PA Labor Market Develops Signs of Weakness

March’s employment news for the Commonwealth was quite unwelcome. Both the household survey and the establishment payroll survey brought signs of marked weakness in employment. People reporting themselves as working fell by 14,000 in March after a 6,200 decline in February and a slight 1,000 drop in January. In short, the entire first quarter exhibited a pattern of continual weakening in the number of people working. Meanwhile, Private payroll employment at establishments fell by 6,500 in March, sliding below the January level and up by a mere 1,000 compared to a March 2012. Indeed, private payroll jobs are still 40,000 below the March 2008 number, the high watermark for a March figure and just before the effects of the national recession pummeled the state’s labor market.

Misguidedly, the headline about the labor market reports was the unemployment rate dip from 8.1 percent in February to 7.9 percent in March. But in light of the fact that the number of people working tumbled by 14,000, it is reasonable to ask; how could the unemployment rate fall? It fell because the labor force plunged by 33,000. That is to say, an additional 33,000 people in the non-institutional population old enough to work chose not to seek work. While this is a startling number it does mirror the massive half million decline in the nation’s labor force in March. As a result of the 33,000 not looking for work the number of unemployed went down 19,000 lowering the percentage unemployed. In sum, the apparent good news of an unemployment rate decline hid the bad news of a significant drop in the number working along with a substantial decrease in the labor force.

Why the recent Pennsylvania weakness? Based on the national employment situation in March, there has been a similar abrupt slowing countrywide. Apparently, the state has not been able to sidestep the impacts of the forces restraining the national economy-Obamacare effects, the tax hike in January and the regulatory onslaught coming from the DC governing apparatus intent on remaking America.

More Confusing Labor Market Reports

In a recent Policy Brief we described the lack of consistency and need for frequent revisions to regional employment data. These problems make it difficult, on occasion, to understand or ferret out what monthly data actually mean. And right on cue last week’s national labor market and jobs reports brought still more confusion. Payroll employment was up by 244,000 but the unemployment rate rose from 8.8 to 9.0 percent. How does that happen?

The payroll numbers are based on a survey for establishments to ascertain how many people are on the payrolls of the nation’s businesses, governments and non-profits. The unemployment rate is taken from the household survey that asks if people are working or looking for work. In April, the household survey showed 190,000 fewer people reporting they were working than in March along with another 15,000 more looking for work but not finding it, bringing the total increase in the number out of work and looking for work to 205,000.

So what are we to think when the two surveys produce such diametrically opposite results? Unfortunately, these anomalies are part of the inexact science that is measurement of economic indicators covering such vast numbers across an enormous landmass.

Signs of Labor Market Weakness in Pennsylvania

Pennsylvania’s unemployment rate held steady in June as a 40,000 drop in employed persons was accompanied by a similar sized decline in the labor force. Thus, the number unemployed but looking for work rose only very slightly. (The unemployment rate is the ratio of unemployed but looking for work divided by the sum of people working and those not working but looking.)

While the steady unemployment rate in June could be viewed asa sign of labor market conditions not getting worse, there are some other indicators that suggest the labor market has not yet stabilized. First, the average manufacturing work week dipped two full hours below the June 2008 level. This means overtime has been virtually eliminated and, combined with the big drop in jobs, it points to very weak worker income in this sector. The 39.1 hour week in June 2009 is the lowest recorded June weekly hours number in at least ten years and is over an hour below the June work weeks during the 2001-2002 recession.

Second, the number of outsourced type jobs, including administrative and support services and employment services, are down sharply from 2007 peak levels. Admin and support jobs are off by 36,000 or more than 10 percent while employment services (temporary help) jobs are off by 28,000 or 28 percent. Although weakness began to emerge between June of 2007 and 2008, the last twelve months have seen shockingly large declines in these groups.

The severe employment weakness in these sectors combined with the big falloff in manufacturing hours-along with employees who are facing mandatory short term leaves and who are losing benefits-all add up to real problems for government tax collections.

There is one sector that has no need to worry however. Public education employment continues to rise, hitting a new decade long high in June as state payrolls rose by 3,000 compared to June 2008 to tie the 2003 mark and local public education nudged upward to its new record high. And with no worries about job loss, there is the added benefit of not having to lose income due to belt tightening. Indeed, for employees with contracts scheduled wage increases will have to be paid.

If ever there was sacred cow this must be it. Whether academic results are good or bad, the money just keeps on rolling in.