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Economic Growth is Solid, Just Not as Strong as You Think

May 7, 2019

In July, the current U.S. economic expansion will become the longest on record and there have been a record 103 consecutive months of uninterrupted job growth.  Not counting the distorting effects of the hiring (and then letting go) of over 411,000 temporary workers on the U.S. Census back in 2009-2010 it would have been 110 consecutive months of job growth.  A similar effect will occur in 2019 and 2020 as the Census Bureau begins hiring temporary Census workers this year and will lay off the workers later in 2020.  You can look forward to a lot of misinterpretation of the job growth numbers in the presidential election year of 2020.

The U.S. economy is strong, but as I argued in my previous post, not as strong as the first estimate of QI GDP growth (3.2%) suggests.  In that post I noted the one-off contributors (inventory builds, lower imports, higher defense spending) to above potential GDP in the first quarter of 2019.  In this post I highlight two employment trends that indicate (to me at least) the U.S. economy is not growing as rapidly as recent reports suggest.

First, growth in aggregate hours worked in the economy is slowing, despite strong gains in job growth.  Aggregate hours worked is a function of both job growth and the number of hours worked each week and the latter has shrunk a bit, offsetting some of the gains in employment.  Aggregate hours worked is related to GDP growth because the more hours worked, the more output the U.S. economy produces.

The growth in aggregate hours worked plus productivity growth is a good surrogate measure of trends in GDP growth. Growth in aggregate hours worked plus growth in productivity (how much each worker produces), at a minimum, will tell you whether GDP growth is accelerating or decelerating.  When the average number of hours worked each week is factored into job growth, April job growth looks much more like 100,000 or less, than 263,000.  This makes sense because productivity growth in the first quarter was initially estimated at 3.4%, a remarkably high rate given that annual productivity growth has averaged about 1% for a decade and the combination of 263,000 job growth and 3.4% productivity growth would imply a very high GDP growth (higher than the 3.2% first quarter growth first reported but which I believe will be revised downward).  Productivity growth is notoriously difficult to calculate and count me skeptical of the 3.4% estimate for the first quarter. Still, the first estimate is the one that gets the headlines and later revisions garner less attention.

The rate of job growth is also slowing, not accelerating, as the initial April job growth estimate implies.  Again, the labor market is strong, there are more job openings than workers available to fill them.  Both of the  survey instruments used to measure employment tell a similar story of job growth that is solid but slowing.  Briefly, the payroll survey is a survey of employers in the country, it provides an estimate of the number of non-farm jobs, the average number of hours worked by employees, and the average hourly wages that they are paid.  The payroll survey does not count the self-employed or those not covered by the unemployment insurance program.  It also counts jobs, not people, so one employed person holding two jobs is counted as two jobs by the survey.  The household survey is used to calculate the unemployment rate and labor force participation.  It provides much more information about the characteristics of the employed and of job growth or job loss in a month than does the payroll (employer) survey.  The household survey counts the self-employed and those not covered by unemployment insurance and it counts an individual working more than one job as a single job for total employment purposes.

The household survey tends to be more volatile, as can be seen in the chart above, but the relevant point is that both surveys show employment growth slowing.  That does not necessarily mean a weaker U.S. economy, but rather than the economy is unable to growth because of labor constraints.  The monthly Job Growth and Labor Turnover Survey (JOLTS) highlights this fact.  Looking at the JOLTS data released today shows that the job openings rate continues to rise much faster than the hiring rate, highlighting the growing gap between labor demand and labor supply.  The chart below shows how the gap between openings and hires has grown in just the Northeast region of the country, where labor shortages are among the most acute.

In conclusion, the U.S. economy is solid and labor markets are strong, just not as strong as recent data points suggest, and at a time when there are more downside than upside risks to the outlook.

Categories: employment, Employment Growth, job growth, U.S. economy, Workforce
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Immigrants to New Hampshire: Enemies at the Gate?

February 2, 2017

America is pretty great most of the time but I understand why many in this country disagree with that perspective.  There are a lot of disaffected individuals across the country, in large part because of the differential impacts that changing economic, social and cultural forces have had on individuals, communities, and regions of the country.  There is also no shortage of individuals, causes and movements looking to channel that disaffection.  Populism and nationalism are catalysts that can coalesce the disaffected in this and other countries into powerful and sometimes malignant forces. It is easy to see how the real disaffection accompanying economic and social change in this country, combined with legitimate desires for national security could be stoked to the point where issues requiring thoughtful policies and actions morph into something less legitimate and more pernicious.  As my favorite self-educated, longshoreman, philosopher Eric Hoffer, wrote in “The True Believer: Thoughts on the Nature of Mass Movements”  back in 1951- “Mass movements can rise and spread without belief in a God, but never without belief in a devil.”  Today in America the devil is foreigners and  in particular – but not exclusively – foreign Muslims (along with other foreigners and immigrants the media is a distant but strong second devil), but you don’t have to look too deeply to see those sentiments extending to other faiths, races, and nationalities and others (e.g. “experts”, scientists, intellectuals, “elites”.)”  That is a big step backward for a great country (that can, in fact, be made GREATER) but one who’s greatness has not been predicated on diminishing other peoples or retreating from the rest of the world.

Years ago in this blog I wrote that NH’s most valuable import was the talented individuals that arrived here from other countries. I still believe that to be true and now seems like an appropriate time to revisit that issue with some fresh data and analysis.

Unquestionably New Hampshire and New England will be economically and demographically worse off if international migration is significantly restricted.  In fact, it is hard to see a region of the country that would be more negatively affected than New England by any large scale reduction in immigration.  International migration has provided a powerful boost to the economy of New England by adding individuals to our labor force and talent to fuel our region’s innovation-dependent economy.  Always important to the region but never more so than now,  a time when New England has been on the losing end of national demographic trends that have seen more individuals in this country moving to the south and to the west.  Looking at just the past several years we see that all of the New England states experienced more people moving out to other states than moved in.  New Hampshire is again starting to see net in-migration from other states but for more than a decade the state has experienced, on average, net international migration of about 2,000 individuals annually.

net-migration

There are about 76,000 foreign born individuals living in New Hampshire.  Immigrants comprise over 6 percent of the state’s labor force (compared to 16.5 percent in the U.S. overall) but that 6 percent has an out sized importance to the state’s labor force in a number of ways.  On balance, immigrants increase the overall level of educational attainment of New Hampshire’s adult population.   Examining data from the U.S. Census Bureau’s “American Community Survey” 5 year estimates (2011-15), the chart below shows that 40 percent of the foreign born population age 25 and above in NH has a bachelor’s degree or higher, compared to 34 percent for U.S. born residents of the state.  A higher percentage of foreign born residents living in NH have not graduated from high school but overall the chart shows that  compared to the foreign born population across the U.S., immigrants in NH have significantly higher levels of educational attainment.

ed-attainment-of-immigrants

Immigrants represent a high percentage of individuals in New Hampshire with STEM (Science, Technology, Engineering, Math) degrees.  There is no single definition of what constitutes a STEM degree but examining Census data on the first college degree (bachelor’s) received by working individuals in NH, age 25 and above, it is not difficult to reasonably classify the 172 different degrees as STEM or not.

Among NH’s foreign born adult population that holds at least a bachelor’s degree, 46 percent hold a degree in a stem field, compared to just 24 percent for native born NH residents.

immigrant-pct-with-stem-degree

Despite comprising just over 6 percent of NH’s workforce, foreign born individuals account for 16.5 percent of all working NH residents with a STEM degree, a percentage nearly equal to that of NH born residents of the state.

immigrant-pct-of-stem

Finally, examining specific occupations shows just how important immigrants are to the supply of many occupations in the state..  Foreign born residents comprise 20 percent of the computer-related occupations held by NH residents.  Fully 20 percent of physicians, surgeons, and other high-level medical occupations are held by foreign born residents of New Hampshire. Foreign born residents also hold a relatively large percentage (11.5%) of production jobs in the state.  Among lower-skill occupations foreign born residents hold 21 percent of maid and housekeeping positions and 13 percent of janitorial occupations. The figure below highlights the impact of immigrants on the supply of occupations in NH for several of the more than 400 occupations examined.  Only occupations held by 1,000 or more NH residents are included.

immigrant-share-of-occupationsSupporters of migration bans and limits say that the limits on immigration would only apply to refugees (not comforting to me for a number of non-economic reasons), undocumented immigrants, or those with a criminal past.  But with the rhetoric and actions coming from Washington it is hard to see anti-immigration policies stopping there.

Categories: Educational Attainment, immigration, migration, Workforce
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A Perfect Labor Force Storm

May 24, 2016

A perfect storm is brewing for the economy and individual businesses in NH and across the country.  Slow labor force growth, the retirement of baby boomers, and weak growth in labor productivity are severely limiting the productive capacity of the nation’s economy.  Between 2010 to 2015 labor productivity in the U.S. increased by just 0.5 percent on average annually, and the labor force by an average of just 0.4 percent.  Since the end of World War II, the combined, labor productivity and labor force growth in the U.S. had never fallen below 1 percent – until 2015 when it was just 0.9 percent. I have written about the the limits labor force growth place on the U.S. and NH economies here and here (and others).  Factors such as the flow of population (state-to-state migration and  international migration), and changes in labor force participation rates will play a large role in determining which states and regions are most affected, but a real possibility exists that the economies of some  states and regions could shrink over time.

Figure 1

A quick assessment of the potential impact of baby boom retirements across the country is illustrated in Figure 1 which shows the ratio of the population in each state that will (or could) be entering the labor force approximately over the next decade – that is individuals currently ages 5-19 –  to those who will (or could) be exiting the labor force – individuals currently ages 50 to 64.   The bars in the graphic that fall below zero indicate states that face more retirements from their labor force than new entrants over the next decade or more.  As the chart shows, the labor force in New England and much of the Northeast will be especially challenged by baby boom retirements as far more individuals will leave than enter the workforce.

In NH, the impact of baby boom retirements will vary greatly by industry.  The Millennial generation will soon be the largest segment of the labor force but their distribution across industries varies greatly.  For this analysis I examined the demographic characteristics of each industry’s workforce in NH.  Figure 2 presents the ratio of early career (age 25-34) to older workers (age 55-64) in major industry groupings in NH.  The graph suggests industries that will be more and less challenged by retirements of the baby boom generation.  Industries that have higher ratios employ more individuals early in their working lives than individuals nearing retirement age.  Several industries stand out for the high percentage of older individuals in their workforce.  Manufacturing is one industry that has had difficulty attracting younger workers and I have written about that issue long ago in this blog, Educational services is another.  Professional, scientific, and technical industries have a surprisingly low percentage of younger workers but an examination of this industry grouping at a more detailed level shows that the legal profession has among the oldest demographics of any industry in the state.

Figure 2

Looking at the age composition of workers in broad occupational groups in NH (Figure 3)  shows how much difference there is across different occupations employed in professional, scientific, and technical industries. The ratio of younger to older workers in the legal profession is just 46 percent, while in computer and mathematical occupations there are many more younger workers and the ratio is 127 percent.

Figure 3

Health care is also a field with a larger percentage of older individuals in the workforce but when the demographics are examined at a more detailed industry level or by specific occupations, it is clear that the industry is bifurcated – with physicians and other health care practitioners having an older demographic while many of the support occupations in the industry that have emerged as health care has become a much larger portion of the economy, have a much younger demographic.

Industry Growth is as Important as Industry Demographics

 The retirement of baby boomers only hints at the industries that could face the most significant labor shortages over the next decade.  Retiring workers may need to be replaced but they may not.  If employment in an industry shrinks or if it grows slowly over the next decade, then labor shortages are likely to be less severe than baby boomer retirements would suggest, even in industries with a higher percentage or older and retiring workers.

 To capture the impact of industry trends on potential labor shortages related to baby boom retirements I combined projected industry growth in NH over the next decade with the ratio of younger to older workers in each industry to produce a supply/demand balance metric.  For illustrative purposes I present the supply/demand calculations for broad industry groupings in Figure 4.  I did the same calculations at a more detailed (50+ industry) level but that level of detail is not amenable to presentation in a single graphic.  It is not possible to know what industries workers entering the labor force over the next decade will work in so these calculations are only rough estimates of potential supply/demand imbalances. As the chart shows,  industries with a relatively older workforce, such as manufacturing, public administration, and utilities, will nevertheless likely confront fewer labor shortages because of slower employment growth in those industries.  Unfortunately, all industries are likely to face shortages in some occupations that are employed and in demand across many industries.

Figure 4

What Can States and Business Do?

The primary shortcoming of Figure 1 is that it is a static representation of the demographics each state’s workforce.  The population and demographic composition of states are not static however.  People move from place-to-place, state-to-state, county-to-county, and country-to- country.  A state or region with substantial labor shortages that is also viewed as an attractive location can see increases in labor supply in response to labor shortages and wages that are rising in response to shortages.   For more than two decades attracting skilled individuals with higher levels of educational attainment has been a key to NH’s economic success, since the mid 2000s however, NH has seen fewer individuals moving into the state from other states.

A popular meme in NH (and in many rural states) is that the state’s labor force challenges are largely the result of young people leaving the state.  But that is a phenomenon that has been occurring for decades in NH as it has in other rural states.   While it plays some role in the state’s labor force challenges, it has not been a key factor contributing to or detracting from NH’s economic performance – either NH’s strong successes of the 1980s and 1990s  or its subpar job growth of recent years. I wrote about who is moving to NH here, the chart below adds who (from an age perspective) left NH during the same recent 5 year time period.

Figure 5

I am not arguing that we ignore the issue of out-migration of youth, but a state budget in surplus along with the “migrating youth” meme is likely to produce proposals for labor supply policies that are likely to be as costly as they are ineffective.  In future posts I will examine the costs and benefits of several labor supply policies directed at increasing the percentage of young people in NH as well as the percentage attending college and remaining in NH after graduation.   NH is not monolithic, some communities and regions have been attracting younger workers and the age structure of their labor forces has not been increasing as rapidly as NH overall.  If policymakers want to attempt to change decades of youth migration trends then these communities are instructive of the types of actions that may or may not help NH capture higher numbers of workers early in their working lives.

Still, migration along with changes in the labor force participation rate among different demographic groups are going to be the primary determinants of the magnitude of NH’s labor force growth in the coming decades. As Figure 6 below shows, net migration from other states (the # moving in versus the # moving out) has been negative in recent years. That is largely the result of a slowdown in people moving to NH rather than a substantial increase in those leaving the state. The chart also shows that net international migration has offset much of the recent loss from state-to-state migration.

Figure 6

International migration of foreign workers into NH has played a critical role in meeting the demand for many occupations in NH.  Overall just under 8 percent of the labor force in NH is foreign born but in some occupations such as computer and mathematical occupations and life and physical sciences occupations, the percentage of foreign born workers in the NH labor force is over 20 percent (Figure 7).

Figure 7

The projections of labor supply/demand imbalances in this post don’t account for  potential increases in domestic or foreign migration but each of these will  play an important role in meeting the demand for labor in the Granite State.  Businesses have little control over net migration to NH so what can businesses do in the face of impeding labor shortages?  Here are some possible strategies to help businesses  meet their labor needs in an era of slow labor force growth:

  • Increase Wages and Pass Costs on to Consumers
  • Expand Automation and Increase Productivity
  • Move to Areas with More Labor
  • Increase Teleworking to Expand Potential Labor Pool
  • Tap the Untapped Labor Pools
  • Provide Incentives to Delay Retirement
  • Rely More on Contingent Workers
  • Recruit (and Train) Discouraged Workers.

These strategies are not available to all businesses or all industries.  Of all, I like providing incentives to delay retirement the best – it is the “revenge of the baby boomers”. More occupations today are less physically demanding and older citizens are healthier than any time in our nation’s history.  Combined, this should allow individuals to work (if they so chose) well beyond traditional retirement years.  For a long while now younger workers have been all the rage.  It is fitting that baby boomers who entered the workforce in numbers large enough to depress wages, and who have seen workplace cultures that increasingly look to appeal to the youngest workers, could see increasing demand for their services at the end of their working lives.

 

Categories: Demographics, Labor Force, New Hampshire, Uncategorized, Workforce
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Is Your State Overrated?

May 24, 2013

My penance (and your burden) for being an absent blogger over the past week or so is a longer post with extra graphics today.

A lot of people, including me, are accustomed to assessing the overall skill level of a state’s or a region’s workforce (and thus its potential to capture growing industries that rely on more highly educated workers) based largely on the percentage of the workforce with a college degree.  It is simple, intuitive,  and more than a  little lazy.  It is also becoming a  less useful indicator of the supply of labor that is in demand by businesses.   Populations with higher levels of educational attainment confer a lot of benefits on a state or region but today, having a high percentage of a state’s or region’s population with at least a BA degree probably says as much about the state’s political and cultural sensibilities (as well is its “demand” for services rather than its “need” for services but that is another post)  than it does about its economic performance and potential.

The sense of self-satisfaction we in New England and in New Hampshire enjoy about  having a population with among the highest levels of educational attainment in the country is palpable, but the reality is that more states are increasing their levels of educational attainment and New England and the Northeast stand-out far less than in the past.  Moreover, in an economy that is increasingly rewarding particular skills and degrees more  than  just high educational attainment, it is not as clear that much of the region still has an edge  on the one resource that  it has that is always in demand – talent.

Much of New England and the Northeast has a high percentage of its adult population with a four-year college degree or higher (see chart below).

% With BA or Higher

Just looking at levels of educational attainment tells only part of the story.  I can’t blog for too long without talking about the “skills-gap”  so here goes.  Much of the demand for college-trained labor is in fields that require scientific, technical, engineering,  or mathematical (STEM) skills and degrees.  The percentage of a state’s population with a BA or higher degree tells a lot about the availability of STEM skills but for a number of states it tells a lot less.  I calculated the percentage of a state’s population with a STEM degree (based on first college degree earned) and included it above as the dark blue portion of the bar graph.  The official listing of STEM fields is maintained, surprisingly, by the Dept. of Homeland Security ( I categorized 171 college degrees into STEM and non-STEM degrees and I think my listing is close but not a perfect match).  If you compare  the percentage of the population with a four-year or higher STEM degree (chart below) with the percentage of the population with a BA degree or higher (chart above) it shows a large change in the relative rankings of a number of states, and a some in New England in particular.

% with STEM degrees

The final chart makes just that comparison, it shows the change in ranking  between a state’s position on the percentage of its adult working population with at least a BA degree and the percentage of its population with a STEM degree.  The chart highlights states that may be over and underrated on the skill level (at least skills in demand) of their workforce.   Vermont stands out as having the biggest drop in rankings between the percentage of its population with at least a BA degree and its ranking on the percentage of the population with a STEM degree.  Maine also fares poorly.  But New Hampshire, Rhode Island, and Connecticut also drop in rankings when measuring “talent in-demand” among the workforce.  Only Massachusetts does not  drop in ranking  ( it is ranked number one on both measures so there is no way it could show anything but a drop in relative rankings).   On the other hand, states that are often derided by Northeastern “elites”, such as Texas, Arizona, Florida and Alabama  have a smaller percentage of college-trained labor but more of them (on a percentage basis) are trained in the STEM fields most in demand.  Still, they  don’t have as high a percentage of their adult populations with a STEM degree as do some New England and some other states, but with population and migration trends, and as more individuals with those skills and more companies that want access to them agglomerate in those states, how long before some take the lead in “talent”?   I don’t think Massachusetts has as much to worry about as do other states in  New England because of their unique higher-education assets.  The question for the rest of us is, can we continue to “beggar our neighbor” and benefit from the Bay State’s ability to churn-out and attract individuals with the degrees and skills in demand?

over and under rated states

As New Jersey, New York, and Connecticut show, having a lot of “talent” in your workforce doesn’t guarantee strong economic growth.  The business, political, environmental, and even cultural and social climates also play an important role in promoting prosperity.  I look at states with a relatively higher  percentage of their college trained workforces  in STEM fields as “up-and-comers.”   Most don’t have the history of high educational attainment in their populations that New England does, so their overall ranking on educational attainment tends to be lower.  Some, like Texas and Arizona also have had a large influx of individuals with traditionally lower levels of educational attainment.  Nevertheless, they are accumulating and growing a larger portion of the nation’s “talent” in STEM fields and over the long-haul, that is the biggest threat to New England’s most valuable and most in-demand resource, and thus the biggest threat to its prosperity.

Categories: college, Educational Attainment, higher education, Skills Gap, Workforce
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