have to find ways to provide and encourage a level of services and amenities to compensate individuals for living in cities that have the problems associated with urban environments.

Most of the focus of economic development strategies is on creating policies to ensure a “good business climate.”  I think that is important and I also think NH has a pretty good business climate.  With so much concern over population and labor force growth and demographic changes in NH, more emphasis needs to be placed on creating a good “talent climate” as well as a good business climate. I don’t know that the Seacoast of NH has sought to do that but the demographic and economic data suggest they have done so regardless.   The result has been a competitive economic advantage. On a smaller and slightly different scale you can say the same thing about the Hanover/Lebanon area which serves as a nice control group to assure the importance of amenities don’t just mean having an ocean nearby.


** NECTA = New England City and Town Area, a grouping of towns into a connected labor market area, akin to a metropolitan or micropolitan statistical area.

What Do Help Wanted Ads Say About the “Skills Gap”?

April 18, 2013

It has been quite a while since I wrote about some of my favorite topics, the “skills gap” and occupational supply and demand.  But since there are recent media reports about the issue and more and new or renewed groups in NH looking to influence the debates and discussions on the issue, let me once again add my $.02.

I’ve made the plea for empirical rather than anecdotal or ideological evidence on the issue and produced a little evidence myself that both points to a skills gap as a contributor to slower than desired employment growth as well as evidence that suggests the issue may not be as prominent an explanation for slower job growth as some believe.  I’ve also noted the larger economic policy debate that engulfs the skills gap issue.  The data I’ve presented in this blog only hints at  answers to the fundamental question of whether slower job growth is more of a problem of labor supply (the number and/or quality available workers with the education, skills and training desitred by employers), or one more of labor demand (not enough employers looking to hire qualified, educated and skilled workers in NH).  I think the charts below  again provide some clues to labor supply and demand trends in NH and also illustrate some bigger trends in the NH economy.

The first chart most directly addresses the skills gap issue.  It shows that in terms of broad occupational groupings, professional and technical job openings are the largest component of on-line help wanted advertisements in NH.  Because these tend to be among the most-skilled and highest-paying jobs we assume that if there were a sufficient supply of labor then job growth in the industries that most employee these occupations would be relatively strong.  In fact, one  industry grouping – business and professional services  – employs a lot of professional and technical occupations and it is growing almost twice as fast as is overall private sector employment in NH.

The crux of the skills gap issue is this: “would a larger or better qualified supply of individuals in these occupations result in faster job growth in NH, or are there other or complimentary factors that also need to contribute to faster growth?”   How you define the problem of slower job growth also largely defines the range of your solutions. Increasingly, and I think somewhat disappointingly,  it also seems to define your ideology (if you have one).

March 2013 HW

The chart  below is less sanguine.  It shows that compared to the same month in 2012, March 2013 help wanted ads in NH for professional and technical ads declined by more than 10 percent.  One month isn’t a trend but recent months have shown more weakness than strength in this indicator.  The chart also shows that the largest improvements in labor demand are not among the most skilled occupations, although changes in the occupational make-up of manufacturing industries makes it increasingly likely that production workers will  have higher levels of education, training and skills.

Pct Change in HW in March


What’s Behind the Weak Jobs Report?

April 5, 2013

Bad news arrived today with the release of the monthly employment report by the U.S. Bureau of Labor Statistics.  Only 88,000 non-farm jobs were added across the country in March. Following  two months which saw the U.S. add 148,000 and 268,000 jobs respectively in January and February, the low number raises concerns that the U.S. may again be heading for a “Summer slump” after showing signs of stronger job growth early in the year.

I share that concern but I am most interested in what the job growth numbers may or may not imply about recent U.S. economic and domestic policies.  I know sequestration is the hot policy topic and may be blamed or credited for all evil or good that occurs in the U.S, economy this year, but it is really too early for it to register much  impact on March’s job growth.  Two other policies have the potential to more significantly impact job growth in the near term.  The details of the March employment report provide some clues about if and how these policies may affect job growth in the future. The elimination of the temporary reduction in the payroll tax and health care coverage mandates in the Affordable Care Act are policy impacts that we worried about before we started worrying more about the potential impacts of sequestration.

I last posted that gains in home values, stocks and, retirement accounts along with increases in wages and salaries would help the economy overcome the large potential impact on consumer spending from the rise in the payroll tax (elimination of the temporary rate reduction) that took effect in January.  I may have been a little too optimistic about those factors ability to help the U.S. economy overcome more than $100 billion in lost consumer spending power (over $600 million in New Hampshire).   For me, the most troubling piece of data from the March job growth report was the seasonally adjusted decline of 24 thousand retail trade workers and generally downward trend since January, that has followed several months of solid gains in late 2012 (chart below).

U.S. Retail emplyoyment

When housing values are recovering, homeowner’s equity is rising, and employment and wages are growing, retail employment should not decline.  The elimination of the payroll tax cut (along with higher gasoline prices early in the year) likely provided a greater shock to consumers than anticipated.  But another explanation is that implementation of the health care mandates of the ACA could be affecting employment more in some industries.  If so, it would likely impact industries that typically are less likely to offer their employees health care coverage and industries that employ more part-time workers.  Retail and leisure and hospitality industries  meet those criteria but only retail trade lost employment in March.  Because the ACA mandates coverage for full-time employees, one way to avoid the mandate would be to increase part-time employment.  In that case I would expect the average weekly hours of workers in retail or other industries that may be more  affected by the mandate to decline, as more workers were shifted to part-time status but average hours have increased slightly in retail over the past three months.  Looking more closely at the data on part-time employment is needed to get a handle on any ACA impacts.  Over the next few months I will be looking for evidence of  increases in the number of workers working “part-time for economic reasons” – meaning they are working part-time when they want to be working full-time, as well as employment trends in businesses employing between 50 and 499 workers (those most affected by ACA).  Trends in these employment data would provide stronger evidence of any ACA effects but for now, it looks like the payroll tax is the culprit in the retail employment data.

Small Business is Not Booming

March 12, 2013

The National Federation of Independent Businesses just released its monthly report on the condition of  small businesses nationally.  The report is based on a national survey and state-level results are not available.  However you feel about NFIB or their advocacy positions their monthly report is a valuable source of  information about the issues and factors affecting small businesses.

Robust economic growth does not occur unless small businesses are confident, healthy, and hiring.  That seems especially true in NH and is one reason NH’s job growth has been slower than the national average.  I especially pay attention to the headline portion of the NFIB’s monthly survey,  it’s “Small Business Optimism Index”,  because it seems to be a pretty good indicator of near-term job growth in the U.S. and NH.  The simple correlation between the NFIB Small Business Optimism Index (lagged 3 months because it takes some time for optimism/confidence to affect hiring plans) and U.S. Job Growth  is about .68, while the correlation between the NFIB Index and NH employment growth is about .74.   Thus the relationship is slightly stronger between the Index and job growth in NH than it is for the U.S. as a whole.  The NFIB Index inched-up in February, but overall it remains relatively low, suggesting that small businesses aren’t yet ready to provide the boost to hiring that typically occurs in a strong recovery from recession.

NFIB Index and Job Growth


A more troubling indicator of the health of small businesses (and thus hiring plans) comes from the Experian/Moody’s Analytics Small Business Credit Index.  This quarterly assessment of the financial health of small businesses suggests the balance sheets of small businesses (in the aggregate) deteriorated in the fourth quarter of 2012.   According to the quarterly report:

“Delinquent balances rose, pushing the share of delinquent dollars higher to 9.7 percent from the prior quarter’s 9.4 percent. A slowdown in personal income growth led to sluggish retail sales, hurting small-business revenues. Though small firms have worked to trim their labor costs in recent months, sales have fallen more quickly, forcing many small companies to borrow funds to cover their payroll expenses…..The next six to nine months likely will be lean ones for small businesses as rising taxes strain household budgets  and nervous firms of all sizes postpone hiring, thereby stunting the jobs recovery. Consumer sentiment is likely to remain subdued, and spending will be underwhelming, which will keep pressure on small-business balance sheets.”

Experian Moodys  Credit Conditions


Even A Broken Clock is Accurate Twice a Day

March 8, 2013

I am frequently in error but rarely in doubt, so when I am right I have to make sure someone notices.  Good news was reported today  on job growth nationally, as an estimated 236,000 jobs were added across the country in February.   I hate to sound jaded but in each of the prior two years job growth looked to be accelerating early in the year only to experience a significant mid-year  slump.  For now, however,  it is a positive sign.  I have been especially and uncharacteristically gloomy in my characterization of NH’s economy but there was some little reported good news on that front released last week.  The annual benchmark employment revisions showed that NH has 9,600 more jobs than originally estimated.  I won’t get into why the revisions are necessary and can result in some significant changes in the numbers  but in my very first post in this blog back in October I highlighted the disconnect between the volume of  help-wanted advertising in NH and estimates of job growth in the state.

“In the first ever Trend Lines blog post I begin by asking a basic question:  Could the most recent job growth picture in NH be distorted by numbers that will later be revised?”

I also suggested that growth trends in reported wages and salaries  in the state were also inconsistent with estimated job growth trends. In that post and in subsequent  posts (here and here) and others as well, I talked about a potential “skills gap” as a contributor to the disconnect between help-wanted ads and NH’s reported job growth.  I think a “skills gap” is a contributing factor  but as I argued in my first and subsequent  posts –  my money is on job growth being revised upward.  It is nice to be right but it really doesn’t change the overall theme of NH’s economy- that it continues to under perform relative to states it typically outperforms.  That was also predictable:

“…that the jobs data is wrong and will be revised upward early next year, is real,  but that doesn’t mean the revisions will show NH is again outperforming its neighbors or the nation.  It just means we will look less bad over the past year or so than we do right now.”

Five months later I think that still  sums-up my feelings about the revisions, its good to know we have more jobs but we are still in a growth mode that is too slow.  With the revised job numbers for NH the relationship between help-wanted advertising and reported job growth looks more appropriate.

NH Revised Emp

The revised job numbers also are more consistent with PolEcon’s NH Leading Index which had been signalling stronger employment growth in NH than was first reported.  The revised job numbers are more consistent with the signals provided by the Leading Index.   That may not mean much to anyone but to me it means I won’t have to spend a lot of time re-calibrating the Index and that means a more enjoyable weekend.  Enjoy yours.

Leading index and revised emp


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