Monday, October 22, 2012

Employment in Colorado near 4-year high, but state could need 5 years to bring unemployment rate down

Total employment in Colorado rose to the highest level reported since December 2008, rising to 2.54 million employed persons. Total employment remains approximately 89,000 below peak levels, however, and remains well below levels necessary to accommodate new people entering the work force.

Colorado gained more than 14,000 jobs in September 2012 compared to September of 2011, and the non-seasonally-adjusted unemployment rate fell year-over-year from 7.9 percent to 7.4 percent. According to the most recent employment data, collected through the Household Survey and released Friday by the Colorado Department of Labor and Employment and the BLS, the labor force grew only slightly over the year, rising by 1,110 workers from September 2011 to September 2012. This very small increase in the labor force has helped to bring down the unemployment rate. during September 2012, the labor force consisted of 2.74 million workers, which means unemployment for the month totaled approximately 200,000 persons.

The first graph shows the unemployment rate (not seasonally adjusted):

The second graph shows total employment is up from levels seen during 2009 and 2010, and is at the highest level reported since 2008. Total labor force is now back up near peak levels.

The jobs deficit has been cut by more than 50 percent since late 2010, although the current deficit of 89,000 below the peak does not include the jobs needed for all the new entrants into the workforce since 2008. A stagnant labor force, due at least partially to discouraged workers, early retirees and students returning to school or staying in school longer, has helped keep the labor force from expanding, and has in turn helped bring down the unemployment rate. The Colorado economy has yet to replace all the jobs lost during 2009 and 2010.

In the third graph is shown the year-over-year change in payroll employment in Colorado. Year-over-year growth has usually been under 2 percent since the last recession, and this is generally a smaller growth rate than what was common during the last expansion from 2003-2008. The very large losses that occurred during 2009 and 2010 were the largest losses, by percentage, in at least 30 years.

This report shows that job growth continues to be positive in Colorado, but that growth is not sufficient to really overcome deficits in total employment that have formed since 2008. Labor force activity is moving in the right direction, but continues to be rather tepid.

How many jobs do we need to get back to "normal?"

If we speculate a little, we can theorize that under conditions in which jobs are plentiful, the labor force would grow by a net amount of 25,000 per year. Under the current "abnormal" circumstances, there is no significant net labor force growth as older workers retire early, young people go back to school, and discouraged workers give up looking for work.

The estimate of 25,000 per year is a conservative estimate, but is likely warranted given the aging and retirement of baby boomers. It's difficult to guess how much the labor force would grow under more "normal" circumstances, but the annual average over the past decade is 36,000 new workers per year.  (Since 2008, the average annual workers added has been close to zero) So, using 25,000 in the four years since mid-2008, the labor force could arguably have grown by an additional 100,000 under normal circumstances.  This means that to bring the unemployment rate down to 4%, the state needs to add 189,000 new jobs immediately. Or, to bring the unemployment rate down to 6 percent, the state would need to add 130,000 new jobs. Obviously, that's unlikely to happen overnight.

However, if the state were to consistently add 30,000 jobs per year over the next several years, the unemployment rate would be brought down to 6 percent in 2018. That assumes that as jobs are added, more people begin to re-join the labor force to the tune of 25,000 people per year. It also assumes there's no recession with job losses in the interim. The state is presently on track to add a little under 30,000 this year, and it added 90,000 last year. Of course, that big gain came after 3 years of big losses.

This is just one possible scenario.

I'm relying totally on the Household employment survey for these guesses.