10/21/2011
Some growth is better than none
As a lifelong Cleveland Browns fan, I'm prone to pessimism. A win on Sunday only brings expectations of a loss next Sunday. I wait for good news, then don't believe it when it comes. It's a tough way to go through a football season, but I can't help it.
Tracking the economy over the last few years is a perfect fit for a Browns fan—good news followed shortly by bad. When positive economic reports come out, skepticism creeps in. In September, several pieces of economic data came in better than expected and, when combined with what our business contacts in the region were telling us, paint a picture of an economy that appears to be doing better than what we experienced over the summer. Let's look closer.
The lead from the October 19 Beige Book summary reads:
"Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to expand in September, although many Districts described the pace of growth as modest or slight."
The opening sentence from the Sixth District's section of the Beige Book struck a similar note:
"Business contacts in the Sixth District indicated that economic activity continued to expand at a modest pace in September."
The message here is an important one. Businesses here in the Southeast and in most other regions are telling us that the economy does not appear to be contracting. True, the overall pace of activity may be modest or slight, but we were told that it is still positive. Recent data support what our contacts were telling us. As Atlanta Fed President Dennis Lockhart said in his October 18 speech to the CFA Society of East Tennessee in Chattanooga:
"The somewhat overlooked story of the period since the end of August is that much of the incoming data have exceeded most forecasters' low expectations. For the third quarter at least, it appears that downgrades of growth forecasts have been too pessimistic."
Of course, we're not going to proclaim that the economy is clearly on a path to significantly better outcomes based on a month of data and anecdotal information. After all, three weeks ago the Browns were 2-1 and tied for first place. Today we are 2-3 and in the cellar.
Along those lines, it is important to recognize that modest economic growth does not help address the high rate of unemployment. As President Lockhart noted in Chattanooga:
"[M]ost private sector forecasters envision growth in 2012 approaching 2.5 percent. In the opinion of many economists, that 2.5 percent approximates the steady-state growth rate of the economy's potential. This rate would certainly be an improvement over 2011 as a whole. The problem is without growth measurably better than 2.5 percent, little progress will be made in absorbing slack in the economy—above all, labor market slack."
The Atlanta Fed's Beige Book recorded little improvement in regional labor markets in September:
"Employers continued to manage their labor supply very tightly. Most contacts indicated that the outlook for hiring remained restrained by modest expectations regarding future sales. Several reports suggested that permanent employees were primarily being used to maintain a firm's core business, while specific projects were being assigned to contractors and temporary hires. Firms continued to seek efficiency gains through investment in technology and other cost-saving applications."
Although not mentioned in our Beige Book, we should also note that while we did not pick up on significant plans to increase employment in our discussions with business contacts, we also did not hear much in the way of plans to reduce current levels of employment. The economy may not be improving enough to help cut into unemployment much, but it appears to be doing well enough to prevent further job declines.
Back to the Browns. They are playing better and we may be looking at a .500 season. After two straight years of going 5-11, 8-8 looks pretty good. But, like the Browns, a steady-state rate of growth and not experiencing further reductions in employment is not the best outcome, but it is better than where we were a few years ago.
President Lockhart concluded in Chattanooga that
"[A]s the numbers over the last couple of months demonstrate, outcomes better than consensus expectations can happen. Let's not talk ourselves into believing that enduring weakness or recession is inevitable."
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research
department
October 21, 2011 in Beige Book, Economic Growth and Development, Forecasting, Labor Markets, Outlook, Southeast | Permalink
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09/30/2011
When will economic vigor return to the Southeast?
The New York Times published a story by Michael Cooper earlier this week titled "Deep Recession Sharply Altered U.S. Jobless Map." The article looks at differences among state unemployment rates and focuses on how the South's unemployment rates are higher than most other areas of the country. Cooper writes:
"The once-booming South, which entered the recession with the lowest unemployment rate in the nation, is now struggling with some of the highest rates, recent data from the Bureau of Labor Statistics show."
This is clearly the case, and the Times piece has a set of charts that illustrate the point. What the chart does not show is that apart from the 2002–7 period, the states that represent my part of the South (the Sixth Federal Reserve District: Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) had a similar or higher rate of unemployment than did the rest of the country between 1976 and 2002. The question that arises, and one that we continue to investigate, is whether the current period Cooper writes about is all that abnormal.
Getting back to the main point of the Times article, that the region's unemployment rates are higher than the rest of the country, Cooper spoke to a number of people in researching the article:
"Economists offer a variety of explanations for the South's performance. 'For a long time we tended to outpace the national average with regard to economic performance, and a lot of that was driven by, for lack of a better word, development and in-migration,' said Michael Chriszt, an assistant vice president of the Federal Reserve Bank of Atlanta's research department. 'That came to an abrupt halt, and it has not picked up.' "
Shameless plug notwithstanding, the point was that the driving force behind the region's economic growth was population gains, which in turn ignited development and, in the case of Florida and Georgia in particular, overbuilding in both residential and commercial space.
The slowdown in population growth to the levels experienced by the rest of the country explains a big part of the regional economic deceleration. The above chart shows the difference between our region's growth rate and that of the rest of the country from 1970 to 2010. From 1970 to 2005 the region's rate of growth exceeded the rest of the country, but from 2006 through 2010 it was lower.
Richard Kaglic, my colleague at the Richmond Fed, had a great quote in the same Times article:
" 'If your nose is high, if you're climbing faster and your engine cuts out, you fall farther and it takes you a longer time to recover,' he said. 'The conditions we experienced in late 2008, 2009, are as close as you come to an engine-out situation in the economy.' "
I'm not a pilot like Richard, but we can use the same analogy for the states in the Atlanta Fed's district. We'll be digging deeper into the reasons behind the region's higher rate of unemployment, but it's clear that the major factor behind the Southeast's recent underperformance is the falloff in population growth and the resulting drop in residential and commercial real estate development that had been driving regional economic growth.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research
department
September 30, 2011 in Construction, Economic Growth and Development, Employment, Labor Markets, Real Estate, Southeast | Permalink
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07/14/2011
Employment: Bad news nationally is really bad news for the Southeast
Last week and earlier this week macroblog discussed recent reports from the labor market: the June employment report and the May Job Openings and Labor Turnover Survey, commonly known as JOLTS. The analysis points out that recent data from the labor market have been, well, rather disappointing.
I would argue that a disappointing labor market at the national level is amplified here in the Southeast. Why? The downturn in employment during the recession was deeper in this region than in most other areas in the country, and the job recovery has been more anemic here than anywhere else.
Here's a look at what I mean:
Looking at the Atlanta Federal Reserve District, we see that this region shed 10.1 percent of total employment during the downturn (the red bar) and has only gained 2.3 percent during the recovery. I use the terms "downturn" and "recovery" liberally: what the chart represents is each District's employment loss from its peak to when job losses ended (downturn) and gains since employment levels stopped falling (recovery). Only the Chicago Fed and San Francisco Fed regions saw larger downturns, but none have seen a more feeble recovery than we here in the Atlanta region.
So when we see national labor market trends that show weakness in employment gains, it is particularly bad news here in the Southeast.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
July 14, 2011 in Business Cycles, Labor Markets | Permalink
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09/29/2010
Slow recovery for regional labor markets
According to the establishment survey from the U.S. Bureau of Labor Statistics, the Sixth District lost 26,600 jobs in August after adding 16,600 jobs in July (see chart 1). While a large portion of the decline stemmed from government jobs, as temporary census-related jobs are being scaled back, private payrolls also declined over the month. Private payrolls in the District fell 7,800 in August after posting increases over the previous two months, albeit at a slow pace. In June and July, the District added 13,000 and 40,000 private jobs, respectively. For the United States as a whole, 54,000 nonfarm jobs were shed in August, reflecting the end of 114,000 temporary census jobs. The number of temporary census workers on payroll peaked in May at 564,000 and has declined since, leaving 82,000 census workers on payrolls in August.
Chart 1
The labor market is usually the last part of the economy to recover following economic downturns. To get an idea of how the District labor market is recovering compared to previous recessions, take a look at chart 2, which plots employment growth for the Sixth District going into and out of the past five recessions. Zero marks the official end of recessions, or the economic trough, of each one. In the latest recession, employment in the Sixth District fell much farther than in previous experiences. The labor market has not recovered quite as quickly from the 2007–09 recession compared with the past four recessions. While economic conditions of every recession are different, the recovery in labor markets from this recession seems to be longer and slower and will look like the recovery after the 2001 recession at best. Anecdotes from contacts in our district mirror this gradual recovery, reporting that they remain cautious about hiring and will take their time doing so.
Chart 2
By Sandra Kollen, a senior economic analyst in the Atlanta Fed's research department
September 29, 2010 in Employment, Labor Markets | Permalink
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02/24/2010
Regional labor markets: Some initial signs of improvement
In a speech last week to the Augusta Metro Chamber of Commerce, Atlanta Fed President Dennis Lockhart said that inventory replenishment and business spending are keys to unlocking the trajectory of the economic recovery. He added that:
"The third and maybe most important factor I'm watching is the labor market. I expect a very slow recovery of employment markets and, therefore, a slow decline of the unemployment rate. But it's worth noting that as the recovery got under way in the second half of last year, businesses relied on productivity enhancements to expand production and were able to defer hiring.
"A shift from productivity-driven expansion to jobs-driven expansion could materialize as benefits of earlier cost and head-count reductions reach their limit. The additional hiring that would follow would likely improve business and consumer confidence and feed a virtuous cycle."
There is little hard data showing a turnaround in the regional labor market, in part because most state-level labor market data from the Bureau of Labor Statistics are only available through December (January data will be released March 10). However, we do see evidence that job losses tapered off. For example, initial claims for unemployment insurance continue to decelerate:
In addition, the number of job losses declined steadily throughout 2009:
Anecdotal information is mixed as well. Temporary help agencies in the Southeast noted an increase in job orders in January and early February. Yet, according to our business contacts as a whole, overall job creation remained tepid. Businesses continued to describe attempts to do more with less, such as combining the duties of several jobs into one.
The Chicago Fed's Bill Testa blogged on the Midwest economy last week and noted another useful indicator that can bridge the gap between official releases from the BLS. Bill writes:
"The Conference Board tracks national and state online job vacancies on a monthly basis. Their recent release reports a third consecutive month of strong national gains in advertised vacancies. Their recent release reports a third consecutive month of strong national gains in advertised vacancies. The gains were widespread across U.S. regions, including the Midwest."
Southeastern states also saw increases in January from December in the total number of online job vacancies.
President Lockhart concluded his remarks on the outlook in Augusta by saying:
"I expect businesses to be very cautious with respect to inventory accumulation, capital spending, and hiring. But I will be watching carefully for signs that an alternative, faster-growth scenario is developing."
Through February, we see little evidence that a faster-growth scenario is building in regional labor markets. We are hopeful that the positive signs we see in temporary employment increases and in job advertisements in the region feed through into measurable job gains, but as of now we continue to expect a very slow recovery in employment.
Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
February 24, 2010 in Labor Markets, Productivity, Unemployment | Permalink
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01/27/2010
Geaux Saints! On to Miami!
The Sixth Federal Reserve District is currently pro-football central. In just over a week, Miami, home to an Atlanta Fed branch office, will host Super Bowl XLIV (44, for those of us who are Roman numeral-challenged). That game will feature the New Orleans Saints—from another city that is home to an Atlanta Fed branch office.
Hosting and playing in the Super Bowl will be a shot in the arm to the economies of Miami and New Orleans. And they need it.
Few cities have felt the recession as deeply as Miami. Employment in the Miami-Ft. Lauderdale metro area peaked in December 2007. Between then and July 2009, a total of 225,000 jobs were shed, which amounts to a 9.2 percent decline. Miami has seen a bit of a rebound in employment since then, driven largely by local government hiring and a small increase in retail.
In the New Orleans metro area, the job losses have not been nearly as severe, in large part because of ongoing rebuilding efforts as New Orleans continues to recover from Hurricane Katrina. Employment peaked in December 2008 at 531,500 and then declined by 12,000, to 519,500, in July 2009 (–2.3 percent). Since July, New Orleans has added just under 5,000 jobs, with more than half of these in the healthcare and education sector. However, overall employment levels remain well below pre-Katrina levels—by 79,500 jobs, to be exact. The latest "Metropolitan Report" from the University of New Orleans Division of Business and Economic Research notes that post-Katrina population and employment growth stabilized before the recession began, therefore a large part of those 79,500 jobs represent a structural loss.
So, Miami is experiencing a cyclical downturn and New Orleans is still feeling the effects of Katrina. How much of an impact will hosting the Super Bowl have on Miami, and how much of a boost will playing in the game give New Orleans?
The positive impact of hosting big-time sporting events has been the subject of debate and a number of economic studies. Matheson and Baade conclude in their paper, "Padding Required: Assessing the Economic Impact of the Super Bowl," that
Recent NFL studies have estimated that Super Bowls increase economic activity by hundreds of millions of dollars in host cities. Our analysis fails to support NFL claims. Our detailed regression analysis revealed that over the period 1970 to 2001, on average Super Bowls created $92 million in income gains for host cities, a figure roughly one-quarter that of recent NFL claims. While this figure, like any econometric estimate, is subject to some degree of uncertainty, statistical analysis reveals that, on average the Super Bowl could not have contributed, by a reasonable standard of statistical significance, more than $300 million to host economies.
Nevertheless, Miami will receive a much-needed shot in the arm even if the overall impact on economic activity is not as great as anticipated. Add in the Pro Bowl, which will be played this coming weekend, and the overall impact will be greater.
As for the impact on New Orleans, measurement is even less tangible than in the case of Miami. Let's look at it in two ways: first the ongoing impact of the Saints on New Orleans, then what playing in the Super Bowl means to the economy in the short term.
Regarding the longer term, a report by University of New Orleans Chancellor and economist Timothy P. Ryan, "The Economic Impact of the New Orleans Saints," states that the Saints continue to be an essential revenue producer for the city of New Orleans by serving as an engine that pumps more than $600 million annually into local parishes and the state.
As for the short-term economic gains, there will certainly be more retail purchases of Saints paraphernalia and additional revenue that having a successful sports franchise generates, but the intrinsic psychological impact on the overall recovery of New Orleans is immeasurable.
So, even if some folks don't cheer for the Saints on Super Bowl Sunday, we will all be cheering for both New Orleans and Miami for the boost their economies will receive from the game.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
January 27, 2010 in Economic Growth and Development, Labor Markets | Permalink
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09/30/2009
Some good news from the labor market
Initial unemployment insurance claims are a very useful economic indicator, providing insight into general labor market conditions as well as serving as a good gauge for the path of overall economic activity. The Atlanta Fed's Q1 2009 issue of EconSouth highlighted these data, and you can read the most recent report on the Department of Labor's Employment and Training Administration Web site. So what do we see when we look at these numbers?
The deceleration in initial unemployment claims seems to indicate that the end of recession is near. Chart 1 shows that the deceleration in U.S. initial claims occurred near the end of recessionary periods in 1991 and again in 2001. In the second quarter of 2009, U.S. initial claims averaged 624,000 per week. In July and August that average fell to 565,000. Is the current deceleration in initial unemployment claims a sign that the recession is over? Well, it's clearly a good sign. As you probably read, Chairman Bernanke earlier this month indicated that the recession "is very likely over."
Can we say the same for the region? Well, Chart 2 shows that initial claims for unemployment in the Southeast have also decelerated in much the same manner as have U.S. initial claims. (We define the Southeast as the states of the Sixth Federal Reserve District—Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee.) In the second quarter the average number of initial unemployment claims was just over 80,000. In July and August that average fell to just above 72,000. The chart also shows that, in the United States, the deceleration in regional initial claims occurred near the end of recessionary periods in 1991 and 2001.
While the drop in initial claims appears to suggest the end of recession, it does not equate to a net job gain. The Southeast is still shedding jobs, according to the latest report on national and state employment from the U.S. Bureau of Labor Statistics. Maybe the best way to think about the initial claims data for the nation and region is that they show that labor market healing is under way.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
September 30, 2009 in Employment, Labor Markets, Recession | Permalink
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09/02/2009
Bubble charts and snail trails
I used to look forward to the third Friday of every month. That's when the Bureau of Labor Statistics releases the regional and state employment and unemployment statistics. Since the reports have been negative for some time, we really have not anticipated these releases with much enthusiasm. That may be changing.
We learn the level of employment by state, metro area, and industry. We also get data on unemployment. This information, although it comes with a bit of a lag (August data come out September 18, for example), provides the broadest measure of regional economic performance available. We use a number of analytical tools to gauge the numbers, and we look for signs of improvement.
Although simple month-to-month net changes in total employment and a track of the unemployment rate are basic, they do make for a straightforward picture of where Southeastern states stand. Chart 1 does this for the combined states of the Sixth Federal Reserve District (Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee). While the monthly net change in total employment continues to show declines, these declines have become less pronounced. However, the unemployment rate (calculated by dividing the total number of unemployed in all six states by the sum of these states' labor forces) has continued to rise.
We use a few other tools to look at the employment data. One we call our "bubble charts"—we're kind of nerdy when it comes to data. The more acceptable title for these charts is "momentum charts." An employment momentum chart is basically an XY plot of the year-over-year percent change in total employment (X axis) and the three-month annualized percent change in total employment (Y axis). The size of each state's "bubble" is the proportion of total employment for all six states. Chart 2 is the momentum chart for July.
We divide the chart into four quadrants, each representing a point in the business cycle—expanding (both measures are positive: Momentum is strong), slipping (year-over-year percent change is positive, but the three-month is negative: Momentum is weakening), contracting (both measures are negative: Momentum is very weak), and improving (the year-over-year percent change is negative, but the three-month measure is positive: Momentum is looking up). In July, all states in the Sixth District except Mississippi were in the contracting quadrant—employment momentum was very weak. Georgia and Florida, the two largest states in terms of employment in the Sixth District, had the weakest momentum.
The Employment Momentum chart's name might be a bit misleading because the chart shows the current point in the business cycle for the states, but it does not show the direction the momentum is headed. For that we use charts called "snail trails." The more technical name for this type of chart is "momentum tracks." Chart 3 shows the momentum track from January 2007 (the green dot) through July 2009 (the red dot). The chart shows the path of momentum for total employment for the states of the Sixth District, with each dot representing a month. From firmly in the expanding quadrant, momentum moves through the slipping quadrant, then into the contracting quadrant. What is interesting is the fact that although the path is still in the contracting sector, it has turned up and is moving toward the improving quadrant—an indication that employment momentum is headed in the right direction. I'm hopeful we can soon start looking forward to the third Friday in the month once again.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
September 2, 2009 in Employment, Labor Markets, Southeast | Permalink
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