Larson’s Economic Newsletter - August 2016
Four Straight Quarters of Decline
No signs of relief. The latest state GDP data from the Bureau of Economic Analysis confirms the Wyoming economy’s retraction. With a year-to-year decline of 3.25 percent the Wyoming economy has now contracted for four quarters in a row GDP growth in the Wyoming economy has now weakened for four straight quarters. This is the same pattern as when the Great Recession started in 2009. The force of the decline is not as bad, though: in the 2009 downturn the fourth quarter of decline saw the state’s economy shrink by almost 14 percent. At -3.25 percent the 2015/16 decline is more in line with the contraction in 2012.
There is, however, one important difference between the current slump and that of 2012. Back then the private sector added jobs or kept employment on par with previous year. That is not the case now. As of July 2016:
- Total private-sector employment in Wyoming is down 8,100 jobs, the 14th straight month with year-over-year decline;
- Construction jobs are down by more than 14 percent in two years;
- Financial businesses have lost 600 jobs in one year, suggesting wider negative repercussions from the contraction in the minerals industry.
The minerals industry keeps hemorrhaging jobs. In total the industry has lost a third of its 27,400 jobs from July of 2014. Close to half of all the 13,200 minerals service jobs from two years ago are now gone, with 6,700 remaining in July of 2016.
It is expectable that this sharp a decline in employment will be transmitted to other sectors as well. Household spending is one of the strongest transmitters – or multipliers – of changes to economic activity. From the first quarter of 2015 to the first quarter of 2016, Wyoming employees lost $735 million in wages and salaries. This amount is inevitably going to be felt throughout the stae’s economy, though with a short-term geographic concentration to the counties worst hit by the decline in minerals employment.
Only one industry, health services, and specifically ambulatory health care, shows a distinct job increase. In two years the industry has added 700 jobs, now having 10,400 employees.
The state and local governments kept employment steady over the past year.
Rising Payroll Costs. While many private businesses in Wyoming continue to lose jobs, government payroll keeps climbing. Employee compensation data from the Bureau of Economic Analysis shows that even as state and local government agencies refrain from hiring, their payroll costs continue to rise.
In the first quarter of 2016 all state and local government workers in Wyoming earned a total of $4.16bn in employee compensation. Private-sector employees earned $12.1bn.
For every $100 of private employee compensation, government workers earned $34.26.
A year earlier, in the first quarter of 2015, that same ratio was $31.56; the ratio has increased by 8.5 percent in one year.
Despite flat employment, state and local governments have increased their employee compensation by $27.5 million in one year.
Low Oil Prices Here to Stay. The decline in oil prices has been tough for oil-producing states dependent on severance taxes.
Media reports have suggested a price rebound; see a recent story in CNN Money. Other reports suggest that global oil production has now fallen below demand, forming market conditions favorable to higher prices. In theory that would happen. In practice, though, an upward trend in prices would require at least a weak upward trend in demand. That, in turn, is unlikely, given the trends in the global economy. Currently, the U.S. economy is teetering on the edge of a recession while the European and Japanese economies are clearly in a slump.
In China, a recent fiscal stimulus seems to have failed to revitalize the economy.
The reasonable conclusion for legislators in oil-producing states is to accept current oil prices as permanent.