Thursday, May 29, 2014

Revisions to First Quarter GDP

The headline number for this morning's GDP report was that the economy shrank by 1% (compared to an initial estimate of growth of 0.1%).  What was responsible for the revision?  Almost the entire revision was due to a decline in inventory investment, which subtracted 1.6% from economic growth compared to an initial estimate of 0.6%.  So final sales (growth excluding inventories) declined from 0.7% to 0.6%.  This is actually good news for future growth since companies have less inventory on hand, increases in demand are more likely to result in increases in production.  Most of the other details of the report are similar to initial estimates (see previous post) - positives include a record contribution from healthcare due to Obamacare and a sizeable contribution from utilities due to the harsh winter while minuses include weak construction (likely due to the harsh winter) and weakness in business investment and exports (some payback from unsustainably strong exports in late 2013).

Wednesday, May 28, 2014

Which Major Metro Area Leads the Nation in the Rate of Job Creation?

Which major metropolitan area leads the nation in terms of the rate of job creation?  Orlando, Florida.  As noted in a previous blog post, this isn't a surprise, but became official with the release of the April employment data for metropolitan areas this morning.  From April 2013 to April 2014, employment rose by 4.5% in metro Orlando, a higher rate than any other major metropolitan area (private sector job growth was 4.9%).  How am I defining major metropolitan area?  Though there's no official definition, reasonable thresholds are 250,000 or 500,000 workers.  Orlando is actually #1 for any metro area with more than 135,000 workers (it's #3 when considering all those with more than 100,000; behind College Station, TX and Naples, FL).

You may be wondering where Florida ranks compared to other states (since it has two of the top three fastest growing job markets in the nation when considering areas with 100,000+ workers).  Florida is tied for #3 with Texas (North Dakota is #1 at 5.1% followed by Nevada at 3.7%).  By the way, Orlando added more jobs in the last year than either Nevada or North Dakota.

Friday, May 16, 2014

April Jobs Report: Florida and Orlando

The latest report on the state and local economy was released this morning and it continued to indicate that a real recovery is underway.  The headline numbers include a net gain of 34,000 jobs statewide in April (+0.4%) and up nearly 247,000 over the last 12 months (+3.3%) while the unemployment rate fell to 6.2%.  Regular readers of this blog already know what's coming up next - what about the effect of the participation rate?  This is where I'm supposed to say that the participation rate fell and there was no real decline in the unemployment rate.  However ... the participation rate has started to increase recently and is now aapproaching 60.7% (compared to a low of about 60% in late 2013 and 60.4% one year ago.  If the participation rate had remained constant over the last year, the unemployment rate would be even lower.  Of course the recent increase just brings it back to where it was in the second half of 2011.  Prior to the recession (Dec 2007), the participation rate stood at 64.2%.  Given demographics trends, it shouldn't return to that rate.  The recent bounce in the participation rate supports the idea that a significant portion of the decline was cyclical (people not looking for work due to a poor job market; as the job market improves, more people are looking for jobs).

Which industries are leading the rebound?  Food/Accomodation services added thre most jobs in April and have risen 5.6% since April 2013.  Professional/Business services came in second for the month and have increased by 5.1% in the last year, led by employment services, which have risen by 10% and professional/technical services (+4.6%).  Construction continued its recovery, adding nearly 5000 jobs last month and almost 44,000 over thre last year (+12.1%).

Given the strong job growth statewide, which major metropolitan area is posting the strongest gains?  Just under half of the job gains statewide in April were in Metro Orlando, which added 12,000 jobs.  Over the last year, employment in Orlando is up 4.5% (4.9% in the private sector).  Official data for metropolitan areas throughout the US for April won't be released until later this month, but it appears that Orlando may have the fastest rate of job creation of any major metropolitan area in the county.  Which industries have led the surge in employment?  Fortunately, it has been quite diversified including leisure/hospitality (up 14,800 or 6.8%), professional/business services (up 10,300 or 5.9%), retail trade (up 6600 or 5.1%), and construction (up 5200 or 10.5%).  One can question the quality of jobs to some extent, but an increasing proportion of high-paying jobs are being added (particularly in construction and professional/technical services).

What are the key takeaways?  The Florida job market is experiencing significant improvement, with strong employment gains and lower unemployment despite an increase in the number of people seeking work.  Orlando is among the strongest metropolitan areas in the nation in terms of the rate of job creation, with a rising portion of the gains in relatively high-paying industries.

Friday, May 2, 2014

April Job Market

The headline numbers of this morning's job report were very strong: unemployment falling to 6.3% and 288,000 new jobs added.  Earlier this week, economic growth was reported to be near zero in the first quarter, but now the job growth was the highest since January 2012 ... is the economy at a standstill or accelerating?
First, let's dissect the job market report.  Let's start with the good news.  The job gains were quite strong and across the board.  In fact, next month the economy will finishing recouping the job losses suffered during the Great Recession (currently 113,000 below the pre-recession peak).  Construction employment reached 6 million, a gain of 32,000 for the month, 189,000 over the last 12 months and the highest level since June 2009.  Professional and Business services added 75,000 jobs in April and 676,000 in the last year.  Food and Drinking places continues to be strong, adding nearly 33,000 in the month and 1.3 million since hitting bottom in Feb 2010 (an increase of 14%).  Currently, 1 out of every 11 employees in the private sector works in a restaurant or bar.  Further evidence of strenght is shown by the increase in aggregate hours worked which, after declining slightly between November-February, is up sharply the last two months.  This provides support for the temporary effects of the harsh winter followed by a Spring thaw.

OK, are there any reasons for caution?  Why did the unemployment rate fall so much?  Over 800,000 people dropped out of the labor force, reducing the participation rate back to its recent low of 62.8%.  If the participation rate had remained constant, the unemployment rate would have remained at 6.7% (so the entire decline was due to fewer people looking for jobs).  It should be noted that the labor force was reported to increase by over 500,000 in March.  Given this volatility, it confirms the need to look at trends over time as opposed to monthly changes.  One more conern is that hourly earnings were flat in April as were weekly earnings, so the recent economic improvement has had little effect on wages thus far.

Going back to the question at the beginning of the post - is the economy at a standstill as indicated by first quarter GDP report or accelerating as indicated by the job market report?  This morning's report provides support for the idea that the harsh winter resulted in a temporary slowdown, supressing first quarter GDP.  Part of the job gains in recent months is due to a bounceback as the weather has improved, but the underlying trend has improved somewhat in 2014.  This doesn't necessarily mean the economy is ready for takeoff, but it does put to rest the idea that the economy is slowing down.