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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.
The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.
Postings are weekly.
May 19, 2015
Seeking the Slack
Where is the excess slack in the labor force?
Last week, the April Employment report from U.S. Bureau of Labor Statistics reported that the unemployment rate (U-3) edged down slightly to 5.4 percent (after rounding) over the prior month, which is well below the high of 10.0 percent in late 2009. Despite this encouraging improvement, wage growth remains low, and many agree that slack remains in the labor market. The consensus of the Federal Open Market Committee (FOMC) has been that more progress can be made, as noted in the Chair’s press conference in March. One factor we have been paying particular attention to here at the Atlanta Fed is excess slack in the labor market captured in the U-6 unemployment rate, which includes the unemployed, those who are working part-time but would prefer full-time employment (part-time for economic reasons, or PTER), and those who have stopped looking for work during the last 12 months but were willing to work (marginally attached).
Below is a chart showing the U-3 unemployment rate (depicted in blue) and the U-6 rate (in red). The difference between the two is often referred to as “the gap,” and this area shaded below in light red represents the excess slack in the labor force. Between 2000 and 2008 the gap averaged 3.7 percentage points but then rose to a high of 7.3 percentage points during the recession. Since late 2011, the gap has declined and was 5.4 percentage points in April, but it remains well above the usual amount of excess slack in the labor force experienced earlier in the decade. Earlier analysis by my Atlanta Fed colleague Pat Higgins identified a significant connection between U-6 and the subdued wage growth the economy has experienced in recent years.
Just as the U-3 unemployment rate varies widely across states, so too does U-6.
Below is a map that shows where the gap between U-6 and U-3 was greatest during the first quarter of 2015. States shaded in red have a gap higher than the United States overall, and states with a lower-than-average gap are shaded in green.
Twenty-one states are shaded red, and they are mostly concentrated along the West Coast, the Southeast, and the Great Lakes region. The gaps were largest in Arizona, Nevada, and California, respectively—the so-called Sand States—where the housing boom and bust were most dramatic.
The gap was below the U.S. average in 29 states and Washington, DC. Notably, the central part of the country is shaded green. The smallest gap is in North Dakota, South Dakota, and Wyoming, states that have benefited in recent years from a boom in mining activity or energy extraction.
Of course, a large or small gap relative to the U.S. average does not tell us if the gap is unusual. For example, the red states in the chart also tend to be states whose U-3 rate and U-6 rate are also above the U.S. averages.
A way to get a sense of whether the gaps are abnormally high is to compare the gap on a state-by-state basis with that state's average gap prior to the Great Recession. (Here, I use data from 2003 to 2007 to create a prerecession baseline for each state.) As the map below shows, most states remain above their prerecession average gap and are shaded red, although a few exceptions are shaded green and sit slightly below the prerecession average. Nevada and Arizona's gaps remain stubbornly high and actually worsened in the latest quarter.
Clearly, many states have a ways to go to attain the average labor market conditions they experienced prior to the Great Recession.
By Whitney Mancuso, a senior economic analyst in the Atlanta Fed's research department
February 3, 2015
Charting Employer Sentiment in the Southeast
In a recent speech, Atlanta Fed President Dennis Lockhart remarked, "Overall, there was more improvement in labor markets in 2014 than in any other year of the recovery. Employment conditions are improving, and improving faster, and prospects of continued progress are encouraging moving into the new year."
Although President Lockhart was referring to national labor market conditions in his speech, his assessment holds true for the Southeast as well. In 2014, the Atlanta Fed's Regional Economic Information Network (REIN) staff polled business contacts across the Southeast both at the beginning of the year and the end to get a sense of their hiring plans for the year ahead. Polling our contacts twice allowed REIN to gauge whether business hiring plans had changed during the course of the year, and we shared the January results with you. Fast-forward to last November, when we approached our contacts to ask the same set of questions. We were pleasantly surprised to see that the results were more upbeat.
The survey was conducted from November 10–19 and resulted in a total of 303 responses from a wide variety of firm types and sizes. In this post, we want to share the results as well as some comparisons over time.
The survey's first question asked contacts whether they expect to increase employment, leave employment unchanged, or decrease employment in 2015. The results showed that 59 percent of respondents said they planned to increase employment levels over the next 12 months; up from 46 percent in January and the highest reading in the six times we've conducted this survey. Another 31 percent indicated they planned to leave employment levels unchanged; down from 44 percent in January and the lowest reading since we began asking these questions in 2011. The remaining 10 percent of participants planned to decrease payrolls; unchanged from the beginning of the year. As the chart below shows, a noticeable shift in sentiment took place from January, when we last asked this question. It appears that firms that said they would leave employment levels unchanged are now saying they would increase employment.
Focusing on the 59 percent of firms that indicated that they planned to increase employment, we asked them to give us the top three motivating factors driving their decision. The most frequently cited reasons were similar to past results. The majority of firms cited high expected growth of sales as the most important reason for increasing employment. For the second most important factor, two selections garnered similar levels of response: current staff was overworked, and the firm needed skills not currently possessed by existing staff. Finally, the third factor was improvement in the firm’s financial position (see the chart).
Conversely, we also wanted to learn the top three factors restraining hiring. Similar to January, firms' primary concern remained their need to keep operating costs low. Other frequently selected reasons were the firms' inability to find workers with the required skills and uncertainties related to regulations or government policies. What stood out this time was that a larger share of firms said that they were unable to find workers with required skills: 13.8 percent in January compared with 21.0 percent in November. Also, fewer contacts said that expected sales growth was low: 15.2 percent in January compared with 9.7 percent in November. Additionally, uncertainty about health care costs subsided; a smaller share of firms noted this factor as a reason for not hiring (see the chart).
In short, it's clear that employment levels in the Southeast should improve this year, which is exactly what we said this time last year. Were we correct for 2014? Now that we have data in hand, let's see. According to the latest employment data from the U.S. Bureau of Labor Statistics, the district averaged 38,800 net payrolls per month for 2014, up from 33,600 net payrolls a month in 2013. So our contacts did, in fact, increase payrolls like they said they would last year. Let's see what happens this year!
By Shalini Patel, a REIN director in the Atlanta Fed's research department
September 2, 2014
Jobs Increase (But So Does Unemployment)
The most recent state-level labor market data from the U.S. Bureau of Labor Statistics were mixed, with one report noting an increase in employment and another indicating a rise in unemployment.
Payroll survey
Last month the Sixth District states added 27,100 net new payrolls, matching the revised June figure and just slightly below the 2014 monthly average of 28,600 net new payrolls. The only state that subtracted payrolls was Florida, which shed 1,600 payrolls (see the chart).
Most of the District gains came from the construction sector (up 12,100), which corresponds with the results of the Atlanta Fed's most recent poll of southeastern business contacts engaged in commercial construction (we recently discussed that poll's results). Other major regional payroll contributors were leisure and hospitality (up 6,700) and education and health services (up 6,500). Two sectors—government employment and manufacturing—subtracted payrolls from total District figures. Government (down 11,100) was the only sector where payrolls declined in all states, and most of the decline came from local government. Regional manufacturing also declined by 1,600 payrolls, but Florida represented most of the District's manufacturing loss, shedding 2,900 jobs.
Household survey
On the other hand, last month's unemployment data told a different story in the Sixth District. Although the aggregate unemployment rate ticked up 0.2 percentage points to 6.7 percent in July, three of the six states in the Atlanta Fed's district (out of a total of seven nationally) had fairly notable increases. Georgia's unemployment rate increased to 7.8 percent from 7.4 percent in June, Louisiana's increased to 5.4 percent from 5.0 percent, and Tennessee led the nation with the largest month-over-month increase: one-half of a percentage point, rising to 7.1 percent in July (see the chart). In all three of these states (plus Mississippi), the unemployment rate rose for the third straight month. Mississippi had the highest unemployment rate in the nation in July (at 8.0 percent), and Georgia had the second-highest rate at 7.8 percent. This steadily increasing unemployment across states bears watching as we enter autumn.
We'll see what story (or stories) August data tell us when the next regional employment release comes out on September 19.
By Rebekah Durham, economic policy analysis specialist in the New Orleans Branch of the Atlanta Fed
August 6, 2014
Sunnier Times in the Sunshine State
During the most recent cycle of the Federal Open Market Committee (which ran from June 19 to July 30), the Atlanta Fed’s Regional Economic Information Network (REIN) team at the Jacksonville Branch talked with more than 30 Florida business leaders, including branch directors, about economic conditions. As one who has been involved with the REIN program since its inception in 2008, I can attest that, while “slow and steady” remains a theme in this economic recovery, the sentiment of our contacts over the past two months has been the most upbeat since before the recession.
General business conditions
Almost all firms reported increases in business activity. Two design/build firms indicated robust demand and reasonably strong pipelines, including a strengthening in industrial and office development. For the first time, we heard of some speculative building in the commercial sector from three different contacts. Housing continued its slow improvement, though several contacts used the word “bumpy” to describe activity. The appetite for auto purchases continued, as a recent SouthPoint post discussed, with lenders citing robust auto-lending activity. Some banks also reported that consumers are now slowly adding to outstanding credit card balances.
Employment and hiring
Labor markets tightened as the number and types of difficult-to-fill positions increased. In addition to highly skilled positions that are normally a challenge to fill (including information technology and engineering), contacts shared frustrations with filling midlevel positions such as analysts. In construction, finding subcontractors and skilled laborers was harder than normal. However, one contact saw a 20 percent annual increase in revenue as clients resumed a normal hiring pace.
Labor and input costs
Contacts reported seeing wage pressures in their organizations. For example, demand for truck drivers that one firm described as “significant” led to a 33 percent pay increase since the beginning of 2014. One retail contact reported wage increases for maintenance positions as the “construction boom in the area lures these workers away.” Most contacts previously noted merit programs of between 2–3 percent. However, for the first time, several contacts discussed plans for more aggressive increases of 4–5 percent. Regarding health care, most anticipate premiums to continue growing significantly, and many have self-insured to mitigate rising costs.
Most contacts described nonlabor input cost increases as benign. Although the cost of some construction-related materials was a cause for concern earlier this year, most of this volatility has dissipated. While most contacts do not claim much pricing power, some companies are seeing improved margins as they are able to push through increases in the form of higher sales prices.
Credit and investment
Contacts at medium and large companies noted that while credit is readily available, many are still risk-averse and avoiding taking on debt, relying instead on cash flow or internal reserves to fund projects. Companies that do borrow are undergoing “rigorous but rational underwriting.” One construction contact said that many of his larger clients are no longer just catching up from the recession but are now willing to take risk and invest in adding capacity. A bank also reported more risk-taking among customers, especially in commercial real estate and equipment leasing. At the consumer level, real estate agents and lenders referred to qualified mortgages as something of an impediment to mortgage loan activity, but they generally viewed the more rigorous process as worth the effort to reduce risk.
Since June, the consensus from REIN contacts at the Jacksonville Branch was largely positive. Overall demand conditions have improved, though some expressed concerns about regulatory impact. Some contacts specifically mentioned dissipating headwinds as a reason for increased investment, including one contact who sees enough improvement in the economic environment that the company has changed its strategy from diversification to more rapidly expanding its footprint with aggressive new revenue goals.
Does this jibe with what you, our readers, are seeing? As always, your thoughts are welcome.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch
May 19, 2015
Seeking the Slack
Where is the excess slack in the labor force?
Last week, the April Employment report from U.S. Bureau of Labor Statistics reported that the unemployment rate (U-3) edged down slightly to 5.4 percent (after rounding) over the prior month, which is well below the high of 10.0 percent in late 2009. Despite this encouraging improvement, wage growth remains low, and many agree that slack remains in the labor market. The consensus of the Federal Open Market Committee (FOMC) has been that more progress can be made, as noted in the Chair’s press conference in March. One factor we have been paying particular attention to here at the Atlanta Fed is excess slack in the labor market captured in the U-6 unemployment rate, which includes the unemployed, those who are working part-time but would prefer full-time employment (part-time for economic reasons, or PTER), and those who have stopped looking for work during the last 12 months but were willing to work (marginally attached).
Below is a chart showing the U-3 unemployment rate (depicted in blue) and the U-6 rate (in red). The difference between the two is often referred to as “the gap,” and this area shaded below in light red represents the excess slack in the labor force. Between 2000 and 2008 the gap averaged 3.7 percentage points but then rose to a high of 7.3 percentage points during the recession. Since late 2011, the gap has declined and was 5.4 percentage points in April, but it remains well above the usual amount of excess slack in the labor force experienced earlier in the decade. Earlier analysis by my Atlanta Fed colleague Pat Higgins identified a significant connection between U-6 and the subdued wage growth the economy has experienced in recent years.
Just as the U-3 unemployment rate varies widely across states, so too does U-6.
Below is a map that shows where the gap between U-6 and U-3 was greatest during the first quarter of 2015. States shaded in red have a gap higher than the United States overall, and states with a lower-than-average gap are shaded in green.
Twenty-one states are shaded red, and they are mostly concentrated along the West Coast, the Southeast, and the Great Lakes region. The gaps were largest in Arizona, Nevada, and California, respectively—the so-called Sand States—where the housing boom and bust were most dramatic.
The gap was below the U.S. average in 29 states and Washington, DC. Notably, the central part of the country is shaded green. The smallest gap is in North Dakota, South Dakota, and Wyoming, states that have benefited in recent years from a boom in mining activity or energy extraction.
Of course, a large or small gap relative to the U.S. average does not tell us if the gap is unusual. For example, the red states in the chart also tend to be states whose U-3 rate and U-6 rate are also above the U.S. averages.
A way to get a sense of whether the gaps are abnormally high is to compare the gap on a state-by-state basis with that state's average gap prior to the Great Recession. (Here, I use data from 2003 to 2007 to create a prerecession baseline for each state.) As the map below shows, most states remain above their prerecession average gap and are shaded red, although a few exceptions are shaded green and sit slightly below the prerecession average. Nevada and Arizona's gaps remain stubbornly high and actually worsened in the latest quarter.
Clearly, many states have a ways to go to attain the average labor market conditions they experienced prior to the Great Recession.
By Whitney Mancuso, a senior economic analyst in the Atlanta Fed's research department
February 3, 2015
Charting Employer Sentiment in the Southeast
In a recent speech, Atlanta Fed President Dennis Lockhart remarked, "Overall, there was more improvement in labor markets in 2014 than in any other year of the recovery. Employment conditions are improving, and improving faster, and prospects of continued progress are encouraging moving into the new year."
Although President Lockhart was referring to national labor market conditions in his speech, his assessment holds true for the Southeast as well. In 2014, the Atlanta Fed's Regional Economic Information Network (REIN) staff polled business contacts across the Southeast both at the beginning of the year and the end to get a sense of their hiring plans for the year ahead. Polling our contacts twice allowed REIN to gauge whether business hiring plans had changed during the course of the year, and we shared the January results with you. Fast-forward to last November, when we approached our contacts to ask the same set of questions. We were pleasantly surprised to see that the results were more upbeat.
The survey was conducted from November 10–19 and resulted in a total of 303 responses from a wide variety of firm types and sizes. In this post, we want to share the results as well as some comparisons over time.
The survey's first question asked contacts whether they expect to increase employment, leave employment unchanged, or decrease employment in 2015. The results showed that 59 percent of respondents said they planned to increase employment levels over the next 12 months; up from 46 percent in January and the highest reading in the six times we've conducted this survey. Another 31 percent indicated they planned to leave employment levels unchanged; down from 44 percent in January and the lowest reading since we began asking these questions in 2011. The remaining 10 percent of participants planned to decrease payrolls; unchanged from the beginning of the year. As the chart below shows, a noticeable shift in sentiment took place from January, when we last asked this question. It appears that firms that said they would leave employment levels unchanged are now saying they would increase employment.
Focusing on the 59 percent of firms that indicated that they planned to increase employment, we asked them to give us the top three motivating factors driving their decision. The most frequently cited reasons were similar to past results. The majority of firms cited high expected growth of sales as the most important reason for increasing employment. For the second most important factor, two selections garnered similar levels of response: current staff was overworked, and the firm needed skills not currently possessed by existing staff. Finally, the third factor was improvement in the firm’s financial position (see the chart).
Conversely, we also wanted to learn the top three factors restraining hiring. Similar to January, firms' primary concern remained their need to keep operating costs low. Other frequently selected reasons were the firms' inability to find workers with the required skills and uncertainties related to regulations or government policies. What stood out this time was that a larger share of firms said that they were unable to find workers with required skills: 13.8 percent in January compared with 21.0 percent in November. Also, fewer contacts said that expected sales growth was low: 15.2 percent in January compared with 9.7 percent in November. Additionally, uncertainty about health care costs subsided; a smaller share of firms noted this factor as a reason for not hiring (see the chart).
In short, it's clear that employment levels in the Southeast should improve this year, which is exactly what we said this time last year. Were we correct for 2014? Now that we have data in hand, let's see. According to the latest employment data from the U.S. Bureau of Labor Statistics, the district averaged 38,800 net payrolls per month for 2014, up from 33,600 net payrolls a month in 2013. So our contacts did, in fact, increase payrolls like they said they would last year. Let's see what happens this year!
By Shalini Patel, a REIN director in the Atlanta Fed's research department
September 2, 2014
Jobs Increase (But So Does Unemployment)
The most recent state-level labor market data from the U.S. Bureau of Labor Statistics were mixed, with one report noting an increase in employment and another indicating a rise in unemployment.
Payroll survey
Last month the Sixth District states added 27,100 net new payrolls, matching the revised June figure and just slightly below the 2014 monthly average of 28,600 net new payrolls. The only state that subtracted payrolls was Florida, which shed 1,600 payrolls (see the chart).
Most of the District gains came from the construction sector (up 12,100), which corresponds with the results of the Atlanta Fed's most recent poll of southeastern business contacts engaged in commercial construction (we recently discussed that poll's results). Other major regional payroll contributors were leisure and hospitality (up 6,700) and education and health services (up 6,500). Two sectors—government employment and manufacturing—subtracted payrolls from total District figures. Government (down 11,100) was the only sector where payrolls declined in all states, and most of the decline came from local government. Regional manufacturing also declined by 1,600 payrolls, but Florida represented most of the District's manufacturing loss, shedding 2,900 jobs.
Household survey
On the other hand, last month's unemployment data told a different story in the Sixth District. Although the aggregate unemployment rate ticked up 0.2 percentage points to 6.7 percent in July, three of the six states in the Atlanta Fed's district (out of a total of seven nationally) had fairly notable increases. Georgia's unemployment rate increased to 7.8 percent from 7.4 percent in June, Louisiana's increased to 5.4 percent from 5.0 percent, and Tennessee led the nation with the largest month-over-month increase: one-half of a percentage point, rising to 7.1 percent in July (see the chart). In all three of these states (plus Mississippi), the unemployment rate rose for the third straight month. Mississippi had the highest unemployment rate in the nation in July (at 8.0 percent), and Georgia had the second-highest rate at 7.8 percent. This steadily increasing unemployment across states bears watching as we enter autumn.
We'll see what story (or stories) August data tell us when the next regional employment release comes out on September 19.
By Rebekah Durham, economic policy analysis specialist in the New Orleans Branch of the Atlanta Fed
August 6, 2014
Sunnier Times in the Sunshine State
During the most recent cycle of the Federal Open Market Committee (which ran from June 19 to July 30), the Atlanta Fed’s Regional Economic Information Network (REIN) team at the Jacksonville Branch talked with more than 30 Florida business leaders, including branch directors, about economic conditions. As one who has been involved with the REIN program since its inception in 2008, I can attest that, while “slow and steady” remains a theme in this economic recovery, the sentiment of our contacts over the past two months has been the most upbeat since before the recession.
General business conditions
Almost all firms reported increases in business activity. Two design/build firms indicated robust demand and reasonably strong pipelines, including a strengthening in industrial and office development. For the first time, we heard of some speculative building in the commercial sector from three different contacts. Housing continued its slow improvement, though several contacts used the word “bumpy” to describe activity. The appetite for auto purchases continued, as a recent SouthPoint post discussed, with lenders citing robust auto-lending activity. Some banks also reported that consumers are now slowly adding to outstanding credit card balances.
Employment and hiring
Labor markets tightened as the number and types of difficult-to-fill positions increased. In addition to highly skilled positions that are normally a challenge to fill (including information technology and engineering), contacts shared frustrations with filling midlevel positions such as analysts. In construction, finding subcontractors and skilled laborers was harder than normal. However, one contact saw a 20 percent annual increase in revenue as clients resumed a normal hiring pace.
Labor and input costs
Contacts reported seeing wage pressures in their organizations. For example, demand for truck drivers that one firm described as “significant” led to a 33 percent pay increase since the beginning of 2014. One retail contact reported wage increases for maintenance positions as the “construction boom in the area lures these workers away.” Most contacts previously noted merit programs of between 2–3 percent. However, for the first time, several contacts discussed plans for more aggressive increases of 4–5 percent. Regarding health care, most anticipate premiums to continue growing significantly, and many have self-insured to mitigate rising costs.
Most contacts described nonlabor input cost increases as benign. Although the cost of some construction-related materials was a cause for concern earlier this year, most of this volatility has dissipated. While most contacts do not claim much pricing power, some companies are seeing improved margins as they are able to push through increases in the form of higher sales prices.
Credit and investment
Contacts at medium and large companies noted that while credit is readily available, many are still risk-averse and avoiding taking on debt, relying instead on cash flow or internal reserves to fund projects. Companies that do borrow are undergoing “rigorous but rational underwriting.” One construction contact said that many of his larger clients are no longer just catching up from the recession but are now willing to take risk and invest in adding capacity. A bank also reported more risk-taking among customers, especially in commercial real estate and equipment leasing. At the consumer level, real estate agents and lenders referred to qualified mortgages as something of an impediment to mortgage loan activity, but they generally viewed the more rigorous process as worth the effort to reduce risk.
Since June, the consensus from REIN contacts at the Jacksonville Branch was largely positive. Overall demand conditions have improved, though some expressed concerns about regulatory impact. Some contacts specifically mentioned dissipating headwinds as a reason for increased investment, including one contact who sees enough improvement in the economic environment that the company has changed its strategy from diversification to more rapidly expanding its footprint with aggressive new revenue goals.
Does this jibe with what you, our readers, are seeing? As always, your thoughts are welcome.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch
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