Maine Jobs Report, Personal Income Data, and Coincident Index: Cautious Optimism

LAST week, the jobs data published by the Bureau of Labor Statistics showed that Maine’s unemployment rate remained unchanged at 5.7%, but that the economy 4,900 jobs.  While these numbers indicate steady growth, there are reasons the data should call for cautious optimism.

First, the 4,900 jobs were the single biggest month-over-month increase during the economic recovery, and, obviously, the largest April-to-May increase during that time period.  Last year, the state added 1,600 jobs in May, 200 jobs in May of 2012, and lost 1,900 jobs in May of 2013.  The large increase last month could be one of three things.  First, the long winter caused delays in the start of construction or other outside jobs that would have otherwise started in April.  Second, month-over-month surveys are subject to volatility (and, of course, subsequent revisions), and this could be statistical noise where the job gains were not as great as indicated in the survey.  Third, the survey is right, the state gained 4,900 jobs, and there was no pent up hiring–that is to say, the winter did not delay the start of some jobs.

Other reasons to be cautiously optimistic about what these numbers mean is that we do not know the quality of the jobs being added (part-time, low-wage, etc.), and labor market indicators for the prime age workers (25 – 54), college degree holders, and the long-term unemployed, as well as the labor force participation rate and employment/population rate all remain below pre-recession levels.

In fact, applying the employment/population rate of December, 2007 (the official start of the recession) to the current population, we find that the economy should have 15,000 more employed persons than at present.

The jobs report and an article from the New York Times kicked up a little debate about the state of the State’s economy.  Specfically, that while the labor market improves, that improvement is slow, and the state’s economy still lags relative to the nation.

First, while job growth remains low, it comports with the job growth during the end of the King and start of the Baldacci administrations:

 

Moreover, while slow GDP growth is driven in part by population growth, which has stagnated in Maine, GDP per capita is still below pre-recession levels as well.  Moreover, it too has stagnated over the past decade.

 

Similarly, real median household income has seen greater overall gains for the past decade, but it too steeply declined following the recession:


 

On the heels of the Friday jobs report, the Bureau of Economic Analysis released state person incomes for the first quarter of 2014.  From the release:

State personal income increased 0.8 percent on average in the first quarter of 2014, an acceleration from the 0.5 percent growth in the fourth quarter of 2013, according to estimates released today by the U.S. Bureau of Economic Analysis.  Personal income grew in 46 states and growth accelerated in 24 of those states. The fastest growth, 1.4 percent, was in Washington state, Vermont, and West Virginia. Personal income fell 2.9 percent in North Dakota, 0.3 percent in South Dakota, and 0.2 percent in Arkansas and Nebraska. Inflation, as measured by the national price index for personal consumption expenditures, was 0.3 percent in the first quarter, the same as in the fourth quarter.

 For Maine, personal incomes increased 0.5% from the preceding quarter, 39th in the country in terms of growth, the slowest in New England, and up 2.9% from the first quarter of 2013.

The biggest contributors to the growth in personal incomes for the first quarter were construction (0.17 percentage points) and manufacturing of non-durable goods (0.11 percentage points).   Management of companies and enterprises (-0.01 percentage points), military (-0.01 percentage points), farming (-0.02 percentage points) and manufacturing of durable goods (-0.03 percentage points) were the biggest detractors of growth.

However, net earnings (the sum of wages and salaries, supplements to wages and salaries, and proprietors) in Maine (0.8%) kept pace with the rest of New England (0.8%) and was slightly above the U.S. rate of growth (0.7%).


 

Also released today was the Philadelphia Federal Reserve released its Coincident Index for the U.S.  From the press release:

In the past month, the indexes increased in 38 states, decreased in five, and remained stable in seven, for a one-month diffusion index of 66. Over the past three months, the indexes increased in 45 states, decreased in three, and remained stable in two, for a three-month diffusion index of 84. For comparison purposes, the Philadelphia Fed has also developed a similar coincident index for the entire United States. The Philadelphia Fed’s U.S. index rose 0.3 percent in May and 0.8 percent over the past three months.

The index is a combination of four-state level indicators:

The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

The May coincident index shows that both Maine and the nation’s economies improving, though the state’s CI is lower than April.

(click image to enlarge)

coincident-indexes

A  note of caution.  While the coincident index can help to gauge a state’s economic activity, for several reasons it is not an adequate measure to rank states by economic activity/growth.  The problem is that the index cannot control for variations between state economies.  As noted by Paul Fiora, senior economist at the Philadelphia Fed:

“We do not consider state rankings based on the coincident and leading indexes to be valid,” says Paul Flora, Senior Economic Analyst at the Federal Reserve Bank of Philadelphia in an email to the Cap Times.

Flora says the differences in the various state economies influence the relative change in the index from month to month. He says an older, mature economy, such as New York, tends to experience smaller percentage changes than a smaller, younger economy, such as North Dakota.

“Comparisons between the two are not very meaningful,” he says.

Flora also warns there is significant volatility from month to month in the index, which is designed to serve as a proxy for a state’s GDP or gross domestic product.

“An individual state’s ranking based on the percent change can jump wildly from one end of a relatively narrow range to the other,” he says. “Rank order is not persistent, thus state rankings are misleading.”

John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.