Economic Update: Indiana Labor Force Numbers Reveal Labor Market Strains
-9.25.2009
State employment numbers were released this week, and the report indicates that Indiana continues to face employment challenges. While the headline unemployment rate declined from 10.6% to 9.9%, moving beyond the headline number reveals more troubling aspects.
As one might expect, there are many ways in which data may be reported. For example, economists and government agencies might report numbers on a month-over-month or a year-over-year basis. So for example, the last national employment report indicated that non-farm payrolls had declined by 216,000. This was based on a month-over-month change, and does present a short-term view of the labor market situation. The moderation in job losses that economists have been mentioning refers primarily to these month-over-month numbers.
Another way to view the data is to focus on the year-over-year change. Focusing on year-over-year numbers might motivate one to ask a very basic question: How many jobs (non-farm payrolls) existed a year ago, and how many exist today?
The troubling number was the acceleration of year-over-year losses for Indiana. See Figure 1, and notice the decline in the Indiana year-over-year changes last month (the downward movement in the blue line). These payroll numbers are subject to revision, and perhaps we will see revised numbers later. This was surprising because of the purported recovery underway in manufacturing.
Looking at this same graph, you can see the slope for the national employment number is not as steep as Indiana. Nationally, month-over-month numbers have been improving (smaller losses), and the year-over-year changes have moderated compared to earlier in the year.
Figure 2 exhibits data from the household survey (i.e. labor force and unemployment rate). While any decline in the unemployment rate is generally viewed as positive, we draw a different conclusion from observing the labor force numbers. Labor force numbers continue to decline on both a year-over-year and month-over-month basis (See Figure 2). Normally, a declining labor force is indicative of discouraged workers or other demographic factors related to population. In this particular instance, the totality of the numbers leads me to believe that we have a discouraged worker problem.
In reviewing the past couple of months in Indiana, a few numbers cast doubt over the typical positive outlook that might be associated with any decline of the unemployment rate.
First, let’s examine last month, July to August, when the unemployment rate dropped from 10.6% to 9.9%. The number of unemployed dropped by 24,000, and this should be viewed favorably. However, the number of employed only increased by 2,500. Does anything seem out of line? If unemployed numbers are falling due to employment opportunities, then we should see a somewhat coincidental increase in the number of employed as well.
In this particular example, we do see a similar decline in the labor force of 22,000. A possible explanation is that some of these workers are simply exiting the labor force altogether. The number of unemployed could be declining because workers are no longer counted as unemployed, as evident by the declining labor force. A healthier labor market would show a declining number of unemployed and a corresponding increase of those employed.
Floyd and Clark Unemployment Update
The unemployment rate for Floyd and Clark continues a downward trend. The August rate decreased to 8.6% in August, down from the July 8.7% rate.
Wrap Up
Even though month-over-month employment losses are shrinking, the labor market continues to face significant challenges. We have seen a moderation of the monthly losses. However, the depth of employment losses have been so severe, it will take quite some time before we begin to see a noticeable reduction in year-over-year changes.
From a recovery perspective, this lends support to the notion that the nation will be in for a very wide U shape recovery. Previously, we talked about the changing habits of the consumer: less spending and more saving. Combine this frugality with the labor market challenges, and one can see why the U may be quite wide indeed.
Suggestions
If you have any suggestions on future columns or research about specific industries or other economic data, please send me an email at udufrene@ius.edu.
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This information is provided by
Uric Dufrene.
Uric Dufrene, Ph.D. holds the Sanders Chair in Business in the School of Business at Indiana University Southeast. He conducts research on local and regional economic trends, and teaches corporate finance at the undergraduate and graduate levels. He previously served as dean of the School of Business.
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