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Michael F. Easley, Governor Employment Security Commission of North Carolina Harry E. Payne, Jr., Chairman Volume 4, Number 1 April 2004 INSIGHT North Carolina’s Labor and Economic Outlook Economic Indicators in North Carolina Economic indicators used to predict future economic activity are referred to as leading indicators, while coincident indicators are used to help determine changes in the economy that are concurrent with such indicators. All graphs reflect the most recent monthly statewide data. NC Quick Stats: March 2004 Labor Force 4,192,000 Employment 3,972,700 Unemployment 219,400 Unemployment Rate 5.2% Note: Data are preliminary and are seasonally adjusted. 2002 - 2003 2003 - 2004 Inside Economic Indicators in North Carolina ……………. 1 Employment and Wage Trends in the Transportation and Warehousing Sector …………. 4 Introduction ………………… 4 Employment Trends in the Transportation and Warehousing Sector ……… 5 Wages in the Transportation and Warehousing Sector …. 7 Major Occupations in the Transportation and Warehousing Sector ……… 8 Conclusion .……���………… 9 North Carolina’s Indexes of Economic Indicators: Gauging Current and Future Economic Conditions ………... 10 Introduction ………………… 10 Methodology: Choosing Indicators and Weighting … 10 Components in North Carolina’s Leading Index ... 11 Components in North Carolina’s Coincident Index 12 Rejected Components ……… 12 Analysis of Economic Indexes 13 Conclusion ………………… 15 Seasonally Adjusted Unemployment Rates* 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% M A M J J A S O N D J F Total Nonagricultural Employment, in Thousands* Seasonally Adjusted * Source: ESC, Labor Market Information Division ( Continued on Page 2) 3,775 3,825 3,875 M A M J J A S O N D J F April 2004 INSIGHT 2 Economic Indicators in North Carolina ( Continued from Page 1) 2002 - 2003 2003 - 2004 Initial Claims Average Weekly Hours Worked in Manufacturing Sales and Use Tax Revenues, in Millions 0 20 40 60 80 100 120 140 160 M A M J J A S O N D J F Statewide, in Thousands By ESC Local Offices Feb. 2004 Jan. 2004 Feb. 2003 Percent Change From Last Year Asheville 1,285 2,580 1,357 - 5.3 Charlotte 4,294 2,912 4,163 3.1 Durham 1,012 886 948 6.8 Fayetteville 1,117 2,001 1,384 - 19.3 Goldsboro 731 1,158 527 38.7 Greensboro 2,306 2,696 2,313 - 0.3 Greenville 1,304 1,505 916 42.4 Hickory/ Newton 3,875 4,848 3,886 - 0.3 Jacksonville 465 403 468 - 0.6 Raleigh 4,093 3,760 4,145 - 1.3 Wilmington 974 1,368 1,082 - 10 Winston- Source: Employment Security Commission Salem 2,256 4,031 2,909 - 22.4 In Selected Metropolitan Statistical Areas Statewide Feb. 2004 Jan. 2004 Feb. 2003 Percent Change From Last Year Asheville 42.9 43.4 43.0 - 0.2 Charlotte/ Gastonia 40.8 40.8 39.2 4.1 Greensboro/ Winston- Salem/ High Point 40.2 39.7 39.0 3.1 Raleigh/ Durham/ Chapel Hill 43.9 42.5 40.0 9.8 Source: Employment Security Commission Statewide In Selected Cities Sep. 2003 Aug. 2003 Sep. 2002 Percent Change From Last Year Asheville 6.5 6.6 6.8 - 4.4 Charlotte 28.3 27.6 28.2 0.4 Durham 10.3 9.6 10.5 - 1.9 Fayetteville 6.2 5.9 5.8 6.9 Greensboro 12.2 11.8 12.3 - 0.8 Greenville 3.8 3.1 3.4 11.8 Hickory 3.5 3.6 3.7 - 5.4 Raleigh 18.3 17.9 17.6 4.0 Wilmington 6.4 6.6 6.1 4.9 Winston- Salem 9.2 8.9 9.1 1.1 N. C. Department of Revenue, Tax Research Division 37 38 39 40 41 42 M A M J J A S O N D J F $ 100 $ 200 $ 300 $ 400 $ 500 M A M J J A S O N D J F 3 April 2004 INSIGHT Economic Indicators in North Carolina ( Continued) 2002 - 2003 2003 - 2004 Housing Units Authorized by Building Permits Total Tax Revenues, in Millions Personal Income Tax Revenues, in Millions Insured Unemployment Rates* New Vehicle Registrations New Business Incorporations Source: ESC, Labor Market Information Division Source: US Census Bureau 0% 1% 2% 3% 4% M A M J J A S O N D J F 4,000 5,000 6,000 7,000 8,000 9,000 M A M J J A S O N D J F 15,000 20,000 25,000 30,000 35,000 40,000 45,000 M A M J J A S O N D J F $ 500 $ 750 $ 1,000 $ 1,250 $ 1,500 $ 1,750 M A M J J A S O N D J F Source: NC Automobile Dealers Association Source: NC Department of Revenue 0 1,000 2,000 3,000 4,000 5,000 6,000 M A M J J A S O N D J F Source: NC Secretary of State, Corporations Division Source: NC Department of Revenue $ 0 $ 200 $ 400 $ 600 $ 800 $ 1,000 $ 1,200 M A M J J A S O N D J F April 2004 INSIGHT 4 Introduction North Carolina’s economy is facing a structural adjustment. Employment is shifting away from traditional manufacturing industries to services. Between 1990 and 2003, the share of nonfarm employment in the service- providing sector has grown from 67 percent to 78 percent. The goods-producing sector, which includes manufacturing, construction and mining, has declined both as a share of employment and in the total number of jobs. One of the important challenges North Carolina will face in the coming years is how to shift its workforce from manufacturing to services, without creating disadvantages for workers in rural areas or those with little formal education. There are three good reasons to study the transportation and warehousing sector. First, companies engaged in transportation services are highly dependent on a strong business climate in general. When other industries are trading, transportation services are in greater demand. In other words, the transportation sector is cyclical. Changes in employment in the transportation sector are likely to show us the effects of the recession and upturns in employment in this sector will occur when the overall economy begins to recover. Employment changes in other industries in North Carolina may not follow the business cycle. Some industries such as textiles and tobacco are facing a long- term ( or secular) decline in employment. Other industries such as health care and educational services face such strong demands that they continue to add workers even during recessions. A second reason the transportation sector is important to look at now is the effects of 9- 11 on the airline industry. What has the combined effect of the recession and the extreme shock of the terrorist threat done to employment and wages in the airline industry? Third, the transportation and warehousing industry represents a possible growth industry in North Carolina. Workers in traditional manufacturing industries who are facing loss of jobs can possibly obtain comparable work in the transportation and warehousing industries. Given these reasons to look at the transportation and warehousing sector, this report focuses on several key questions: 1. How much did employment grow in this industry during the 1990s? 2. What effect did the 2001 recession have on this industry? 3. How do the wages in this sector compare to those in other industries? 4. What types of jobs are available in this industry? The first step in analyzing an industry’s labor market is to pin down the exact industries included in that particular sector. The United States has an official definition of each industry sector, the North American Industry Classification System ( or NAICS). According to NAICS, the transportation and warehousing sector includes industries that engage primarily in the following activities: 1. transportation of people or cargo ( by air, roads, water, rail or pipeline) 2. warehousing and storage 3. scenic and sightseeing transportation 4. support activities related to the other transportation industries, such as air traffic control and baggage handling Employment and Wage Trends in the Transportation and Warehousing Sector By Robert Bowles, Economist This article highlights trends in one of the growing service industries: transportation and warehousing. This industry represents only a small percentage of the state’s employment, but it is relatively more significant for a number of reasons. 5 April 2004 INSIGHT There are many industries that seem related to transportation but are not included in the official definition. A whole page could be filled with a list of industries indirectly dependent on the road, rail or air systems in the state. Among the more obvious of these are the following: 1. wholesalers, who differ from warehousers because they sell their goods directly to other businesses 2. companies performing overhauling, rebuilding or conversions of transportation equipment 3. hotels and restaurants 4. gas stations 5. public administration, such as the state Department of Transportation Employment Trends in the Transportation and Warehousing Sector Approximately 3 percent of North Carolina’s nonfarm employment is in the transportation and warehousing sector. Figure 1 shows the employment in these industries by county for the 3rd quarter of 2003, which is the latest county-level data currently available. The map also displays the major interstate highways in the state. The majority of jobs are located in the Piedmont region, with the largest number in Mecklenburg, Wake, Guilford, Forsyth and Cumberland counties. The first four of these have large populations and major airports, while Cumberland County has a large army base. Most of the counties with at least 1,000 employees in the transportation and warehousing sector lie along or near major US interstates ( 40, 85 and 77). The main exceptions to this are a string of counties in the eastern part of the state that happen to lie along US 70. What has been the long- term employment trend in transportation and warehousing industries? Figure 2 shows employment levels for the transportation and warehousing sector from 1990 to February 2003. The solid line shows North Carolina’s actual employment, while the dashed line shows the employment levels that would have existed if North Carolina’s employment in this sector had grown at the national rate during this period. The long- term trend reveals positive growth during the 1990s. During this period, employment in the transportation and warehousing sector in North Carolina grew 40 percent, or 3.8 percent per year, while the statewide nonfarm growth rate was 2.8 percent. Nationally, employment in the sector grew 2.9 percent per year during this period. Figure 2 also shows a strong negative impact during the recession that began in March 2001 and the subsequent recovery. The decline in North Figure 1. Transportation and Warehousing Employment 3rd Quarter 2003 60 70 80 90 100 110 120 130 Ja n - 9 0 Ja n - 9 1 Ja n - 9 2 Ja n - 9 3 Ja n - 9 4 Ja n - 9 5 Ja n - 9 6 Ja n - 9 7 Ja n - 9 8 Ja n - 9 9 Ja n - 0 0 Ja n - 0 1 Ja n - 0 2 Ja n - 0 3 Ja n - 0 4 In T ho usa nds Figure 2. Employment in the Transportation and Warehousing Sector Jan. 1990 to Feb. 2004 ( national trend shown as dashed line) April 2004 INSIGHT 6 Carolina’s transportation and warehousing employment was greater than the national decline in percentage terms. This sector is generally cyclical, as transportation services are cut when fewer goods are sold. However, the 1990- 91 recession did not have a major impact on employment. The negative effects of September 11, 2001 also contributed to the large decline in air travel, which is an important component of the transportation sector in North Carolina. In a later section, we look at how several subsectors of the transportation industry, including the airline industry, have fared since the 2001 recession. Figure 3 compares the trend in employment in the transportation and warehousing sector to two similarly- sized industries: textiles and ambulatory health care ( which includes out- patient medical services, primarily doctors’ and dentists’ offices). This graph paints a good picture of the structural changes in North Carolina’s economy during the 1990s, mainly the shift from manufacturing to services. Textile employment has been declining for many years, a trend that accelerated around 1995, and again in 2001. Meanwhile, employment in health care services has been rising faster than the state average, taking a bigger share of total employment over the 1990s. Even the 2001 recession has not slowed growth. ( Some health care industries tend to grow faster than normal during recessions, in part because many of the low- wage occupations that had shortages before the recession can now be filled.) Where does the transportation and warehousing sector fit into these changes? As stated earlier, long- term growth in this sector in the 1990’ s was faster than the state’s average total nonfarm employment growth rate. However, employment growth since 2001 has remained flat. It is too early to tell whether employment in this sector will get a spark and grow quickly again or face structural declines like manufacturing. Figure 4 shows a breakout of employment for the largest subsectors of the transportation and warehousing industry. It also shows the changes in employment in these industries from the 3rd quarter 2001 to the 1st quarter 2003 ( the latest numbers available). The truck transportation industry has by far the largest employment, but had the second largest decline in employment over the two years ( down 3,552 or approximately 7.0%). The largest percentage decline in employment occurred in the air transportation industry, which lost 5,116 jobs, 27.8 percent of its 3rd quarter 2001 employment. The largest job loss occurred following the September 11, 2001 disaster. + 66 - 1,310 - 5,116 - 477 + 415 - 1,291 - 3,552 0 10,000 20,000 30,000 40,000 50,000 60,000 Truck Transportation Postal Services Warehousing and Storage Couriers and Messengers Air Transportation Support Activities Transit and Ground Passenger Transport emp, 2001Q3 emp, 2003Q3 0 20 40 60 80 100 120 140 160 180 200 Jan- 90 Jan- 91 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 In Thousands Textiles Ambulatory Health Transportation & Warehousing Figure 4. Employment Changes in Selected Transportation & Warehousing Industries in North Carolina 3rd Quarter 2001 to 3rd Quarter 2003 Figure 3. Comparison of NC Employment Trends in Three Industries Jan. 1990 to Feb. 2004 ( national recessions are shaded) 7 April 2004 INSIGHT Wages in the Transportation and Warehousing Sector Figure 5 shows the average weekly wage for several of the larger industry sectors in North Carolina during the 3rd quarter of 2003. The average wage in the transportation and warehousing sector was $ 717, slightly higher than the average wage for all industries in the state ($ 629). The highest- paying sectors were finance and insurance, professional and technical services, and information. The average wage in manufacturing was $ 744, also higher t h an in transport at ion and warehousing. On the other hand, transportation workers earned more, on average, than workers in health care, educational services, retail and hotel and restaurant services. There are significant differences in wages among the different industries in the transportation and warehousing sector. Some of these industries, such as air transportation, require very specialized skills which pay higher wages. Also, some of these industries are more highly unionized than others. Figure 6 shows the average wages for several of the larger subsectors of transportation and warehousing. The highest average wage was in the air transportation industry, which paid on average $ 960 per week. Post services had the second highest average weekly wage, $ 907. This industry comprises establishments primarily engaged in operating the National Postal Service. Establishments primarily engaged in performing one or more postal services, such as sorting, routing, and/ or delivery, on a contract basis ( except the bulk transportation of mail) are included in this industry. The subsector with the largest employment in North Carolina, truck transportation, paid on average $ 660 per week, slightly more than the statewide average for all workers. $ 629 $ 236 $ 422 $ 618 $ 654 $ 717 $ 744 $ 911 $ 1,035 $ 923 $ 0 $ 200 $ 400 $ 600 $ 800 $ 1,000 $ 1,200 All Covered Industries Accomodations & Food Services Retail Trade Educational Services Health Care & Social Assistance Transportation & Warehousing Manufacturing Information Professional & Technical Services Finance & Insurance Figure 5. Average Weekly Wage in North Carolina’s Major Industries 3rd Quarter 2003 $ 660 $ 627 $ 426 $ 629 $ 723 $ 568 $ 907 $ 960 $ 0 $ 200 $ 400 $ 600 $ 800 $ 1,000 $ 1,200 A ir T ran sp o rta tio n P o sta l S e rv ic e s Su p p o rt A c tiv itie s T ru ck T ran sp o rta tio n Wareh o u sin g an d S to rag e Co u rie r s an d M essen g ers T r a n sit a n d G ro u n d P a sse n g e r T ran sp o r t S ta tew id e Co v ered Figure 6. Average Weekly Wage of Selected Transportation & Warehousing Industries 3rd Quarter 2003 April 2004 INSIGHT 8 The average wages of some of the transportation and warehousing subsectors have been adversely affected by the 2001 Recession and the effects of September 11th. As shown in Figure 7, the average wage in support activities actually fell considerably from the 3rd quarter 2001 to the 3rd quarter 2003. Most of the employment in support activities is related to air transportation. Wages in the air transportation industry have recently rebounded after being below their pre- recession level. Average wages in truck transportation grew, but grew slower than the statewide average for all industries, 5.7 percent. However, wages in many of the other transportation and warehousing industries grew faster than the state average, namely transit and ground passenger transport, which grew 10.8 percent, and warehousing and storage ( up 9.2%) during those two years. Major Occupations in the Transportation and Warehousing Sector Many different types of jobs can be obtained in the transportation and warehousing industries, from airline pilots and locomotive engineers to mechanics and shipping clerks. These occupations require a diverse set of skills and pay equally diverse wages. Figure 8 shows the distribution of five occupational groups in several important sub-sectors of transportation and warehousing and for all industries nationally. As expected, occupations related to transportation and material moving are the largest job category across the industries. However, other types of workers, such as office and administrative support staff, represent a fairly large share of the jobs. There are even some production jobs in the warehousing and storage industry. Further information on the types of occupations in each of these categories can be accessed through the Occupational Employment Statistics program at the North Carolina Employment Security Commission. Current wage rates being paid in the state for each of the occupations are also available. Figure 8. Shares of Selected Occupations in Key Transportation and Warehousing Industries and in All Industries, Nationally, 2002 0% 10% 20% 30% 40% 50% 60% 70% 80% Management Office & Administrative Support Installation, Maintenance & Repair Production Transportation & Material Moving Ground Truck Transportation Warehousing & Storage Scheduled Air Transportation All Industries Source: Occupational Employment and Wages, 2002, Occupational Employment Statistics ( OES) program, Bureau of Labor Statistics Figure 7. Growth in Average Weekly Wage for Selected Transportation & Warehousing Industries 3rd Quarter 2001 to 3rd Quarter 2003 3.3% 7.8% 9.2% 9.3% 8.6% - 7.7% 10.8% 5.7% - 10.0% - 5.0% 0.0% 5.0% 10.0% 15.0% Truck Transport at ion Post al Services Warehousing and S t orage Couriers and Messengers Air Transport at ion Support Act ivit ies Transit and Ground Passenger Transport St atewide Covered 9 April 2004 INSIGHT Conclusion The transportation and warehousing sector employs approximately 3 percent of North Carolina’s workers. The industry experienced relatively fast growth during the 1990s, but suffered considerably from the 2001 downturn in the economy. Signs of recovery are still not evident, especially in the air transportation industry and related support activities. The airline industry continues to seek concessions from employees. A recent article in the Charlotte Observer (‘ Pilots to join talks on US Airways strategy,’ Feb. 21, 2004) cites continued competition from low- fare airlines like Southwest Airlines for the need for more cost- cutting at US Airways. Even after giving up $ 1 billion annually in wages and benefits, employees are being asked for additional concessions. According to the newspaper report, US Airways has approximately 5,800 employees in Charlotte. Last year, the federal government gave airline and airline- related workers additional unemployment benefits. Under the Temporary Extended Unemployment Compensation ( TEUC) program, these workers would have been eligible for up to 39 weeks of additional unemployment benefits in addition to their regular 26 weeks. Unfortunately for many workers who continue to face possible layoffs, TEUC was canceled in January 2004. Hopefully, the transportation and warehousing sector will rebound this year, as most economic indicators point upwards. These industries will benefit from a pool of workers in North Carolina who have been laid off from manufacturing companies and are looking for good- paying jobs. With these factors, along with extensive road and airport improvements in the state in recent years, this industry may soon be ready for another takeoff. April 2004 INSIGHT 10 Introduction Yet, for many, economic conditions continue to be mixed. Although total employment in North Carolina has stabilized over the past several months and unemployment insurance claims have declined, business and consumer confidence in the short- term future of the US economy is unstable. Since January 2001, twelve economic indicators specific to North Carolina’s economy have been presented in Insight. However, many economic observers prefer to be able to summarize the ups and downs of the economy in a single measure. This is especially important when the individual indicators are moving in different directions. If a single measure were to be determined, the following questions must be considered: How can each be weighted to get an overall measure? Which indicators are good at predicting future movements in the economy and which ones are good descriptors of the current state of the economy? This article presents the development of two economic indicator indexes that combine the information from several indicators into handy economic barometers for the state. The North Carolina Leading Index gauges likely changes in the economy over the next several months, while the North Carolina Coincident Index summarizes current conditions. Composite economic indexes have been created at the national level by The Conference Board. Although North Carolina’s economic health closely follows the nation, it is important to consider the unique challenges the State faces in adjusting itself to the demands of international economic forces. Methodology: Choosing Indicators and Weighting The methodology used to calculate the NC composite economic indexes was largely based upon the model used by The Conference Board. First, a number of relevant economic indicators are chosen. For each economic indicator, the month- to- month percentage changes are calculated. These changes are then weighted and added together to construct the change in the overall index. The indexes are “ normalized” by setting the values at a particular point in time to 100. In this case, we use the same time period that the Conference Board used for the national indexes, which is monthly. What are the characteristics of good indicators? When determining which components to include in the indexes, several factors were considered: 1. timeliness / availability of the data, 2. conformity to business cycle patterns and turning points, 3. volatility of the data ( the less volatile, the better) 4. economic significance. Timeliness and availability of data are crucial factors in creating indexes, especially at the sub- national level. For example, if a particular indicator’s most current data lags several months behind other components and is not consistently updated on a month- to- month basis, then it would more likely be rejected for inclusion in the index. North Carolina’s Indexes of Economic Indicators: Gauging Current and Future Economic Conditions By Phillip Anderson, Statistician Every week, newspapers report some new business statistic on the U. S. economy to point towards a rebound from the most recent economic downturn. The National Bureau of Economic Research reported that the recession that began in March 2001 actually ended at least for the nation as a whole in November of that year. 11 April 2004 INSIGHT Once the components were selected, some adjustments to the data were necessary prior to their inclusion in the index. If the component was influenced by “ seasonal” factors, then the seasonal influence had to be accounted for. For example, initial claims tend to be noticeably higher in the month of January than June because some firms ( noticeably in manufacturing) reduce their activity in early winter. In most cases, the indicators used in the indexes have been deseasonalized by the data source. Variables calculated in monetary units, such as retail sales, gain in nominal value over a period of time fueled partly by inflation. The process of deflating the retail sales time series is thus essential to creating an index that captures real changes in the economy. Some economic data are vulnerable to large monthly changes that are caused by random events. This “ volatility” has to be accounted for or else, given the way the indexes are created, these variables will dominate the month- to- month changes. For example, if the monthly percentage changes in retail sales tend to be larger than monthly percentage changes in industrial production, then retail sales would be a more volatile component. Components in North Carolina’s Leading Index The Leading Composite Index incorporates variables whose response to major changes in the economy precede by several months other important variables in the state economy. Four indicators met the standard: 1. NC Initial Unemployment Insurance Claims 2. National Leading Index 3. NC Residential Building Permits 4. NC Average Weekly Manufacturing Hours When considering initial unemployment insurance claims and adjusting for seasonality, this indicator passed all the criteria for a good component. Although volatile compared to some other components, initial claims conform to regular business cycle patterns and demonstrate economic significance by leading labor market conditions. Increases in initial claims raise the likelihood of future increases in the unemployment rate and declines in total nonagricultural employment. Conversely, lower claims raise the likelihood of decreases in the unemployment rate and increases in total nonagricultural employment. Another component included in the NC Leading Index is actually the Leading Index published by The Conference Board at the national level. This component includes such national variables as consumer confidence, stock market index, money supply, interest rate spread ( 10- year Treasury bonds less federal funds), etc. Changes in these national variables influence the statewide economy and are significant enough to be applied to the statewide leading index. Further, this component is the least volatile component in the index and has a reliable history of predicting future growth or downturns in the economy. For these reasons, the National Leading Index is included in the statewide index of leading indicators. NC residential building permits is another component included in the Leading Index. The economic significance of this component is that increased construction employment, durable goods orders, etc., occur after more permits are issued. Conversely, decreasing construction employment and durable goods orders follow decreased permits. Similar to initial unemployment insurance claims in its volatility, the residential building permits series conforms to regular business cycle patterns. Residential building permits are also useful in representing the “ interest rate effect” in the economy. As seen in recent years, low interest rates can have a big impact on residential building. The positive economic impact of lower interest rates will inevitably have other beneficial effects on aggregate demand, such as boosting business investment and purchases of high priced consumer goods such as automobiles. The fourth and final component in the Leading Index is NC average weekly manufacturing hours. Being a rather non- volatile component due to its tendency to revolve around the standard 40- hour workweek, average weekly manufacturing hours leads economic activity because firms tend to cut hours worked before laying off workers if a downturn is expected or if business conditions are deteriorating. Conversely, firms tend to increase hours worked before rehiring laid- off workers or new workers if business conditions are improving. April 2004 INSIGHT 12 Components in North Carolina’s Coincident Index Those variables that gauge current conditions are grouped into the NC Coincident Index. Currently, this index has three components: 1. US Index of Industrial Production 2. NC Total Nonagricultural Employment 3. US Real Retail Sales The US Index of Industrial Production is a national component but is included in the Coincident Index to serve as a proxy for statewide industrial production, which is not available in a timely manner. The Federal Reserve’s monthly index of industrial production and the related capacity indexes and capacity utilization rates cover manufacturing, mining, and electric and gas utilities. The industrial sector, together with construction, accounts for the bulk of the variation in national output over the course of the business cycle. Monthly increases in the index of industrial production indicate growth in the economy. Conversely, decreases in the index of industrial production suggest economic decline. During the most recent recession, the index of industrial production declined for 15 months in a row starting in September 2000 and ending in December 2001. North Carolina total nonagricultural employment ( seasonally adjusted) combines a broad measure of employment along with timeliness of the data. This component is perhaps the single most important component in the Coincident Index because it provides a monthly pulse of labor market conditions based on a survey of approximately 13,000 nonagricultural establishments statewide. Monthly increases in total nonagricultural employment suggest growth in the labor market and thus an expanding overall economy. Conversely, monthly declines suggest deterioration in the labor market and thus economic recession. Although total nonagricultural employment did not decline every month during the last recession, this component did reveal a general downward trend from June 2000 to December 2001. The last component comprising the Coincident Index is US real ( adjusted for inflation) retail sales, which serves as a proxy for retail sales in North Carolina. Although NC retail sales data are available, US retail sales data are more timely and less volatile. Furthermore, substituting statewide retail sales figures in the index in place of national retail sales figures revealed no significant differences in the overall index from January 1992 to the present. In fact, the beginning ( peak) and ending ( trough) of the last NC downturn was the same when using either national or statewide numbers ( See Figure 1). Gross retail sales represent a substantial part of the overall economy and were thus accounted for in the index. Rejected Components Why were other components not chosen for the composite indices? Some components may have met some of the criteria, but failed to meet all of them. For example, new business incorporations ( a leading indicator) generally conformed to business cycle patterns, but provided a less clear picture of turning points in the state’s economy than other components. During the recession of the early 90’ s, new incorporations dropped much less than the Leading Index. Further, its month- to- month volatility increased during the last several years compared to earlier years. So, this component was not included in the NC Leading Index. ( Note: This Index uses NC real retail sales through September 2003 compared to US real retail sales and is presented for comparison purposes only). Figure 1. Comparison of North Carolina’s Coincident Index Using Statewide vs. US Retail Sales 80 85 90 95 100 105 110 115 120 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Years Index Using NC Real Retail Sales Using US Real Retail Sales 13 April 2004 INSIGHT Similarly, various tax revenue- based components such as real sales and use tax revenue were tested but not included in the Coincident Index. Real sales and use tax revenue presented no discernible decline during the most recent recession. Thus, this component failed to meet the second criteria for inclusion in the index by not conforming to business cycle patterns. Analysis of Economic Indexes The purpose of the NC composite indices is twofold. First, the Leading Index should forecast general movements in the Coincident Index. The time horizon associated with this forecasting is roughly six months. For example, if the Leading Index reveals a pattern of general growth, then the Coincident Index should begin to reflect this about six months later. Conversely, if the Leading Index shows a pattern of general decline, then the Coincident Index should reflect this within several months as well or at least show noticeable slowdown. Second, the indices should reflect true recessions and expansions by declining during a recession and increasing during expansions. Did the NC Leading Index do a reasonably good job of warning us of the most recent downturn? The recession of the 2000 – 2001 period began to manifest itself first in the Leading Index around April 2000 ( peak) and kept falling for nearly one year, reaching a trough in April 2001 ( Figure 2). The state’s Coincident Index began to reflect the downturn later, beginning its steep decline in September 2000 and reaching its trough in December 2001 ( Figure 3). Thus, the Leading Index began its decline six months before the Coincident Index began to fall. Has the Leading Index done a reasonably good job of revealing when the state’s economy would recover from the downturn? The Coincident Index began to slowly recover in January 2002 but was preceded by an upturn in the Leading Index in October 2001 ( a four month lag). Further, the surge in the Leading Index over the past nine months has been reflected by noticeable gains in the Coincident Index for the past four to five months. Did the Leading Index ever inaccurately forecast growth or decline in the Coincident Index? Although the two indices have normally followed related patterns, perhaps the most noticeable inconsistency between the two indices occurred during late 1994 and into 1995. The Leading Index began to decline markedly from October 1994 to May 1995 and afterwards began to steadily increase. The Coincident Index, however, did not exactly decline during a period following these steady declines in the Leading Index, but did seem to stagnate in 1995 for many months exhibiting virtually flat growth. In this case, the Leading Index actually warned not of a recession, but of a marked slowdown in the Coincident Index. From January 1995 to January 1996, the Coincident Index increased only 1.5 percent compared to 5 percent from January 1994 through January 1995. This example suggests the limitations of the Leading Index’s predictive power - not every downward blip leads to an actual recession. Figure 2. North Carolina Leading Index ( 1996= 100) 97 98 99 100 101 102 103 104 105 106 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 Years Index Figure 3. North Carolina Coincident Index ( 1996= 100) 80 85 90 95 100 105 110 115 120 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 Years Index April 2004 INSIGHT 14 Figures 4 and 5 present the most updated NC Coincident and Leading Index changes from August 2003 to February 2004. The February 2004 Coincident Index gain of 1.1% represents a mild increase over the six- month period. Over the past six months, the Leading Index has experienced even more substantive gains. How does this compare to the outlook for the nation? North Carolina appears to be trending with the nation as a whole but its gross state product may well trail the national gross domestic product. Figure 4 Figure 5 The changes in the Leading Index barometer since April 2001 illustrate the slow but persistent recovery from the 2001 recession. 15 April 2004 INSIGHT Conclusion The North Carolina Economic Indicators are a group of statewide and national variables that measure future and present business and economic conditions. This is not unlike the approach taken by such states as Kentucky and South Carolina in the creation of their own indexes. The variables, or components, are grouped together to form two overall indexes: the NC Leading Index and the NC Coincident Index. By combining several different indicators, and giving greater weight to those that are least volatile, the indexes provide convenient summaries for economic analysts. When determining which components to include in the indexes, several factors were considered: 1) timeliness / availability of the data; 2) conformity to business cycle patterns and turning points; 3) volatility of the component over time ( the less volatile, the better); and 4) economic significance. The NC composite indices are an interesting mix of both statewide and national components ( Figures 6 and 7). This is due partly to the fact that national components tend to be less volatile and can be more timely than state data. However, to some extent, NC also mirrors national conditions ( Figure 8) which makes national components potential candidates for inclusion in the indices. Further, there exists much more information and literature concerning national indicators than that written about any individual state. The recession of the 2000 – 2001 period began to manifest itself first in the NC Leading Index around April 2000 ( peak) and kept falling for nearly one year, reaching a trough in April 2001. The NC Coincident Index began to reflect the Leading Index, beginning its steep decline in September of 2000 and reaching its trough in December 2001. Thus, the NC Leading Index warned of recession six months before the NC Coincident Index began to enter recession. With the introduction of the inaugural NC composite indices of economic indicators having been made, and its limitations pointed out by the example of the 1995 period, it is important to note that they will be reviewed periodically. More components will be tested to see if they can add any more value to the indices without making the process too cumbersome. 78% 18% 2% 2% U. S. Leading Index N. C. Average Weekly Manufacturing Hours N. C. Initial Unemployment Claims N. C. Residential Building Permits Figure 6. North Carolina Leading Index Components and Weights 52% 32% 16% N. C. Total Nonagricultural Employment Index of Industrial Production U. S. Real Retail Sales Figure 7. North Carolina Coincident Index Components and Weights North Carolina United States Peak August 1990 July 1990 Trough April 1991 March 1991 Peak September 2000 March 2001 Trough December 2001 November 2001 Figure 8. A Comparison of Peaks and Troughs in North Carolina and the United States Note: US based upon dating by NBER ( National Bureau of Economic Research). NC 1990 Peak and 1991 Trough determined by initial Coincident Index which included the NC unemployment rate instead of retail sales. LABOR MARKET INFORMATION DIVISION EMPLOYMENT SECURITY COMMISSION OF NORTH CAROLINA POST OFFICE BOX 25903 RALEIGH, NORTH CAROLINA 27611- 5903 OFFICIAL BUSINESS PENALTY FOR PRIVATE USE $ 300.00 FIRST CLASS MAIL POSTAGE AND FEES PAID U. S. DEPARTMENT OF LABOR PERMIT NO. G- 12 1,700 copies of this publication were produced at a cost of $ 408.00 or $ 0.24 per copy. NCESC 6059 April 2004 EMPLOYMENT SECURITY COMMISSION OF NORTH CAROLINA www. ncesc. com
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Full Text | Michael F. Easley, Governor Employment Security Commission of North Carolina Harry E. Payne, Jr., Chairman Volume 4, Number 1 April 2004 INSIGHT North Carolina’s Labor and Economic Outlook Economic Indicators in North Carolina Economic indicators used to predict future economic activity are referred to as leading indicators, while coincident indicators are used to help determine changes in the economy that are concurrent with such indicators. All graphs reflect the most recent monthly statewide data. NC Quick Stats: March 2004 Labor Force 4,192,000 Employment 3,972,700 Unemployment 219,400 Unemployment Rate 5.2% Note: Data are preliminary and are seasonally adjusted. 2002 - 2003 2003 - 2004 Inside Economic Indicators in North Carolina ……………. 1 Employment and Wage Trends in the Transportation and Warehousing Sector …………. 4 Introduction ………………… 4 Employment Trends in the Transportation and Warehousing Sector ……… 5 Wages in the Transportation and Warehousing Sector …. 7 Major Occupations in the Transportation and Warehousing Sector ……… 8 Conclusion .……���………… 9 North Carolina’s Indexes of Economic Indicators: Gauging Current and Future Economic Conditions ………... 10 Introduction ………………… 10 Methodology: Choosing Indicators and Weighting … 10 Components in North Carolina’s Leading Index ... 11 Components in North Carolina’s Coincident Index 12 Rejected Components ……… 12 Analysis of Economic Indexes 13 Conclusion ………………… 15 Seasonally Adjusted Unemployment Rates* 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% M A M J J A S O N D J F Total Nonagricultural Employment, in Thousands* Seasonally Adjusted * Source: ESC, Labor Market Information Division ( Continued on Page 2) 3,775 3,825 3,875 M A M J J A S O N D J F April 2004 INSIGHT 2 Economic Indicators in North Carolina ( Continued from Page 1) 2002 - 2003 2003 - 2004 Initial Claims Average Weekly Hours Worked in Manufacturing Sales and Use Tax Revenues, in Millions 0 20 40 60 80 100 120 140 160 M A M J J A S O N D J F Statewide, in Thousands By ESC Local Offices Feb. 2004 Jan. 2004 Feb. 2003 Percent Change From Last Year Asheville 1,285 2,580 1,357 - 5.3 Charlotte 4,294 2,912 4,163 3.1 Durham 1,012 886 948 6.8 Fayetteville 1,117 2,001 1,384 - 19.3 Goldsboro 731 1,158 527 38.7 Greensboro 2,306 2,696 2,313 - 0.3 Greenville 1,304 1,505 916 42.4 Hickory/ Newton 3,875 4,848 3,886 - 0.3 Jacksonville 465 403 468 - 0.6 Raleigh 4,093 3,760 4,145 - 1.3 Wilmington 974 1,368 1,082 - 10 Winston- Source: Employment Security Commission Salem 2,256 4,031 2,909 - 22.4 In Selected Metropolitan Statistical Areas Statewide Feb. 2004 Jan. 2004 Feb. 2003 Percent Change From Last Year Asheville 42.9 43.4 43.0 - 0.2 Charlotte/ Gastonia 40.8 40.8 39.2 4.1 Greensboro/ Winston- Salem/ High Point 40.2 39.7 39.0 3.1 Raleigh/ Durham/ Chapel Hill 43.9 42.5 40.0 9.8 Source: Employment Security Commission Statewide In Selected Cities Sep. 2003 Aug. 2003 Sep. 2002 Percent Change From Last Year Asheville 6.5 6.6 6.8 - 4.4 Charlotte 28.3 27.6 28.2 0.4 Durham 10.3 9.6 10.5 - 1.9 Fayetteville 6.2 5.9 5.8 6.9 Greensboro 12.2 11.8 12.3 - 0.8 Greenville 3.8 3.1 3.4 11.8 Hickory 3.5 3.6 3.7 - 5.4 Raleigh 18.3 17.9 17.6 4.0 Wilmington 6.4 6.6 6.1 4.9 Winston- Salem 9.2 8.9 9.1 1.1 N. C. Department of Revenue, Tax Research Division 37 38 39 40 41 42 M A M J J A S O N D J F $ 100 $ 200 $ 300 $ 400 $ 500 M A M J J A S O N D J F 3 April 2004 INSIGHT Economic Indicators in North Carolina ( Continued) 2002 - 2003 2003 - 2004 Housing Units Authorized by Building Permits Total Tax Revenues, in Millions Personal Income Tax Revenues, in Millions Insured Unemployment Rates* New Vehicle Registrations New Business Incorporations Source: ESC, Labor Market Information Division Source: US Census Bureau 0% 1% 2% 3% 4% M A M J J A S O N D J F 4,000 5,000 6,000 7,000 8,000 9,000 M A M J J A S O N D J F 15,000 20,000 25,000 30,000 35,000 40,000 45,000 M A M J J A S O N D J F $ 500 $ 750 $ 1,000 $ 1,250 $ 1,500 $ 1,750 M A M J J A S O N D J F Source: NC Automobile Dealers Association Source: NC Department of Revenue 0 1,000 2,000 3,000 4,000 5,000 6,000 M A M J J A S O N D J F Source: NC Secretary of State, Corporations Division Source: NC Department of Revenue $ 0 $ 200 $ 400 $ 600 $ 800 $ 1,000 $ 1,200 M A M J J A S O N D J F April 2004 INSIGHT 4 Introduction North Carolina’s economy is facing a structural adjustment. Employment is shifting away from traditional manufacturing industries to services. Between 1990 and 2003, the share of nonfarm employment in the service- providing sector has grown from 67 percent to 78 percent. The goods-producing sector, which includes manufacturing, construction and mining, has declined both as a share of employment and in the total number of jobs. One of the important challenges North Carolina will face in the coming years is how to shift its workforce from manufacturing to services, without creating disadvantages for workers in rural areas or those with little formal education. There are three good reasons to study the transportation and warehousing sector. First, companies engaged in transportation services are highly dependent on a strong business climate in general. When other industries are trading, transportation services are in greater demand. In other words, the transportation sector is cyclical. Changes in employment in the transportation sector are likely to show us the effects of the recession and upturns in employment in this sector will occur when the overall economy begins to recover. Employment changes in other industries in North Carolina may not follow the business cycle. Some industries such as textiles and tobacco are facing a long- term ( or secular) decline in employment. Other industries such as health care and educational services face such strong demands that they continue to add workers even during recessions. A second reason the transportation sector is important to look at now is the effects of 9- 11 on the airline industry. What has the combined effect of the recession and the extreme shock of the terrorist threat done to employment and wages in the airline industry? Third, the transportation and warehousing industry represents a possible growth industry in North Carolina. Workers in traditional manufacturing industries who are facing loss of jobs can possibly obtain comparable work in the transportation and warehousing industries. Given these reasons to look at the transportation and warehousing sector, this report focuses on several key questions: 1. How much did employment grow in this industry during the 1990s? 2. What effect did the 2001 recession have on this industry? 3. How do the wages in this sector compare to those in other industries? 4. What types of jobs are available in this industry? The first step in analyzing an industry’s labor market is to pin down the exact industries included in that particular sector. The United States has an official definition of each industry sector, the North American Industry Classification System ( or NAICS). According to NAICS, the transportation and warehousing sector includes industries that engage primarily in the following activities: 1. transportation of people or cargo ( by air, roads, water, rail or pipeline) 2. warehousing and storage 3. scenic and sightseeing transportation 4. support activities related to the other transportation industries, such as air traffic control and baggage handling Employment and Wage Trends in the Transportation and Warehousing Sector By Robert Bowles, Economist This article highlights trends in one of the growing service industries: transportation and warehousing. This industry represents only a small percentage of the state’s employment, but it is relatively more significant for a number of reasons. 5 April 2004 INSIGHT There are many industries that seem related to transportation but are not included in the official definition. A whole page could be filled with a list of industries indirectly dependent on the road, rail or air systems in the state. Among the more obvious of these are the following: 1. wholesalers, who differ from warehousers because they sell their goods directly to other businesses 2. companies performing overhauling, rebuilding or conversions of transportation equipment 3. hotels and restaurants 4. gas stations 5. public administration, such as the state Department of Transportation Employment Trends in the Transportation and Warehousing Sector Approximately 3 percent of North Carolina’s nonfarm employment is in the transportation and warehousing sector. Figure 1 shows the employment in these industries by county for the 3rd quarter of 2003, which is the latest county-level data currently available. The map also displays the major interstate highways in the state. The majority of jobs are located in the Piedmont region, with the largest number in Mecklenburg, Wake, Guilford, Forsyth and Cumberland counties. The first four of these have large populations and major airports, while Cumberland County has a large army base. Most of the counties with at least 1,000 employees in the transportation and warehousing sector lie along or near major US interstates ( 40, 85 and 77). The main exceptions to this are a string of counties in the eastern part of the state that happen to lie along US 70. What has been the long- term employment trend in transportation and warehousing industries? Figure 2 shows employment levels for the transportation and warehousing sector from 1990 to February 2003. The solid line shows North Carolina’s actual employment, while the dashed line shows the employment levels that would have existed if North Carolina’s employment in this sector had grown at the national rate during this period. The long- term trend reveals positive growth during the 1990s. During this period, employment in the transportation and warehousing sector in North Carolina grew 40 percent, or 3.8 percent per year, while the statewide nonfarm growth rate was 2.8 percent. Nationally, employment in the sector grew 2.9 percent per year during this period. Figure 2 also shows a strong negative impact during the recession that began in March 2001 and the subsequent recovery. The decline in North Figure 1. Transportation and Warehousing Employment 3rd Quarter 2003 60 70 80 90 100 110 120 130 Ja n - 9 0 Ja n - 9 1 Ja n - 9 2 Ja n - 9 3 Ja n - 9 4 Ja n - 9 5 Ja n - 9 6 Ja n - 9 7 Ja n - 9 8 Ja n - 9 9 Ja n - 0 0 Ja n - 0 1 Ja n - 0 2 Ja n - 0 3 Ja n - 0 4 In T ho usa nds Figure 2. Employment in the Transportation and Warehousing Sector Jan. 1990 to Feb. 2004 ( national trend shown as dashed line) April 2004 INSIGHT 6 Carolina’s transportation and warehousing employment was greater than the national decline in percentage terms. This sector is generally cyclical, as transportation services are cut when fewer goods are sold. However, the 1990- 91 recession did not have a major impact on employment. The negative effects of September 11, 2001 also contributed to the large decline in air travel, which is an important component of the transportation sector in North Carolina. In a later section, we look at how several subsectors of the transportation industry, including the airline industry, have fared since the 2001 recession. Figure 3 compares the trend in employment in the transportation and warehousing sector to two similarly- sized industries: textiles and ambulatory health care ( which includes out- patient medical services, primarily doctors’ and dentists’ offices). This graph paints a good picture of the structural changes in North Carolina’s economy during the 1990s, mainly the shift from manufacturing to services. Textile employment has been declining for many years, a trend that accelerated around 1995, and again in 2001. Meanwhile, employment in health care services has been rising faster than the state average, taking a bigger share of total employment over the 1990s. Even the 2001 recession has not slowed growth. ( Some health care industries tend to grow faster than normal during recessions, in part because many of the low- wage occupations that had shortages before the recession can now be filled.) Where does the transportation and warehousing sector fit into these changes? As stated earlier, long- term growth in this sector in the 1990’ s was faster than the state’s average total nonfarm employment growth rate. However, employment growth since 2001 has remained flat. It is too early to tell whether employment in this sector will get a spark and grow quickly again or face structural declines like manufacturing. Figure 4 shows a breakout of employment for the largest subsectors of the transportation and warehousing industry. It also shows the changes in employment in these industries from the 3rd quarter 2001 to the 1st quarter 2003 ( the latest numbers available). The truck transportation industry has by far the largest employment, but had the second largest decline in employment over the two years ( down 3,552 or approximately 7.0%). The largest percentage decline in employment occurred in the air transportation industry, which lost 5,116 jobs, 27.8 percent of its 3rd quarter 2001 employment. The largest job loss occurred following the September 11, 2001 disaster. + 66 - 1,310 - 5,116 - 477 + 415 - 1,291 - 3,552 0 10,000 20,000 30,000 40,000 50,000 60,000 Truck Transportation Postal Services Warehousing and Storage Couriers and Messengers Air Transportation Support Activities Transit and Ground Passenger Transport emp, 2001Q3 emp, 2003Q3 0 20 40 60 80 100 120 140 160 180 200 Jan- 90 Jan- 91 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 In Thousands Textiles Ambulatory Health Transportation & Warehousing Figure 4. Employment Changes in Selected Transportation & Warehousing Industries in North Carolina 3rd Quarter 2001 to 3rd Quarter 2003 Figure 3. Comparison of NC Employment Trends in Three Industries Jan. 1990 to Feb. 2004 ( national recessions are shaded) 7 April 2004 INSIGHT Wages in the Transportation and Warehousing Sector Figure 5 shows the average weekly wage for several of the larger industry sectors in North Carolina during the 3rd quarter of 2003. The average wage in the transportation and warehousing sector was $ 717, slightly higher than the average wage for all industries in the state ($ 629). The highest- paying sectors were finance and insurance, professional and technical services, and information. The average wage in manufacturing was $ 744, also higher t h an in transport at ion and warehousing. On the other hand, transportation workers earned more, on average, than workers in health care, educational services, retail and hotel and restaurant services. There are significant differences in wages among the different industries in the transportation and warehousing sector. Some of these industries, such as air transportation, require very specialized skills which pay higher wages. Also, some of these industries are more highly unionized than others. Figure 6 shows the average wages for several of the larger subsectors of transportation and warehousing. The highest average wage was in the air transportation industry, which paid on average $ 960 per week. Post services had the second highest average weekly wage, $ 907. This industry comprises establishments primarily engaged in operating the National Postal Service. Establishments primarily engaged in performing one or more postal services, such as sorting, routing, and/ or delivery, on a contract basis ( except the bulk transportation of mail) are included in this industry. The subsector with the largest employment in North Carolina, truck transportation, paid on average $ 660 per week, slightly more than the statewide average for all workers. $ 629 $ 236 $ 422 $ 618 $ 654 $ 717 $ 744 $ 911 $ 1,035 $ 923 $ 0 $ 200 $ 400 $ 600 $ 800 $ 1,000 $ 1,200 All Covered Industries Accomodations & Food Services Retail Trade Educational Services Health Care & Social Assistance Transportation & Warehousing Manufacturing Information Professional & Technical Services Finance & Insurance Figure 5. Average Weekly Wage in North Carolina’s Major Industries 3rd Quarter 2003 $ 660 $ 627 $ 426 $ 629 $ 723 $ 568 $ 907 $ 960 $ 0 $ 200 $ 400 $ 600 $ 800 $ 1,000 $ 1,200 A ir T ran sp o rta tio n P o sta l S e rv ic e s Su p p o rt A c tiv itie s T ru ck T ran sp o rta tio n Wareh o u sin g an d S to rag e Co u rie r s an d M essen g ers T r a n sit a n d G ro u n d P a sse n g e r T ran sp o r t S ta tew id e Co v ered Figure 6. Average Weekly Wage of Selected Transportation & Warehousing Industries 3rd Quarter 2003 April 2004 INSIGHT 8 The average wages of some of the transportation and warehousing subsectors have been adversely affected by the 2001 Recession and the effects of September 11th. As shown in Figure 7, the average wage in support activities actually fell considerably from the 3rd quarter 2001 to the 3rd quarter 2003. Most of the employment in support activities is related to air transportation. Wages in the air transportation industry have recently rebounded after being below their pre- recession level. Average wages in truck transportation grew, but grew slower than the statewide average for all industries, 5.7 percent. However, wages in many of the other transportation and warehousing industries grew faster than the state average, namely transit and ground passenger transport, which grew 10.8 percent, and warehousing and storage ( up 9.2%) during those two years. Major Occupations in the Transportation and Warehousing Sector Many different types of jobs can be obtained in the transportation and warehousing industries, from airline pilots and locomotive engineers to mechanics and shipping clerks. These occupations require a diverse set of skills and pay equally diverse wages. Figure 8 shows the distribution of five occupational groups in several important sub-sectors of transportation and warehousing and for all industries nationally. As expected, occupations related to transportation and material moving are the largest job category across the industries. However, other types of workers, such as office and administrative support staff, represent a fairly large share of the jobs. There are even some production jobs in the warehousing and storage industry. Further information on the types of occupations in each of these categories can be accessed through the Occupational Employment Statistics program at the North Carolina Employment Security Commission. Current wage rates being paid in the state for each of the occupations are also available. Figure 8. Shares of Selected Occupations in Key Transportation and Warehousing Industries and in All Industries, Nationally, 2002 0% 10% 20% 30% 40% 50% 60% 70% 80% Management Office & Administrative Support Installation, Maintenance & Repair Production Transportation & Material Moving Ground Truck Transportation Warehousing & Storage Scheduled Air Transportation All Industries Source: Occupational Employment and Wages, 2002, Occupational Employment Statistics ( OES) program, Bureau of Labor Statistics Figure 7. Growth in Average Weekly Wage for Selected Transportation & Warehousing Industries 3rd Quarter 2001 to 3rd Quarter 2003 3.3% 7.8% 9.2% 9.3% 8.6% - 7.7% 10.8% 5.7% - 10.0% - 5.0% 0.0% 5.0% 10.0% 15.0% Truck Transport at ion Post al Services Warehousing and S t orage Couriers and Messengers Air Transport at ion Support Act ivit ies Transit and Ground Passenger Transport St atewide Covered 9 April 2004 INSIGHT Conclusion The transportation and warehousing sector employs approximately 3 percent of North Carolina’s workers. The industry experienced relatively fast growth during the 1990s, but suffered considerably from the 2001 downturn in the economy. Signs of recovery are still not evident, especially in the air transportation industry and related support activities. The airline industry continues to seek concessions from employees. A recent article in the Charlotte Observer (‘ Pilots to join talks on US Airways strategy,’ Feb. 21, 2004) cites continued competition from low- fare airlines like Southwest Airlines for the need for more cost- cutting at US Airways. Even after giving up $ 1 billion annually in wages and benefits, employees are being asked for additional concessions. According to the newspaper report, US Airways has approximately 5,800 employees in Charlotte. Last year, the federal government gave airline and airline- related workers additional unemployment benefits. Under the Temporary Extended Unemployment Compensation ( TEUC) program, these workers would have been eligible for up to 39 weeks of additional unemployment benefits in addition to their regular 26 weeks. Unfortunately for many workers who continue to face possible layoffs, TEUC was canceled in January 2004. Hopefully, the transportation and warehousing sector will rebound this year, as most economic indicators point upwards. These industries will benefit from a pool of workers in North Carolina who have been laid off from manufacturing companies and are looking for good- paying jobs. With these factors, along with extensive road and airport improvements in the state in recent years, this industry may soon be ready for another takeoff. April 2004 INSIGHT 10 Introduction Yet, for many, economic conditions continue to be mixed. Although total employment in North Carolina has stabilized over the past several months and unemployment insurance claims have declined, business and consumer confidence in the short- term future of the US economy is unstable. Since January 2001, twelve economic indicators specific to North Carolina’s economy have been presented in Insight. However, many economic observers prefer to be able to summarize the ups and downs of the economy in a single measure. This is especially important when the individual indicators are moving in different directions. If a single measure were to be determined, the following questions must be considered: How can each be weighted to get an overall measure? Which indicators are good at predicting future movements in the economy and which ones are good descriptors of the current state of the economy? This article presents the development of two economic indicator indexes that combine the information from several indicators into handy economic barometers for the state. The North Carolina Leading Index gauges likely changes in the economy over the next several months, while the North Carolina Coincident Index summarizes current conditions. Composite economic indexes have been created at the national level by The Conference Board. Although North Carolina’s economic health closely follows the nation, it is important to consider the unique challenges the State faces in adjusting itself to the demands of international economic forces. Methodology: Choosing Indicators and Weighting The methodology used to calculate the NC composite economic indexes was largely based upon the model used by The Conference Board. First, a number of relevant economic indicators are chosen. For each economic indicator, the month- to- month percentage changes are calculated. These changes are then weighted and added together to construct the change in the overall index. The indexes are “ normalized” by setting the values at a particular point in time to 100. In this case, we use the same time period that the Conference Board used for the national indexes, which is monthly. What are the characteristics of good indicators? When determining which components to include in the indexes, several factors were considered: 1. timeliness / availability of the data, 2. conformity to business cycle patterns and turning points, 3. volatility of the data ( the less volatile, the better) 4. economic significance. Timeliness and availability of data are crucial factors in creating indexes, especially at the sub- national level. For example, if a particular indicator’s most current data lags several months behind other components and is not consistently updated on a month- to- month basis, then it would more likely be rejected for inclusion in the index. North Carolina’s Indexes of Economic Indicators: Gauging Current and Future Economic Conditions By Phillip Anderson, Statistician Every week, newspapers report some new business statistic on the U. S. economy to point towards a rebound from the most recent economic downturn. The National Bureau of Economic Research reported that the recession that began in March 2001 actually ended at least for the nation as a whole in November of that year. 11 April 2004 INSIGHT Once the components were selected, some adjustments to the data were necessary prior to their inclusion in the index. If the component was influenced by “ seasonal” factors, then the seasonal influence had to be accounted for. For example, initial claims tend to be noticeably higher in the month of January than June because some firms ( noticeably in manufacturing) reduce their activity in early winter. In most cases, the indicators used in the indexes have been deseasonalized by the data source. Variables calculated in monetary units, such as retail sales, gain in nominal value over a period of time fueled partly by inflation. The process of deflating the retail sales time series is thus essential to creating an index that captures real changes in the economy. Some economic data are vulnerable to large monthly changes that are caused by random events. This “ volatility” has to be accounted for or else, given the way the indexes are created, these variables will dominate the month- to- month changes. For example, if the monthly percentage changes in retail sales tend to be larger than monthly percentage changes in industrial production, then retail sales would be a more volatile component. Components in North Carolina’s Leading Index The Leading Composite Index incorporates variables whose response to major changes in the economy precede by several months other important variables in the state economy. Four indicators met the standard: 1. NC Initial Unemployment Insurance Claims 2. National Leading Index 3. NC Residential Building Permits 4. NC Average Weekly Manufacturing Hours When considering initial unemployment insurance claims and adjusting for seasonality, this indicator passed all the criteria for a good component. Although volatile compared to some other components, initial claims conform to regular business cycle patterns and demonstrate economic significance by leading labor market conditions. Increases in initial claims raise the likelihood of future increases in the unemployment rate and declines in total nonagricultural employment. Conversely, lower claims raise the likelihood of decreases in the unemployment rate and increases in total nonagricultural employment. Another component included in the NC Leading Index is actually the Leading Index published by The Conference Board at the national level. This component includes such national variables as consumer confidence, stock market index, money supply, interest rate spread ( 10- year Treasury bonds less federal funds), etc. Changes in these national variables influence the statewide economy and are significant enough to be applied to the statewide leading index. Further, this component is the least volatile component in the index and has a reliable history of predicting future growth or downturns in the economy. For these reasons, the National Leading Index is included in the statewide index of leading indicators. NC residential building permits is another component included in the Leading Index. The economic significance of this component is that increased construction employment, durable goods orders, etc., occur after more permits are issued. Conversely, decreasing construction employment and durable goods orders follow decreased permits. Similar to initial unemployment insurance claims in its volatility, the residential building permits series conforms to regular business cycle patterns. Residential building permits are also useful in representing the “ interest rate effect” in the economy. As seen in recent years, low interest rates can have a big impact on residential building. The positive economic impact of lower interest rates will inevitably have other beneficial effects on aggregate demand, such as boosting business investment and purchases of high priced consumer goods such as automobiles. The fourth and final component in the Leading Index is NC average weekly manufacturing hours. Being a rather non- volatile component due to its tendency to revolve around the standard 40- hour workweek, average weekly manufacturing hours leads economic activity because firms tend to cut hours worked before laying off workers if a downturn is expected or if business conditions are deteriorating. Conversely, firms tend to increase hours worked before rehiring laid- off workers or new workers if business conditions are improving. April 2004 INSIGHT 12 Components in North Carolina’s Coincident Index Those variables that gauge current conditions are grouped into the NC Coincident Index. Currently, this index has three components: 1. US Index of Industrial Production 2. NC Total Nonagricultural Employment 3. US Real Retail Sales The US Index of Industrial Production is a national component but is included in the Coincident Index to serve as a proxy for statewide industrial production, which is not available in a timely manner. The Federal Reserve’s monthly index of industrial production and the related capacity indexes and capacity utilization rates cover manufacturing, mining, and electric and gas utilities. The industrial sector, together with construction, accounts for the bulk of the variation in national output over the course of the business cycle. Monthly increases in the index of industrial production indicate growth in the economy. Conversely, decreases in the index of industrial production suggest economic decline. During the most recent recession, the index of industrial production declined for 15 months in a row starting in September 2000 and ending in December 2001. North Carolina total nonagricultural employment ( seasonally adjusted) combines a broad measure of employment along with timeliness of the data. This component is perhaps the single most important component in the Coincident Index because it provides a monthly pulse of labor market conditions based on a survey of approximately 13,000 nonagricultural establishments statewide. Monthly increases in total nonagricultural employment suggest growth in the labor market and thus an expanding overall economy. Conversely, monthly declines suggest deterioration in the labor market and thus economic recession. Although total nonagricultural employment did not decline every month during the last recession, this component did reveal a general downward trend from June 2000 to December 2001. The last component comprising the Coincident Index is US real ( adjusted for inflation) retail sales, which serves as a proxy for retail sales in North Carolina. Although NC retail sales data are available, US retail sales data are more timely and less volatile. Furthermore, substituting statewide retail sales figures in the index in place of national retail sales figures revealed no significant differences in the overall index from January 1992 to the present. In fact, the beginning ( peak) and ending ( trough) of the last NC downturn was the same when using either national or statewide numbers ( See Figure 1). Gross retail sales represent a substantial part of the overall economy and were thus accounted for in the index. Rejected Components Why were other components not chosen for the composite indices? Some components may have met some of the criteria, but failed to meet all of them. For example, new business incorporations ( a leading indicator) generally conformed to business cycle patterns, but provided a less clear picture of turning points in the state’s economy than other components. During the recession of the early 90’ s, new incorporations dropped much less than the Leading Index. Further, its month- to- month volatility increased during the last several years compared to earlier years. So, this component was not included in the NC Leading Index. ( Note: This Index uses NC real retail sales through September 2003 compared to US real retail sales and is presented for comparison purposes only). Figure 1. Comparison of North Carolina’s Coincident Index Using Statewide vs. US Retail Sales 80 85 90 95 100 105 110 115 120 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Years Index Using NC Real Retail Sales Using US Real Retail Sales 13 April 2004 INSIGHT Similarly, various tax revenue- based components such as real sales and use tax revenue were tested but not included in the Coincident Index. Real sales and use tax revenue presented no discernible decline during the most recent recession. Thus, this component failed to meet the second criteria for inclusion in the index by not conforming to business cycle patterns. Analysis of Economic Indexes The purpose of the NC composite indices is twofold. First, the Leading Index should forecast general movements in the Coincident Index. The time horizon associated with this forecasting is roughly six months. For example, if the Leading Index reveals a pattern of general growth, then the Coincident Index should begin to reflect this about six months later. Conversely, if the Leading Index shows a pattern of general decline, then the Coincident Index should reflect this within several months as well or at least show noticeable slowdown. Second, the indices should reflect true recessions and expansions by declining during a recession and increasing during expansions. Did the NC Leading Index do a reasonably good job of warning us of the most recent downturn? The recession of the 2000 – 2001 period began to manifest itself first in the Leading Index around April 2000 ( peak) and kept falling for nearly one year, reaching a trough in April 2001 ( Figure 2). The state’s Coincident Index began to reflect the downturn later, beginning its steep decline in September 2000 and reaching its trough in December 2001 ( Figure 3). Thus, the Leading Index began its decline six months before the Coincident Index began to fall. Has the Leading Index done a reasonably good job of revealing when the state’s economy would recover from the downturn? The Coincident Index began to slowly recover in January 2002 but was preceded by an upturn in the Leading Index in October 2001 ( a four month lag). Further, the surge in the Leading Index over the past nine months has been reflected by noticeable gains in the Coincident Index for the past four to five months. Did the Leading Index ever inaccurately forecast growth or decline in the Coincident Index? Although the two indices have normally followed related patterns, perhaps the most noticeable inconsistency between the two indices occurred during late 1994 and into 1995. The Leading Index began to decline markedly from October 1994 to May 1995 and afterwards began to steadily increase. The Coincident Index, however, did not exactly decline during a period following these steady declines in the Leading Index, but did seem to stagnate in 1995 for many months exhibiting virtually flat growth. In this case, the Leading Index actually warned not of a recession, but of a marked slowdown in the Coincident Index. From January 1995 to January 1996, the Coincident Index increased only 1.5 percent compared to 5 percent from January 1994 through January 1995. This example suggests the limitations of the Leading Index’s predictive power - not every downward blip leads to an actual recession. Figure 2. North Carolina Leading Index ( 1996= 100) 97 98 99 100 101 102 103 104 105 106 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 Years Index Figure 3. North Carolina Coincident Index ( 1996= 100) 80 85 90 95 100 105 110 115 120 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 Years Index April 2004 INSIGHT 14 Figures 4 and 5 present the most updated NC Coincident and Leading Index changes from August 2003 to February 2004. The February 2004 Coincident Index gain of 1.1% represents a mild increase over the six- month period. Over the past six months, the Leading Index has experienced even more substantive gains. How does this compare to the outlook for the nation? North Carolina appears to be trending with the nation as a whole but its gross state product may well trail the national gross domestic product. Figure 4 Figure 5 The changes in the Leading Index barometer since April 2001 illustrate the slow but persistent recovery from the 2001 recession. 15 April 2004 INSIGHT Conclusion The North Carolina Economic Indicators are a group of statewide and national variables that measure future and present business and economic conditions. This is not unlike the approach taken by such states as Kentucky and South Carolina in the creation of their own indexes. The variables, or components, are grouped together to form two overall indexes: the NC Leading Index and the NC Coincident Index. By combining several different indicators, and giving greater weight to those that are least volatile, the indexes provide convenient summaries for economic analysts. When determining which components to include in the indexes, several factors were considered: 1) timeliness / availability of the data; 2) conformity to business cycle patterns and turning points; 3) volatility of the component over time ( the less volatile, the better); and 4) economic significance. The NC composite indices are an interesting mix of both statewide and national components ( Figures 6 and 7). This is due partly to the fact that national components tend to be less volatile and can be more timely than state data. However, to some extent, NC also mirrors national conditions ( Figure 8) which makes national components potential candidates for inclusion in the indices. Further, there exists much more information and literature concerning national indicators than that written about any individual state. The recession of the 2000 – 2001 period began to manifest itself first in the NC Leading Index around April 2000 ( peak) and kept falling for nearly one year, reaching a trough in April 2001. The NC Coincident Index began to reflect the Leading Index, beginning its steep decline in September of 2000 and reaching its trough in December 2001. Thus, the NC Leading Index warned of recession six months before the NC Coincident Index began to enter recession. With the introduction of the inaugural NC composite indices of economic indicators having been made, and its limitations pointed out by the example of the 1995 period, it is important to note that they will be reviewed periodically. More components will be tested to see if they can add any more value to the indices without making the process too cumbersome. 78% 18% 2% 2% U. S. Leading Index N. C. Average Weekly Manufacturing Hours N. C. Initial Unemployment Claims N. C. Residential Building Permits Figure 6. North Carolina Leading Index Components and Weights 52% 32% 16% N. C. Total Nonagricultural Employment Index of Industrial Production U. S. Real Retail Sales Figure 7. North Carolina Coincident Index Components and Weights North Carolina United States Peak August 1990 July 1990 Trough April 1991 March 1991 Peak September 2000 March 2001 Trough December 2001 November 2001 Figure 8. A Comparison of Peaks and Troughs in North Carolina and the United States Note: US based upon dating by NBER ( National Bureau of Economic Research). NC 1990 Peak and 1991 Trough determined by initial Coincident Index which included the NC unemployment rate instead of retail sales. LABOR MARKET INFORMATION DIVISION EMPLOYMENT SECURITY COMMISSION OF NORTH CAROLINA POST OFFICE BOX 25903 RALEIGH, NORTH CAROLINA 27611- 5903 OFFICIAL BUSINESS PENALTY FOR PRIVATE USE $ 300.00 FIRST CLASS MAIL POSTAGE AND FEES PAID U. S. DEPARTMENT OF LABOR PERMIT NO. G- 12 1,700 copies of this publication were produced at a cost of $ 408.00 or $ 0.24 per copy. NCESC 6059 April 2004 EMPLOYMENT SECURITY COMMISSION OF NORTH CAROLINA www. ncesc. com |
OCLC number | 49419748 |