Charles Steindel

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State payroll employment numbers, like those of the nation as a whole, suggest a slowing in March. The sum of the reported changes in jobs over the 50 states and DC was 148,200—not appreciably different than the national survey’s result of a 103,000 gain.

Looking at the state detail, BLS reports that only two states (Texas and Utah) had statistically significant gains in employment in March. Most states, though, did post positive prints on their point estimates of job change from February to March. Determination as to whether a state change is statistically significant rests on industry details, and can often go counter to intuition. Of course, New York’s report of a 500 increase in its payroll count was not statistically significant. But it’s a bit surprising that Ohio’s reported gain of more than 10,000 (which if sustained over 12 months would boost the state’s job count by more than 2 percent) was not. Of the states that reported declines, Georgia’s loss of 7,400 jobs seems most notable (Georgia’s job count is a bit smaller than Ohio’s) but was not deemed statistically significant.

Looking over the 12 months ending in March 2018, only Alaska and South Dakota reported job losses over that period. Surprisingly, only 24 states were deemed to have experienced statistically significant gains over that period. California reported a whopping 321,000 increase, but in percentage terms Utah and Idaho both had growth of 3.3 percent.

The state report also contains numbers from Puerto Rico and the US Virgin Islands. Puerto Rico did report a small gain of 1,600 jobs in March, but compared to a year ago, the number of jobs on the island was down by nearly 36,000, or more than 4 percent. Over the last year employment in Puerto Rico has fallen in virtually all sectors, including marked drops in state and local government (the small federal job presence has been basically unchanged). In a hopeful sign of recovery, leisure and hospitality employment rebounded markedly in late 2017 and has continued to edge up, though the number of jobs in this sector is still below its pre-Maria level.
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State payroll employment numbers, like those of the nation as a whole, suggest a slowing in March. The sum of the reported changes in jobs over the 50 states and DC was 148,200—not appreciably different than the national survey’s [...]

State Payroll Employment Growth Modest in March

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On April 3 the Federal Reserve Bank of Philadelphia issued revised estimates of state coincident indicators, along with January values. The Philly Fed produces figures for all 50 states, as well as the nation as a whole, using a consistent methodology. The coincident index for a state or the U.S. as a whole is computed as the underlying factor that best summarizes the information in four variables: payroll employment, manufacturing hours, the unemployment rate, and real wages (using the national CPI to deflate). The indexes’ longer-term trends are equated to that of real GDP (state or national, depending on which is being computed). While there clearly could be a much larger body of information useful for summarizing the state of the economy of a state or the nation (the New York Fed’s comparable indexes for New York State, New Jersey, and New York City use different inputs for New York City), this methodology allows for a fairly straightforward comparison across the states.

The revised data incorporates the recent benchmark revisions in the labor market and wage data. The base year used for reporting the levels of the indexes was moved forward from 1992 to 2007; this change allows for a clear comparison of current levels to those around the past business cycle peak. Philadelphia estimates that national activity in January was 22% above its 2007 average (real GDP in the fourth quarter of 2017 is reported to have been 16% above the 2007 level). Three states—West Virginia, Louisiana, and Alaska—had levels of activity in January 2018 less than 10% higher than their 2007 level. On the up side, the Philadelphia Fed reports that the economies of Utah, Arizona, and New Hampshire have each grown more than 40% since 2007. Rather strikingly, the two largest state in population—California and Texas—are not far behind (Texas ranks fourth, California fifth). Some major traditional manufacturing states (Pennsylvania, Ohio, Indiana, Illinois, and Michigan), while not at the bottom of the list, are reported to have grown less than the nation over the last decade. Interestingly, so has New York, in contrast to the many stories about boom times in the Big Apple. Arguably, economic weakness upstate has been sufficient to make a real difference to the growth record for the Empire State as a whole.

As to the figures for growth over the last year (January 2017-January 2018), Louisiana and Alaska are still at the bottom (the point figure shows an outright contraction in activity in Alaska), while West Virginia remains near the bottom, at number 46. At the top of the heap are Alabama and Tennessee, whose indexes are reported to have grown more than 6%, compared to a nation-wide increase of 2.8%. The five states noted for unusually strong growth since 2007 (Utah, Arizona, New Hampshire, California, and Texas) also clocked increases since January 2017 higher than the nation as a whole. None of the industrial states mentioned as having soft growth over the last ten years showed gains notably higher than the nation in the last twelve months (nor did New York). Thus, the last year has not seen any marked change in growth patterns across the nation.

The Philly Fed also compiles indexes of leading indicators for the state, designed to predict growth in the coincident indexes. These have not yet been revised to reflect the new coincident indexes (the release is scheduled for April 5); the data to compile leading indexes at a state level are scarcer and arguable less reliable than those used for the construction of the coincident measures. National data, such as interest rate term premia, are used along with state information such as housing permits and unemployment claims, but such usage is dependent on the assumption of a reasonably reliable hig-frequency relationship between the national series and state activity.

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On April 3 the Federal Reserve Bank of Philadelphia issued revised estimates of state coincident indicators, along with January values. The Philly Fed produces figures for all 50 states, as well as the nation as a whole, using a [...]

State Coincident Indicators

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Joseph G. Carson

The widely followed employment cost index (ECI) jumped 1.2% in Q1 2024, faster than the 0.9% increase in Q4 2023, raising fears that labor costs are re-accelerating. As big as the jump in the ECI was in Q1, another labor cost measure (ECEC) shows employee costs are rising even faster.

The Bureau of Labor Statistics, the government agency in charge of reporting labor market data, provides two crucial measures of employee costs: the employment cost index (ECI) and employer costs for employee compensation (ECEC). Both measures, with a similar scope covering 5500 to 5600 private industry establishments and 23000 occupational observations, play a pivotal role in labor cost analysis. However, it's important to note that the ECI excludes employment shifts among occupations and industries, while the ECEC does not, making the ECEC an equally important comprehensive measure of total current employment costs.

The two measures are simple to understand: the starting point for both measures is the change in wages, but if people move to higher-paying jobs or shift occupations because of the promise of higher pay, the ECEC measures will grow faster than the ECI. In contrast, if the opposite is true, when the jobless rate is high, job openings are low, and people have to accept lower-paying jobs, the ECI would increase faster than the ECEC.

In the last several years, the labor market has been characterized by a record number of job openings, which have encouraged people to shift industries and occupations in search of higher pay. The labor cost data confirms this did happen. Private industry wage costs in the ECEC have outpaced the increases in the ECI every year, and the increase in 2023 of 6.9% was the largest on record and 270 basis points over the increase in the ECI.

The Q1 2024 report for ECEC is due on June 18. Based on the still high number of job openings and low jobless rate, the Q1 rise in the ECEC index should exceed the ECI increase, adding to current fears of higher labor costs feeding into inflation numbers.

How Fast Are Labor Costs Rising?  Faster Than You Think

Ken Matheny

**The US economy is stronger than suggested by the “soft” 1.6% increase in GDP in the first quarter, while a sharp upturn of inflation puts Fed rate cuts on hold for at least several months.**

**Look to final sales to private domestic purchasers, not GDP, for a better indication of the economy’s underlying strength.**
The initial (“advance”) report of the national accounts for the first quarter of 2024 should be interpreted carefully.  Looking beyond the headline figures, the economy’s underlying growth momentum was notably stronger than the disappointing figure of 1.6% quarterly GDP growth in the first quarter.  GDP growth was held down by declines in components that tend to be more volatile  --- inventories and net exports --- in contrast to solid growth in other components, including consumer spending and private investment.  Personal consumption expenditures (PCE) posted solid growth (of 2.9%).  Business fixed investment also rose 2.9%, while residential investment jumped 13.9%, continuing a recovery that began in the second half of 2024.

A more telling indicator of the US economy’s underlying strength is final sales to private domestic purchasers, which rose at a solid 3.1% annual rate in the first quarter, virtually identical to increases in the third and fourth quarters of 2023 of 3.0% and 3.3%, respectively.  This is a clear if preliminary indication that the economy retains solid momentum for growth.

Together, declines in inventory investment and net exports subtracted 1.2 percentage points from GDP growth in the first quarter, but those components are not likely to continue to subtract large amounts from GDP growth on an ongoing basis, even though quarterly swings could be significant (in either direction) from time to time.  The level of inventory investment ($35 billion in the first quarter) is broadly sustainable, suggesting that repeated large declines are not the most likely outcome.  Net exports have been in a sideways waffle since the second half of 2022.  Future large declines are possible if foreign demand were to collapse or the dollar were to appreciate sharply, but neither of those outcomes appear to be highly likely at this juncture.  In short, the 3.1% growth in final sales to domestic purchasers is a better indicator of underlying strength in demand than the smaller 1.6% increase in GDP in the first quarter.

Of course, GDP and other estimates are subject to revision, so the picture of first-quarter growth could be altered in coming months.

**Inflation surged in the first quarter, nearly eliminating any prospect for a Fed rate cut prior to this fall.**
Another major component in today’s report on the national accounts was a disturbing increase in consumer inflation.  The price index for personal consumption expenditures (PCE) rose at a 3.4% annual rate in the first quarter, the largest increase since the first quarter of 2023.  Meanwhile, the core PCE price index rose at an even higher 3.7% annual rate in the first quarter, far above the increase of 2.0% in the final two quarters of last year.  This is a direct challenge to any hope that the Federal Reserve will begin to lower interest rates in coming months.  As of the first quarter, the annual (four-quarter) increase in the core PCE price index was 2.9%.  It is likely that tomorrow’s report on monthly PCE will show annual (12-month) inflation at or slightly above February’s 2.8% reading.

The Federal Open Market Committee (FOMC) will almost certainly not begin to seriously contemplate rate cuts without clear indications that inflation is easing and well on track to fall to 2% over time.  The latest inflation figures suggest that progress on bringing inflation down has stalled.  It will take more than one or two “good” monthly inflation reports to convince policymakers that it is appropriate to begin cutting interest rates.  This makes any rate cut prior to this fall a low probability outcome and adds to the risk that there might not be any Fed rate cut in 2024.

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First-Quarter 2024 National Accounts

The Federal Reserve Bank of Philadelphia’s state coincident indexes in March showed some moderate variance. Four states were down slightly from February. The largest increase was Arizona’s .8 percent; three other states (Iowa, Delaware, and Vermont) had gains of at least .5 percent. Over the three months since December, Massachusetts was up 1.9 percent, while 8 other states (scattered across the nation) rose more than 1 percent. Over the last 12 months, Massachusetts again led, with an increase of 4.9 percent, while New York’s 3.6 percent was a fairly distant second. 5 states were down over the period, with Montana’s slump continuing, with a loss of 3 percent.

The independently estimated national figures of growth over the last 3 months (.75 percent) may be a touch higher than the state estimates would have suggested, but the 12-month figure (2.9) percent) looks to be roughly in line with the state numbers.

State Coincident Indexes in March 2024

Viewpoints: April 2018

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State Payroll Employment Growth Modest in March

State Coincident Indicators