Raising a glass to growth

 In 2015-04
When it comes to the economy, is the glass half empty or half full? As politicians prep for the 2016 election cycle, some version of this question will be posed many times — and about two different containers. Democrats will describe the glass containing the U.S. economy as half full and the one containing the North Carolina economy as half empty to support their case for retaining the White House and recapturing the Governor’s mansion. Reverse the two, and you will have the Republican argument.

In historical terms, neither side will be correct. If you measure the strength of economic recoveries from the troughs of recessions, most recoveries in modern times have been far stronger than the current one. In fairness, relatively slow growth is not simply an American phenomenon. It is evident in much of the rest of the developed world. Still, because most Americans remember when “boom” times really felt like booms, they aren’t buying any happy talk right now. For them, there’s not much in the glass at all.

That’s the national context. Now let’s focus on North Carolina. For purposes of evaluating the state’s economic momentum — or perhaps even to decide whether you might want to keep Republican Gov. Pat McCrory in office for another term or replace him with likely Democratic nominee Attorney General Roy Cooper — the relevant issue is not how much is in the glass at the moment. Instead, you want to know how quickly liquid is entering the container, and how that growth rate compares to what’s happening elsewhere.

Even more basic, what liquid are we talking about? To evaluate economic performance, various measures can be considered, including gross domestic product, unemployment rate, job and wage growth and personal income gains. Each measure has its uses. I prefer to look at a variety of indicators while recognizing the drawbacks of each one. Often there is a trade-off between timeliness and analytical value. For example, the standard U-3 unemployment rate attracts tremendous attention because the Bureau of Labor Statistics produces it each month for every state. Because it comes from a monthly survey with a fairly small sample size, it isn’t trustworthy on its own as a picture of what’s truly going on in the labor market. It doesn’t distinguish between people who leave the unemployment rolls because they find a job and those who leave because they give up looking for work.

The feds have an alternative measure of unemployment that delivers far more useful information. It consists of 12-month rolling averages that are only updated every quarter, so you have to be willing to wait for what is called the U-5 rate. Fortunately, such patience is rewarded. Averages for 2014 provide important information about North Carolina’s recent labor-market performance. The rate consists of all working-age adults who are without jobs, whether they are seeking employment or not. The measure includes discouraged workers who’ve dropped out of the labor force as well as those who have stopped looking temporarily for such reasons as relocating, going back to school or caring for a family member. In 2012, some 750,000 North Carolinians were unemployed by this definition, or 10.7% of the working-age population. By 2014, our U-5 unemployment had dropped to 630,000, or 7.6% The national U-5 rate declined from 9.5% in 2012 to 7.5% in 2014. The average U-5 rate among the 12 Southeastern states fell from 9.6% in 2012 to 7.9% in 2014.

The U-6 rate adds another category of workers: those who have part-time jobs but want full-time positions. In 2012, a staggering 1.2 million North Carolina residents were either unemployed or underemployed by the U-6 measure, a rate of 16.3%. By 2014, that rate had fallen to 12.1%, representing some 224,000 fewer unemployed and underemployed North Carolinians. This 4.2-point decline was the largest among the Southeast states and much higher than the national average of 2.7 points.

Whether someone has a job is just one part of the economic story, of course. If you are looking for a timely and broad indicator, there is nothing better than the “coincident index” produced by the Federal Reserve Bank of Philadelphia. It combines the unemployment rate, total employment, average hours employed and real wages into a single monthly index value for every state. From December 2012 to December 2014, North Carolina posted an 8.3% gain on this measure, compared with the national average gain of 6.6% and a regional average of 5.5%. It was the second-highest growth rate in the Southeast, trailing only South Carolina.

North Carolina has surpassed the regional and national averages in most measures of economic performance over the last two years, which doesn’t necessarily settle any particular political argument. One could question whether the Republicans in Raleigh, or governors and legislators in any state capital, can claim to have much influence over state economies. And on personal income, measured either as per-capita averages or household medians, North Carolina doesn’t fare as well in national comparisons, though such data for 2014 hasn’t been released. Based on most of the latest trends, it’s fair to say that North Carolina’s economic glass is filling more rapidly than those of most other states — even though it is, admittedly, far from full.

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