Rhode Island's Revised Labor Market Data



For the better part of a year, I have been addressing the problems with Rhode Island's "official" labor market data. On several occasions in years past, we have had situations where a divergence between the direction of changes in actual and official data emerged. Historically, though, these never occurred until October. Within a couple of months, we would get the rebenchmarked data and we'd be back to the correct labor market trends.

 

In this most recent episode, we were treated to something I had never seen in over two decades of analyzing Rhode Island's economy: a divergence between actual and "official" data that started in the first half of the year. Before I became aware of this, I had detailed how horrible the official data were in a series of blog posts. If those data were to be believed, then Rhode Island would indeed have entered into a double-dip recession.

 

The picture painted by that data was so incredibly negative, I became suspicious that things could be that bad -- even for Rhode Island! The primary basis for my suspicions was the apparent strength in a number of key economic indicators such as retail sales. While it was possible to explain some of the apparent divergences between retail sales and labor market weakness based the fact that Rhode Island rents out substantial numbers of its skilled residents to our neighboring states, I continued to sense that something still wasn't right. Then, one day, I received an email from the Department of Labor and Training stating that when these data are revised, they will show that payroll employment has been actually been rising, not falling, for some time now, a total contradiction of the "official" data.

 

In light of this rather strange situation, I went back and dusted off my econometric models for Rhode Island's labor market and updated them using only non-survey based data. Using those models, I then ran simulations attempting to gauge for myself what was actually happening, in spite of what the "official" data continued to say. Using the results of those simulations, I began to provide two monthly numbers for my Current Conditions Index: one was based on the "official" flawed data; the other was consistent with my simulated values. From that time forward, I presented what I was able to ascertain about the actual conditions in Rhode Island through this Blog and my monthly CCI reports.

 

I think of this time as my "Maytag Repairman" period (if you recall those commercials), as I was all alone in this endeavor, since all that was known and reported by our state's media was the flawed "official" monthly data. That, of course, created a real problem here since the data everyone was basing decisions on substantially understated Rhode Island's actual economic performance. Ironically, that made me the most positive and upbeat person when it came to assessing Rhode Island's economic performance. Accuracy cuts both ways!!!

 

Last week, the revised data were at long last made public. What they showed was what I had anticipated and written about since around March 2012, that things here were actually better that we had been led to believe. Ironically, using the newly corrected data, the revised Current Conditions Index values were very close to the corrected values I had stated using my econometric simulations.  In this post, I want to present three charts that highlight what was going on throughout that entire time period.

 

The first of these charts contrasts the originally presented data with the revised data going back to 2010 (click to enlarge). As should be apparent from this chart, there is a very substantial difference in the two sets of data that began around August of 2011. Perhaps most importantly, Rhode Island never flirted with the double-dip recession. Very much to the contrary, employment has shown a fairly healthy increase over the past two years, healthy for Rhode Island at least.

The next chart (click to enlarge) shows the same data as the above chart but includes the actual trend for the correct data. I will leave it to you to figure out the trend for the inaccurate original data.

 

 

The final chart (click to enlarge) shows changes in payroll employment for each month over the past two years. These are year-over-year changes, which means each month compares its value to the value one year ago (ex: December of 2012 with December of 2011, etc.).

 

 

The most striking feature of this chart is how year-over-year changes became negative starting all the way back in October of 2011, which led to the conclusion by some that Rhode Island may well have entered into a double-dip recession. That is the faulty data I found it necessary to improve the accuracy of through my simulations, ultimately reporting them in my monthly CCI reports. By contrast, the revised data show that year-over-year changes were never negative over this entire period: employment each month continued to exceed its year-earlier value. 



 

Where does this leave us? Rhode Island is doing considerably better than we were led to believe based on the flawed "official" labor market data (based on the old benchmark). We have never flirted with a double-dip recession since the end of the last recession almost three years ago. But while Rhode Island's economy was improving, so too were the economies of almost every other state. So, six years from our prior payroll employment peak (December of 2006), Rhode Island employment remains about six percent below where it once was. Ironically, while our unemployment rate has declined, it is now below 10 percent, we continue to have either the highest or one of the highest jobless rates in the country.

  

How are these changes in payroll employment linked to our state's unemployment rate and its national ranking? What this post has shown is that Rhode Island's level of employment has continued to rise and never fall, as the original data showed. What matters in addition to this is how rapidly our employment is rising. Sadly, that's where Rhode Island comes up short. Rhode Island failed to reinvent itself and make itself more competitive throughout The Great Recession and afterwards.

 

Sadly, our elected officials appear to believe that because they have now decided that they actually want to do something about this, we should be able to quickly and easily remedy our state's deficiencies. Apparently they intend to go to Staples and purchase an "Easy" button. Sadly, things are never that easy. It will take a great deal of hard work and consistent effort guided by due diligence before things here begin to change in any significant way. Sadly, that's very different than their current standard operating procedure, D + M: Denial + Manana. If the day ever comes when our elected officials actually begin to lead, all of us will be happily surprised by how much our state's economy will be able to improve.

 

Just When You Thought Things Here Couldn't Get Worse!!

In the prior few posts, I outlined how badly Rhode Island's payroll employment has been performing of late. In fact, in the last post I raised the possibility that Rhode Island might actually have entered a double-dip recession. While this is a distinct possibility, I am not necessarily willing to embrace that conclusion -- yet. In this post, I will show the recent behavior of the "other" kind of employment: resident employment.

What makes life interesting for persons like myself who follow Rhode Island's economy is that the two employment series are derived from different surveys.

Payroll employment comes from the Current Employment Survey (CES) for the near-term results, which are estimates of the far-more inclusive Establishment Survey. Synchronizing the results of these two surveys, which occurs with the new January data each year, is called rebenchmarking. Think of payroll employment as the number of jobs in Rhode Island, as these data are derived from surveys of employers in this state.

Resident employment is obtained from the Household Survey, which as its name implies, is a survey of Rhode Island residents obtained from individual households in this state. Values of this series too are often revised along with the new January data each year.

There are several critical differences between these data series. First, resident employment includes the number of employed Rhode Island residents, no matter where they work, whether in Rhode Island or in other places. In addition to this, resident employment includes self-employed individuals, a very critical factor to track when the state of Rhode Island's economy is changing. These two factors are capable of causing large and significant divergences between payroll and resident employment.

You saw the recent behavior of payroll employment in the prior posts. It has deteriorated during the last six months. What about the behavior of resident employment? The chart below (click to enlarge) shows Resident Employment for Rhode Island since 2009.

There are several amazing features of this chart. First, note that when the current recovery for Rhode Island began in June of 2010, resident employment was actually falling! The level of "support" for resident employment here is just above 500,000. Support held until June of 2011, when resident employment dropped below 500k. What had been support then became "resistance." Resident employment recently made a run at the new resistance line of 500k, but that attempt failed. It has now been declining for the past few months. One thing should be clear from this chat, however: resident employment in Rhode Island has been on a very well-defined downtrend throughout this entire recovery. Now that's very strange! I have always noted how idiosyncratic Rhode Island's economy is, but this is a new one even for me. Wait, though, a further look at the data in this chart produces a truly amazing graph: year-over-year changes in resident employment:

This would be a very strong chart if we were to turn it upside down. Unfortunately it has the correct orientation. The bright moments for Rhode Island, then, the relatively small number of green bars that indicate year-over-year increases, occurred during the May through November of 2010 period. I guess it is safe to say that for Rhode Island: "Those were the "good old days."

What this rather scary chart reveals is that the factor dominating changes in the household survey for a number of years now has been Rhode Island's declining population. Remember, our state's population has been shrinking consistently since July of 2004  -- yet another dubious distinction for Rhode Island. The pace of economic activity here has helped at times, as have job prospects for our residents in Connecticut and Massachusetts. However, I have to conclude that what this chart really illustrates is the set of major structural negatives and problems facing Rhode Island. At present, are we really the "masters of our own fate?" Even if we are, there are serious questions about how much longer that status would remain intact.

Dates That Will Live in Infamy?

In the previous post, I showed the rebenchmarked payroll employment data since 2009. In order to show how dire things have now become in Rhode Island, I am including a graph of payroll employment going back to 1990, with specific dates of turning points highlighted (click to enlarge).

I hope that those who have been around Rhode Island for a while will be able to put events with the dates of turning points. What I find very striking, however, is how the current employment drop is not unlike that in 1990 and 1991, as the banking crisis unfolded. Clearly, the percentage differences are not the same today and they were during the 1990-91 period, but we had something going for us in 1990-91 that we don't today: back then, we were barely past the transformation to a post-manufacturing economy (that occurred in Q3 of 1987). In other words, we had a margin for error that has long since disappeared.

The final question: Will Rhode Island make a run like it did in the early 1990s until the peak in December of 2000? Back then, our state's goods-producing sector was much larger than it has become today, and along with that decline we have lost the large goods-producing multipliers and their ability to get recoveries going rather briskly. Recall also, there was a rather sizable tech boom in the 1990s, the likes of which we might not see until battery technology is truly advanced, or some other advances we are not yet aware of emerge into positions of prominence.

Do I think Rhode Island will now make a major move up in its payroll employment during the next few years? Sadly, my answer is an emphatic NO! We have lost the margin for error a manufacturing-based economy once afforded us and the way this state is run is not conducive to the requirement of highly proactive government in the post-manufacturing era. Add to this that overhead, primarily pension obligations, dominates virtually all decision making here, and the primary question is whether Rhode Island's payroll employment will be able to sustain itself above the recent trough, and its levels in May of 1998 and April of 1990.

Rebenchmarked Payroll Employment: We're Falling!!!

The recently rebenchmarked labor market data for Rhode paint a very dismal picture. Not only was payroll employment here less than had been thought through much of 2011, it has actually been falling for the last several months. Worse yet, not only has payroll employment been declining, it has now fallen all the way to within 700 jobs of its low since before the last recession!

Normally, I would say that a picture is worth a thousand words. In this case, it is more appropriate to rephrase this to say a thousand tears. Look very carefully at the chart below of payroll employment since 2009 (click to enlarge).

So, as the US economy and most notably national payroll employment continues to accelerate, Rhode Island finds itself not only with declining employment, but it has experienced a series of monthly declines that have moved payroll employment to just slightly above the trough it attained in July of 2009, and all the way back to its level in May of 1998! All that remains between Rhode Island's January 2012 employment level and its recent trough is 700 jobs. So, as of January, 2012, Rhode Island's payroll employment remains 7.8 percent below its prior peak.

As I finish this post, let me reiterate a statistic that I have cited here on numerous occasions: payroll employment in Rhode Island peaked in December of 2006, a full year before the US employment peak. Happy 5th anniversary, Rhode Island!

A Long Look Back at the Number of Employed Rhode Islanders

There are actually two different measures of employment that get published each month, although reporting generally tends to focus only on one of these. The most-frequently followed number, payroll employment, measures the number of jobs in Rhode Island. The other measure, which I have commented on in several recent posts is resident employment -- the number of Rhode Islanders who are employed.

There are several major differences between these measures, and they don't always provide the same picture of how well our state's labor market is performing. The major difference is that these come from two separate surveys. Payroll employment is derived from the Current Employment Survey (CES) until those estimated values are eventually updated and linked to the much more inclusive sample, the Establishment Survey. The realigning of these, which occurs with the release of the January date each February, is called rebenchmarking. Resident employment is derived from the Household Survey. The unemployment rate and labor force also come from this survey. It too will see data revisions when the January data are released in a few weeks.

Two other differences are highly significant. The first of these is that resident employment includes the number of jobs held by Rhode Island residents, whether they work in Rhode Island or at other locations. So, persons working in other states are included in this measure. Second, self-employment is reflected in resident employment, but not in payroll employment.

Theoretically, payroll employment is considered to be the more reliable way to track employment, based primarily on the fact that it has a much larger sample (eventually -- the Establishment Survey). But resident employment matters a great deal for Rhode Island since we "rent" so many of our residents out to nearby states for their jobs, and small businesses are such a critical part of our state's economy. Since payroll employment gets so much attention here, often to the exclusion of resident employment, in this post I will take us all the way back to the late 1970s and view resident employment since that time period.

The chart below (click to enlarge) shows how much resident employment each month has changed from the same month in the previous year (i.e., the year-over-year change).

I have made a number of annotations in this chart. The first relates to the largest rise in resident employment over this entire time span, which occurred in May of 1984. Some of you will recall that 1984 was the last year that manufacturing employment actually rose in Rhode Island, which is reflected in that large spike.

Things went downhill after that, as Rhode Island's manufacturing era ended in late 1987, and we eventually reached our largest decline up to that point as the banking crisis unfolded in 1991 (we were also in a recession at that time). We finally began to regain our footing by 1995, as declines in resident employment finally ended and it moved to its highest increase since the end of the manufacturing era.

One of the most striking features of how resident employment has behaved since 1995 has to be that  our peak increases have continued to diminish through time. The dashed red line shows this as a line of "resistance" -- lower highs through time. As for declines, had it not been for "The Great Recession," our lows would have remained somewhat contained, at decreases of around 10,000 (some containment!!). I have labelled this as a "support" line. Ironically, Rhode Island's last trough occurred in March of 2009, just as the stock market was bottoming!

According to these data, our most recent peak increase, which occurred in 2010, was also below the level we observed when payroll employment (the other measure) reached its peak all the way back in December of 2006. At the present time, the available data show that resident employment continues to decline relative to year-earlier levels by alarmingly large amounts, around 7,000.

As bad as that sounds, there is very likely to be reason for hope in this. That is also the case for the data I didn't discuss here, payroll employment. Historically, when data are revised higher in a given year, as Rhode Island saw last year, revisions the following year result in worse numbers. So, history is against us. From my reading of the set of all the economic numbers for Rhode Island that I follow, I expect the revised labor market data this year to show that our state's labor market performance has actually been better than we had been led to believe based on the data available up to this point. I haven't had the time to explore the likely levels that these revisions should take, but the upward revisions to the national data released last Friday gives further impetus to my expectation of upward revision. 

So, remember the monthly decline of about 6,000 jobs (payroll employment) a few months ago? I expect it to soon be revised away. Lately, has resident employment been as bad as the existing data and above chart show? I seriously doubt it, especially since resident employment includes Rhode Islanders who work in other states such as Massachusetts that are doing a lot better than we are. We'll just have to wait a few weeks to wait and see the final data revisions. While I expect the labor market here to have been performing better than we though, I don't expect any wild and large upward revisions, so let's not get carried away! After all, direction and magnitude are not the same thing. Had employment here been much higher than we had thought, tax revenues at this point would have risen far beyond the actual levels we have observed.

December 2010 Data

The December 2010 data, the existing data at least, are given in the table below. While the Rhode Island's economy has made substantial improvement since its recession, weakness remains. The potentially good news concerns upcoming data revisions (rebenchmarking). With the release of the January employment data (later this month), we will see the revised labor market data extending back to late 2009. If history turns out to be accurate, during the initial stages of recoveries, revisions are to higher values. That doesn't say how much higher, though. I expect some upward revision to the existing data, so things weren't quite as bad as we had been led to believe. But I don't expect truly dramatic changes. We'll have to keep our fingers crossed for that.

Once the rebenchmarked labor market data have been released, I will make one or more posts discussing the changes and their significance.