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August 12, 2005

Separating Job Growth Fact from Fiction v

There are dates on the calendar that make some of us tremble.  The Ides of March was a bad one, as I recall, for a certain Roman emperor long ago.  Stock market traders know and fear those triple witching days when futures and options contracts expire. 

But for those of us who track the regional economies around the state, it’s really a whole month that makes us sweat.  That’s the month of July.  It’s not the month itself, actually.  It’s the data we receive on economic activity for the month.  There are more oddball, inexplicable, and exaggerated movements in employment, hours, and earnings data for the month of July than at any time of the year.

It’s normally a down month for most parts of the state, and this year is proving to be no different.  Compared to month-ago payrolls, employment in every major city statewide except Columbus, which managed to eke out a 0.2 percent increase.  Anderson, Gary, and Bloomington saw the largest declines in the month, with the state as a whole lost about 1.2 percent of payroll employment.

That sounds dramatic, but it’s really not.  This is the time of year for shutdowns and layovers in countless businesses, especially in the manufacturing sector.  It also coincides with a time when most K-12 teachers don’t show up on public school payrolls.  In short, the downturn is more due to the season of the year, rather than the underlying fundamentals of the state economy.

That’s why economists and statisticians frequently employ the process of seasonal adjustment, to filter out the movements in data that pertain to the condition of the calendar, rather than the economy.  On this seasonally adjusted basis, employment growth was essentially flat across the state, with payrolls declining by a miniscule 2,000 jobs statewide.

But it is not the seasonal ups and downs that can make July so unusual.  It’s the special events, usually centered in the manufacturing sector, that can make the data do some mighty strange things.

For example, when you look across the state’s major cities to see which are growing the fastest, in the July data one city stands tall over the rest – Kokomo.  Comparing July 2005 employment against the same month in 2004 – which removes the seasonal effect – Kokomo registered a whopping 10.3 percent job increase.  That huge gain was due to an even more astronomical 34.2 percent increase in payrolls in the metro area’s manufacturing sector.

But I doubt if anyone in Kokomo will even notice.  That’s because that supposed growth is nothing more than a statistical quirk, brought on by the temporary shutdown of some major facilities in 2004 that failed to reoccur this year.  Compared to a figure that was unusually low, this year’s employment looks very high.

It’s weird, but it’s also real.  Those furloughed workers in 2004 showed up as unemployed in July, helping the city’s jobless rate to zoom up beyond 12 percent for the month, only to fall back down to normal in August.  And those same “jobless” workers filed for compensation from unemployment insurance (UI), sending claims skyrocketing up to three and a half times their June levels, again falling back to earth in August.

To my way of thinking, that’s an abuse of the UI system, but that’s a whole different issue.  For economy watchers across the state, it’s a warning for anyone who tries to judge the performance of the state’s economies – beware the month of July.

Link to this commentary: https://commentaries.cberdata.org/256/separating-job-growth-fact-from-fiction-v

Tags: jobs and employment, manufacturing


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He has been involved with economic forecasting and health care policy research for over twenty-four years, both in the private and public sector. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. He attended the University of Michigan, receiving a B.A. ('79) and Ph.D. ('86) in economics.

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