In the previous post on Wood Products’ history in Oregon, I asked for a good source of information to illustrate industry productivity. Our good friends over at the Employment Department sent us some work they did on the topic and I have reproduced two of their graphs. Based on their work, the industry trends are certainly clear.

This first graph was produced by Andre Harboe, an economist at Employment and former OEA intern, using BEA data.

This second graph was produced by Brian Rooney, regional economist and Nick Beleiciks, state employment economist. The source of the data is Western Wood Products Association and the graph illustrates actual sawmill productivity. The combination of worker productivity increases and mill productivity increases means that the mills are not nearly as labor intensive (i.e. jobs) as they used to be.

Thanks again to the Employment Department for their help on this. In case you didn’t know about it, you should read their blog and follow them on Twitter to stay on top of all their releases and reports.

This post takes a high-level look at historical trends in Oregon’s Wood Products industry in terms of employment, the industry’s share of the state economy, industry wages and the geographic distribution of industry jobs across the state. (Download all graphs in PDF format.) Given that there have been significant conversations in recent months regarding federal timber payments and also a possible new forest plan proposed by Oregon’s U.S. Representatives Peter DeFazio, Greg Walden and Kurt Schrader, coupled with the fact that over the past few years I have worked to piece together better historical data on Oregon’s economy, means this post is hopefully a positive and informative contribution to the ongoing discussions on the subject. There are two important items that should be noted. First, the information below refers strictly to the Wood Products industry itself and not the overall economic cluster, thus is leaves aside the impact on related industries such as pulp and paper mills (different industry codes) or transportation (log trucks). Second, this post is not about land use or land management decisions; rather it is strictly about what has happened to the Wood Products industry in Oregon. In economic jargon, this post is positive economics (“what is”) not normative economics (“what ought to be.”)

The first graph illustrates the number of employees in the state that work in the Wood Products industry since 1947. As with nearly all historical economic data the switch from Standard Industrial Classification (SIC) to North American Industry Classification System (NAICS) creates discrepancies in the data when trying to make like comparisons. The historical data, which is SIC 24 (Lumber and Wood Products) is shown in light blue while the current series for Wood Products Manufacturing (NAICS 321) is shown in dark blue. The main difference between the historical series and the current series is under NAICS, Logging employment is separated into its own category (NAICS 11331). There are also minor differences regarding some specialty flooring mills, wood cabinets and other misc manufacturing, labeled here as Adjustment. The red line in the graph is the sum of Wood Products Manufacturing, Logging and these other Adjustments. Even with these changes, there still remain some minor discrepancies in the series which cannot be easily reconciled at this time without examining individual firm data.

• Employment increased 2,400 in December. November estimates revised upward 500 (now a loss of 1,100)
• Unemployment rate decreased to 8.9%, its lowest level in over 3 years.
• Oregon employment growth since Jan ’10 identical to U.S. growth

In December, Total Nonfarm Employment increased 2,400 on a seasonally adjusted basis and the November estimates were revised upward by 500 (the month now shows a loss of 1,100 instead of a 1,600 loss.) The private sector added 700 jobs while the public sector added 1,700. Leisure and Hospitality (+2,700) led the way while Educational and Health Services (-2,200) saw the largest decline, primarily in the Health Services component. The public sector gains were concentrated in the local government sector while state held steady and federal declined slightly. All told, the fourth quarter of 2011 saw an over-the-quarter gain of 1,667 (0.41% AR.) Over-the-year growth in the fourth quarter totaled 20,033 jobs, or 1.25%. (Now that preliminary estimates are available for all of 2011, look for a post soon on full-year analysis and where the year fits in an historical sense.)

While the jobs reports over the past quarter have been relatively disappointing, given where we are in the cycle, as shown below it actually matches the latest forecast from our office. In December, Total Nonfarm Employment remains 6.5% below pre-recession levels, reached in February 2008, however it has increased from a recession-worst of 8.5% reached in December 2009.

As for industry growth, the graphs below illustrate which industries have seen gains (and losses) in Oregon and compares these figures with U.S. growth. These calculation are based on the past 2 years, or since employment began growing in Oregon (U.S. growth resumed in February 2010.) In Oregon the bulk of the employment gains have come in the Education and Health Services and Leisure and Hospitality industries, which have each grown approximately 6% over the past 24 months.

Relative to the nation, Oregon has added slightly more jobs over the past 24 months and has outpaced the U.S. in the following industries: Construction, Information, Education and Health Services and Leisure and Hospitality. Oregon has also not lost as many public sector jobs as the nation overall.

This final industry graph is more granular and detailed. It illustrates the share of growth each industry represents to the expansion over the past 2 years for both Oregon and the U.S. When both the blue and red bars are at equal values, this indicates that that specific industry has contibuted the same amount to growth in Oregon and in the nation overall. For example, Health Care in Oregon represents 27% of the growth and in the U.S. it represents 26.5% of the growth. When the two bars diverge, that means the industry is performing differently in Oregon compared to the nation overall.

Finally, in December the retail trade industry added 900 jobs over the month on a non-seasonally adjusted basis. This brings the seasonal increase over the last quarter of the year to 8,700 within the industry – a decrease of 2,000 compared to 2010, however stronger than the 2007-2009 years.

Given that the economy has been in expansion for two and one half years (per NBER dates) and since early 2010, employment at the national level has continued to increase, the questions and framework for thinking about the economy now turn toward the strength of the expansion, along with other concerns such as drivers, drags, sustainability, duration, risk of recession and the like. However, we first take stock of where we are today, relative to previous expansions. The following graphs compare the employment growth following each recession since 1953 at both the U.S. and Oregon levels.

Note that the Trough in all of the following graphs is defined as the lowest point for Total Nonfarm Employment during each business cycle, not strictly NBER dates. For the current expansion, Oregon’s trough date is Dec ’09 while the U.S. date is Feb ’10.

For the U.S. overall, Total Nonfarm Employment has grown about as quickly as the previous two expansions (following the 1990 and 2001 recession), however the Private Sector growth is nearly identical to the expansion following the 2001 recession. Today the major drags on economic growth (and employment) are Housing and Government. While during the expansion following the 2001 recession Housing was firing on all cylinders, Manufacturing was a major drag and never really added back the lost jobs. So while one can identify the major issues today affecting the economy, it can be easy to forget that each cycle has its own issues, both good and bad.

The Oregon versions of the same graphs show a largely similar picture, however, whereas the US’ current expansion is following a post-2001 recession path, Oregon is following a post-1990 recession path.

It is clear that Oregon’s employment picture is recovering at a glacial pace and the current expansion in Oregon is as bad as the state has seen. Total Nonfarm Employment in the state is on its slowest recovery post-WWII, and the Private Sector is adding jobs at the same pace as it did following the 1990 recession.

In our view, two of the main reasons for the slow recovery are Manufacturing and population growth. The outright decline (and relative decline) of Manufacturing in the economy is one of the contributing factors to the jobless recoveries the U.S. economy has experienced in recent decades. During previous post-WWII recessions, manufacturing employees were temporarily laid off, or furloughed, due to decreased demand however when the expansion started these workers were rehired for their same positions to fill the new orders. As Manufacturing employment declines (and its share of total employment falls) this cyclical recovery within the industry has less of an effect on total employment and the rebound is less pronounced. Another major issue facing Oregon in recent years is low population growth rates. Oregon’s population growth typically outpaces the national rate, sometimes substantially so, and the fact that the state has had three years of less than 1.0% growth is a negatively contributing factor. Our office’s most recent population forecast projects another two years of sub 1.0% growth (2012 and 2013). Two reasons for lower than normal population growth: lack of economic opportunities and the housing market. People tend to move to where there are jobs, however today jobs are relatively scare everywhere. Oregon’s in-migrants overwhelmingly come from California and when Oregon’s economy is doing better than California’s the number of migrants increases while when the opposite is true the level of migrants slows, however it does remain positive. Second, the housing market issues slow migration as well. It becomes more difficult to sell a house when the mortgage is underwater or equity is very low compared to an environment where home prices are rising.

Finally, this last graph simply illustrates the fact that even with the string of lackluster employment reports over the past nine months, Oregon’s employment growth this expansion is on par with the U.S. growth – due largely to Oregon’s strong job gains in late 2010 and early 2011. While Oregon typically has more pronounced business cycles than the U.S., the current employment expansion is not following this high beta pattern, however the state is not lagging behind the nation either.

Busy week as we begin the next forecast cycle in the office with a scheduled release date of February 8, 2012. Just wanted to post a quick update on leading indicators in Oregon. Note that our office’s OILI is updated through November, however the most recent release available online for the University of Oregon Economic Indicators is October.

On a 6 month basis, OILI is nearly back to zero growth following a decline through the middle of the year. The largest positive indicators in recent month include: Oregon Housing Permits, Unemployment Insurance Claims and Industrial Production. Oregon Withholding, Help Wanted Ads and PDX Air Freight are also contributing positively. Conversely the Semiconductor Book-to-Bill ratio, Oregon Dollar Index and Consumer Sentiment have weakened the Index in recent months.

On an individual month basis OILI has increased each of the past 3 months and has recovered approximately half of the decline during mid-2011. Expectations are for continued, slow growth in both the leading indicators and in the Oregon economy.

Happy New Year everyone. Given the ongoing discussions regarding sovereign debt, budgets and deficits, I just wanted to illustrate a few items regarding debt and a country’s ability to finance its debt.

First off, one of the most common ways to discuss debt is in terms of the debt-GDP ratio. This is an important measure because to pay off the debt or to finance the debt, the government levies taxes on the underlying economy (taxes on production, employment, income, etc). In theory, the larger the underlying economy, the larger the dollar value of the debt may be, all other things being equal.

The graph below is the U.S. debt-GDP ratio on a quarterly basis since 1966. Note that this calculation uses Total Public Debt (both debt held by the public and intragovernmental holdings) and Nominal GDP.

Data Source: FRED, Series ID: GDP, GFDEBTN

In order to bring down the ratio, two things may occur: reducing the debt outright by paying it off or growing GDP faster than the debt grows. Both of these actions have the same effect given that the ratio will decline. Under the first scenario, the numerator (debt) decreases while the denominator remains the same, while under the second scenario the denominator (GDP) increases faster than the numerator (debt) increases. After listening to many months (years) of discussions regarding sovereign debt levels, it feels like sometimes commentators forget this second scenario as most discussions surround reducing the annual deficit (annual figures) and the debt (accumulated over history), but typically leave out the economic growth variable. This is surprising given that this second scenario is how the U.S. (and other advanced economies) has typically dealt with reducing the debt burden in the recent past.

This second graph shows the annual growth in debt and GDP since 1930. To reduce the debt-GDP ratio the blue line needs to be above the red line. Note that the red line is rarely below 0%. In fact on a fiscal year basis (using end of fiscal year figures), U.S. debt has not decreased since 1957 even though the debt-GDP ratio has declined at times. What this means is that while the U.S. ran huge deficits, leading to a large debt, during WWII, the U.S. actually never really paid down the national debt. (Debt did decline outright from $269.4 billion in 1946 to $252.3 billion in 1948, however this pales in comparison to the increase from $43.0 billion in 1940 to the 1946 level during the war) In order to finance the debt and reduce the debt-gdp ratio, the U.S. economy grew quickly during the 50s and 60s. For much of the 30 years following WWII U.S. GDP grew faster than the national debt, thus bringing down the debt-gdp ratio, however in the most recent 30 years, the opposite has largely been true.

Data Source: U.S. Treasury and BEA

All of this is to say that strictly cutting or reducing the debt outstanding is not necessarily the most important issue to focus on when discussing sovereign debt, rather getting the economy growing quickly again (above potential GDP) which in turn will make financing of the debt easier. Certainly bringing down annual deficits is important and, at a minimum, stabilizing the debt-gdp ratio is desirable, however do not forget that there are two components to the ratio.

One final thought. While the size of debt relative to the underlying economy is important, another major item that should be analyzed but typically is not discussed at all is the return on investment relative to the cost of borrowing. Or even more simplified: What are you spending the money on? State and Local Governments typically issue debt (bonds) for specific projects or policies in which their proposals lay out the needs for funds and detail how the money will be spent. At the national level such discussions rarely take place as the debt is more general and used to pay for the overall budget. Some of this has to due with the state’s balanced budget requirements and other fiscal limitations, which the federal government does not have. Each deficit is not created equal and the associated spending has variable rates of return depending upon what the funds are used for.

Given that is has been six months since a full update of these unemployment graphs has been posted, please find the following graphs all updated with the latest available data.

- New claims for unemployment benefits have hit the beginning of their seasonal spike and are expected to remain at elevated levels through early January. Initial claims have continued to improve each of the past 3 years and are beginning to return to more normal levels, however they remain above strong expansion years’ levels.

- Claims relative to the size of the labor force (those who are employed or are looking for work) continue to improve. Their current level (November 2011) is the same as Oregon experienced during the whole 1990s and is nearly back down to levels seen during the 2000s’ expansion. Obviously the underlying mechanics are different today than during the 1990s or mid-2000s, however this improvement is still a relatively good sign as the number of layoffs continue to fall and more individuals are employed. (A major difference between today and the 1990s is the growth in the labor force. Over the past year, the labor force is essentially flat in Oregon while during the 1990s it was growing at 2 percent per year)

- Unemployment benefits paid to Oregonians continues to decline. As referenced in the 2011Q3 Personal Income post, this decline is contributing to the overall decline in Oregon Total Personal Income as individuals are losing their benefits either due to exhaustion or as they transition into employment.

- The exhaustion rate continues to decline (the percentage of individuals who collect unemployment benefits for all 26 weeks of the regular program), however the improvement in recent months is due to the decline in final payments, not first payments which have leveled off in 2011. This means that while the number of individuals who begin receiving benefits (not applying for but receiving weekly checks) has remained relatively steady this year, the percentage of those individuals who complete the full 26 week program is declining. Ideally this would indicate that unemployed individuals are transitioning to employment (leaving the smaller, weekly UI checks for hopefully larger paychecks), however given the lackluster monthly employment reports over the past six or so months, this cannot necessarily be confirmed by other data. File this under subjects to explore further. I will look into this issue and post any updates or findings that are relevant.

asdfasda

Highlights:

• The underlying components are better than the headline story suggests
• Total personal income declined 0.06% in the third quarter (+4.49% y/y)
• Wages and Salaries grew 0.14% in the third quarter (+3.52% y/y)
• The decline in Transfer Payments (-0.99%) led the overall fall

This morning the U.S. Bureau of Economic Analysis (BEA) released quarterly personal income data at the state level for 2011 Q3, along with revisions to the quarterly figures for 2011. In the third quarter, Total Personal Income in Oregon declined 0.06 percent, marking the first decline after seven quarters of growth. The decline is entirely attributable to falling transfer payments to Oregonians; other major components, such as Wages and Salaries, continued to increase. The revisions, as seen in the graph below, were upward for both the first and second quarters of 2011. These revisions were primarily due to increased estimates for Wage and Salary Disbursements with Farm Proprietors’ Income also contributing significantly. All other income categories, essentially, summed to zero on the revisions.

Note: The red portion in the graph is our office’s forecast for personal income. While actual personal income came in slightly higher than forecast (due to revisions), the actual growth rate for the quarter is less than our forecasted rate.

Income is up in nearly all categories, except for unemployment benefits and farm income over the year and in the most recent quarter. Oregon’s quarter-over-quarter relative ranking among all states is 44th, however the year-over-year ranking is much better as the state ranks 9th best. The decline in transfer payments is not unexpected and even as these payments decline (particularly unemployment benefits), it will be a drag on overall income in Oregon. Ideally the fall in unemployment benefits will be more than offset by increased wages as individuals who are out of work find employment. However with job growth in Oregon remaining essentially zero over the past 10 months, the decline in unemployment benefits more likely reflects the loss of benefits due to exhaustion rather than transitioning to employment. In terms of strictly wages and salaries, Oregon’s relative rankings are 9th best over the year and 42nd best in the most recent quarter. For more information on the definition of each component, please see the BEA’s glossary.

The two charts below illustrate each state’s income growth and relative ranking over the past year (first graph) and over the past quarter (second graph).

Full year 2011 and fourth quarter 2011 data is scheduled to be released March 28, 2012.

• Mixed news from the Household (good) and Establishment (bad) Surveys
• Unemployment rate dropped 0.4% to 9.1% due to increased employment
• November payroll employment decreased 1,600 jobs
• Preliminary, estimated benchmark is largely inconclusive

Unemployment Rate

We’ll start with the good news this morning. The seasonally adjusted unemployment rate in Oregon stands at 9.1 percent in November; the corresponding rate for the nation is 8.6 percent. Both the national and Oregon rates declined 0.4 percent in November, reaching their lowest levels in 3 years, or just as the bottom of the economy fell out in late 2008. While a declining an unemployment rate is good news it can be caused by a number of outcomes: more employment (good), less unemployment (good), less individuals looking for work (typically bad). Over the past year the number of individuals looking for work increased 7,300 while the number of employed individuals increased 36,700 leading to a decline in the unemployment rate of 1.5 percentage points from Nov 2010 to Nov 2011.

While we typically focus on employment by recessions in our graphs, the following two graphs highlight the Oregon unemployment rate, seasonally adjusted, by recession since 1950. Each graph is organized by recession and the horizontal axis is based on the “Peak” month, which refers to the single month where the unemployment rate was at its highest level during each particular cycle. Thus, the horizontal axis covers a four year time period (the one year preceding the peak unemployment month through the three years that followed the peak month.) The first graph simply illustrates the unemployment rate by recession. Currently, after 30 months from the peak, Oregon’s unemployment rate of 9.1 percent is nearly identical to the unemployment rate in the state 30 months following the cyclical high in the early 1980s recession in Oregon.

The second graph takes the same exact numbers but indexes the cyclical high to 100. By normalizing the data in this way, it allows one to better compare how the unemployment rate changes over time from one cycle to the next. The current recovery has been slow, even by historical standards, given that the improvement in the unemployment rate after 30 months is the smallest, in percentage terms, on record over the past 60 years. Now, the unemployment rate is moving in the right direction (down) and for good reasons (more individuals reporting being employed), however the pace of improvement is slower than one would hope for. It should be noted that the reason the lines corresponding to the 1953, 1957 and 1969 recessions are rising by the time we reach the 30-36 months past peak period is due to the fact that they are running into the next business cycle, thus the unemployment rate is beginning to rise again.

Payroll Employment

The bad news comes from the Establishment Survey which shows that in November, Total Nonfarm Employment decreased 1,600 on a seasonally adjusted basis. The private sector lost 700, while the public sector fell 900. Revisions to October were also to the downside as the state now lost 600 jobs instead of the preliminary estimate of an 800 job gain (net swing of 1,400 for the month due to revisions).

Obviously the past two months’ worth of payroll data are not positive, however taking a step back, they do not change the perspective that after an initial surge in late 2010 and early 2011, employment in the state has been essentially flat with no real movement either up or down the past 10 months. Unfortunately given the state’s lack of growth in recent months, Oregon’s employment growth since January 2010 is now the same as the nation’s (actually slightly less.) Oregon typically experiences more volatile movements over the business cycle than the nation and given that we are now in recovery, disappointing at that, Oregon should be expected to grow quicker than the US overall, however according to the preliminary data this is not happening.

Every year the BLS (for the US) and the Employment Department (for Oregon) revise their monthly employment data based on a more complete information set. This is known as the annual benchmark revisions and typically occur early in the year for the prior year’s data. For Oregon, the next revisions will be released in March 2012, however our office has been calculating an unofficial estimate of the revisions to try and gauge the true underlying trend in Oregon employment. Unfortunately the data used for the benchmark process is not as timely as the monthly survey, hence why the monthly survey data is used in real time. However the QCEW data does have better coverage as it is based on the unemployment insurance records for all employees in Oregon. Today, QCEW data has been released through June 2011 and the following graph illustrates Oregon and the US’s growth since January 2010, along with our office’s estimate of the benchmark revisions through June.

As one can see, the unofficial estimate calculated by our office for the revisions will be slightly down in early 2011. It is our belief that the official employment data from early 2011 (particularly February) probably overstated the true strength in the employment growth. It is also our belief that the true underlying employment trend in Oregon has not been flat over the past 10 months and most likely follows a path similar to the US data. While the QCEW data is not yet available for the July-September quarter, given the good news in recent months such as unemployment insurance claims continuing to decline in Oregon, industrial production continuing to increase and the continued upward revisions to national employment data, our expectations are for the revisions to Oregon employment data to show continued employment growth during the summer months. That is, our office’s expectations are for the dashed blue line to continue up much like the red US line during the July-current period. However, this cannot be confirmed nor denied until further QCEW data is released.

Finally, a quick update on the seasonal retail hirings. Including revisions, 2011 retail hirings on a non-seasonally adjusted basis total 8,400 in October and November combined, or about the same level as in 2010 and 2005.

This update follows on two previous posts (see the Strength of the (Net) Expansion post for a more detailed explanation of the calculations) and illustrates the relative strength of each business cycle in Oregon. The first graph shows the total number of net jobs created during each expansion in blue and then the level of job loss during recession in red. e.g. During the 1960s expansion in Oregon, the state added a net 200,000 jobs – that is, once employment regained all the losses from the 1960 recession, the state added another 200,000 before falling back into recession in 1969.

While the graph above shows jobs gains and losses in level terms (how many jobs were created during each expansion), what does this look like in percentage terms? Compared the the U.S. as a whole? The following graph answers those questions. Percentage changes are useful as you can compare the relative strength of each cycle to the others on an apples-to-apples basis and not worry about the effect the size of the base has on the changes.

Looking as the top graph, it appears that the 1990s expansion in Oregon was the state’s largest as we added over 350,000 net jobs. When only looking at the total number of jobs created, this would be correct, however, when adjusting for the size of the state’s economy (total number of jobs, in this case), the 1990s expansion was the state’s second strongest expansion as the state gained about 28 percent more jobs than it had prior to the 1990 recession. In percentage terms, the 1960s expansion was the state’s strongest. The 200,000 net jobs gained equals a 39 percent gain during that time period.

What really stands out from a historical perspective in both graphs is the most recent expansion in the 2000s. The state had 1.57 million jobs at the end of the dotcom recession and to add only 100,000 net jobs during the subsequent expansion (an increase of about 7 percent) makes it the historical outlier and not in a good way. The other time period that stands out is the 1980s. Oregon’s recession was much more severe than the nation’s and it took quite a few more years to regain the number of jobs lost during that recession, thus making the net expansion weaker. While the rate of growth during that expansion (the slope of the line) is faster than the nation’s rate, the hole was much deeper to climb out of and the state did not quite reach its typical point of having grown faster and stronger than the nation before the 1990 recession struck.

Stepping back, the graphs clearly illustrates Oregon’s “beta” relative to the U.S. as a whole. The state’s economy grows more than the nation during expansions however it falls further during recessions, thus it is more volatile overall. Now that the nation, and the state, is in expansion we are seeing the same patten repeat. In October, Oregon’s employment growth over the past year is the 14th fastest in the nation and faster than the national average. So long as the expansion continues and is not derailed by either a European financial crisis or a hard landing in the Chinese economy, it is expected that Oregon will grow faster than the U.S.