Households are arguably better positioned to increase their spending than at any time over the past decade. I define household purchasing power, in the aggregate, as a combination of income and household financial obligations. Household financial obligations include all debt obligations as well as things like housing rental costs, auto leases, insurance and property tax payments. A combination of low interest rates that reduce the cost of debt for households as well as reductions in the use of credit and households paying down debt since the recession, have all combined to lower the financial obligations of households (in the aggregate) as a percentage of household disposable income. Real wage and salary income is also increasing (even if not for all individual households). In combination, the reduction in financial obligations and rising aggregate income should result in increasing consumer expenditures. A lack of conviction in the economic recovery, a decline in home values that affect consumer’s sense of financial well-being, and higher energy prices over the past year have all helped restrain consumer confidence and spending. But energy prices are falling and home prices (in most areas) are rising. As hiring (and thus wage and salary growth) accelerates, the stage is set for a long-awaited burst of consumer spending.
Archive for November 2012
The Federal Housing Finance Agency released its latest home price appreciation index on Tuesday and while the data support the belief that housing is bouncing back across the country, and is now becoming a positive influence on economic activity rather than a drag, the news is not good for New Hampshire. The FHFA’ s repeat sales home price index shows that NH is one of only a few states that had price depreciation between the third quarter of 2011 and the third quarter of 2012 and only two states (Maine and Rhodes Island) had lower appreciation rates than did New Hampshire.
Repeat sales indices are the only accurate way to measure changes in home prices. Simply examining median sales prices doesn’t account for the fact that the characteristics of the houses sold may be different (location, size, type, etc.) unless the repeat sales method is used. I am by nature an optimist. I am rooting for the housing market because its rebound is important for the prospects of the NH economy and its not so bad for my balance sheet either. I am also not looking for yet another reason for realtors to take exception to some of my analyses. I am, however, a believer in the wisdom of markets (most of the time) but a lot of what happens in markets is driven by pure stupidity – or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories (the housing market is back, Mitt Romney has got the momentum in the swing states). At least one of those stories is true , the housing market is coming back as a whole in the nation, just not everywhere.
Small businesses fared the worst during the recent recession and hiring by small businesses has been slower to recover after this recession than it was following past recessions. Robust economic growth does not occur unless small businesses are confident, healthy, and hiring. With a fragile national recovery from recession that has not quickly helped to repair the balance sheets of most small businesses, and with a number of important public policies (regulatory, tax, health care etc.) still uncertain, it is not surprising that small businesses have been less than sanguine about the prospects for the economy and reluctant to hire. That may be changing, however, as the NFIB’s national index of small business optimism has begun to increase. The NFIB index is a pretty good predictor of the direction of job growth in NH and its latest up-tick is consistent with last month’s increase in payroll employment in New Hampshire.
Linguists will take exception to that and note that a cliff is, in fact, a bluff. The consensus among economists, however, is that the fiscal cliff is indeed no bluff. A number of commentators have noted that the fiscal cliff is more like a slope and will not cause immediate economic calamity. I was one of those as a guest on NHPR’s “The Exchange“. But just as there was once too much hyperbole surrounding the fiscal cliff issue, now, as we get closer to the deadlines when the combination of tax hikes and spending cuts that define the fiscal cliff take effect, there seems to be more of an effort to minimize the likely impacts that will occur if no resolution is found. That would be a mistake because whether the spending cuts take effect immediately or over the course of a year or more, and whether the tax hikes immediately effect spending and investment decisions is not the issue. The issue is that the U.S. economy is simply not growing fast enough to withstand the impacts of the full implementation of the provisions of the fiscal cliff. Skeptics fire away, but below is a succinct chart that shows how the effects of the fiscal cliff relate to real growth in our nation’s economy, assuming the effects of the cliff occur in 2014. To lump all effects in one year isn’t accurate, but the point is to place the magnitude of the cliff’s impacts into context. I believe the context in the chart below highlights the importance of a reasonable resolution to the potential problems the cliff could cause.
I started this analysis wondering if the percentage of jobs in professional, technical, and scientific industries in NH that are held by females is greater among younger workers in the industry than older workers. I became sidetracked by the unexpected finding that the percentage of workers in those industries is about evenly divided between men and women (and as a spoiler the percentage that is female is larger at younger age groups – consistent with my “‘feminization of the NH workforce” theme from an earlier post). One caveat before proclaiming gender equity in professional and scientific fields, the data do not account for the specific occupations in the industries. That is, it is possible that the conventional wisdom that women are less employed in those industries is not supported, but the fact may remain that the more professional, scientific, and technical occupations in those industries (as opposed to the management, support and other occupations) may still be dominated by males. Unfortunately there is data from different datasets that supports this thesis, although it does appear to be changing.
The chart below shows that women comprise about half of the employment in the broad industry grouping of professional, scientific, and technical industries.
The real kicker in the data is that it shows that reductions in employment in those industries came largely at the expense of female workers. Again, this may just be a function of the reductions in those industries occurring in specific occupations more likely to be populated by females, a viable interpretation. It may also be related to an increase in female employment among younger and newer workers in the industry who’s employment may be most vulnerable in a recession. Nevertheless, such a high percentage of decline in those industries coming at the expense of female workers is well beyond what would be expected based on probability and chance alone.
A quick review: The “skills gap” explanation for slower employment growth this recovery posits that there are large numbers of jobs waiting to be filled but hiring is sub-par after the recession because of a lack of qualified candidates to fill those positions. Twice I have presented some evidence on the issue, here and here. Most of the concern and evidence about the existence of a skills gap addresses very high-skill technical, scientific, computer, and engineering occupations because our nation, and by extension our state, seem to perpetually be unable to produce enough individuals in those fields to satisfy industry demand. As a result we “import” a lot of that talent from foreign countries (more about this – I promise – in a future post). There is some evidence of this in NH. As the chart below shows, professional, scientific, and technology occupations are the largest, broad category of help wanted ads in the state. But they have also evidenced the smallest increase (a decrease actually) since the recession. There is still a significant demand but it may be that an inability to find qualified applicants has companies in need of those occupations from considering more hiring in the Granite State. A quick review of data for Massachusetts shows that demand for professional, scientific and technical occupations has increased during the same time period.
But more direct evidence of a skills gap comes from the demand for construction and production workers. I am especially interested in the potential skills gap for production workers. The chart above shows that demand for construction, production, and transportation workers has increased significantly since the recession. Although still a much smaller category of help-wanted ads than professional and technical jobs, the increased demand is consistent with anecdotal evidence I heard this week at a roundtable discussion of the Seacoast economy. At that discussion, representatives from industry, higher education, and economic development organizations cited specific examples of companies frustrated at their ability to hire skilled production workers. Some are forming partnerships with NH’s community college system to increase the supply of needed occupations. Those initiatives show promise and I hope the state’s four-year colleges and universities develop more partnerships to address the skills gap in professional, scientific and technical occupations as well because, increasingly, job growth in NH appears to depend on it.
The U.S. Bureau of Labor Statistics released its monthly report on state and local employment today and the good news is that, preliminarily, New Hampshire added 1,000 jobs in October. The bad news is that this is just 1,200 more jobs than the state had one year earlier in October of 2011. For optimists, the most recent trend is likely to be the most important and the monthly report is consistent with the rise in PolEcon’s NH Leading Index.
Nevertheless, the longer-term job growth trend in NH has been weak. Looking at growth in just private sector employment, the situation is no better for NH. As I have noted here, I believe job growth in NH is being underestimated but even if that is true, it is hard to see how the recent past will be revised enough to make NH’s job growth picture look comparable to that of our neighbor to the south or the U.S. as a whole.