May jobs report – a lesson in ‘don’t judge a book by its cover’

Dave TrabertTax & Spending

The latest jobs report from the Bureau of Labor Statistics showed private sector jobs in Kansas declined by 1,500 in May, to 1.144 million.  Kansas was not the only regional state, however, that lost jobs between April and May; Nebraska and Oklahoma also had declines and their declines were worse.  The May numbers are preliminary and will be revised next month.

Year-to-year comparisons show four states in this five-state region trailing the 50-state average.  But point-to-point comparisons, whether month-to-month or even year-to-year, can be significantly skewed if one or both points happen to contain unusual spikes or declines.

One must examine the underlying components of the BLS job estimates to fully understand the potential impact of such fluctuations, but supersector data is not currently available on a seasonally-adjusted basis.  Month-to-month supersector comparisons are invalid due to seasonal fluctuations so this examination can only be done on a year-to-year basis.  (Note also that Agriculture is not included in the BLS definition of Private Sector.)

Both Kansas and Missouri show small employment gains overall but there are some noticeable differences in several supersectors.   The starkest difference is in Mining and Logging, which includes Oil and Gas Extraction.  BLS doesn’t provide Kansas and Missouri breakouts of oil and gas employment but 2013 GDP data from the Bureau of Economic Analysis lists Oil and Gas as a $1.3 billion industry in Kansas but only $11 million in Missouri.  Kansas’ loss of 1,000 jobs in this supersector is therefore likely to be mostly attributable to changes within that industry.

Job growth is often used as an indicator of how well a state’s economy is performing, and in Kansas’ case, whether tax reform is creating jobs.  Oil and gas production declines certainly impact the Kansas economy but production is mostly influenced by fluctuations in global pricing and local supply.

There were also three manufacturing sectors with disproportionate change that are driven by factors other than the general economic conditions within Kansas and Missouri.  Kansas had 1,000 fewer aerospace jobs but Missouri either doesn’t compete in that category or has too few jobs to meet the BLS minimum reporting requirement.  A similar situation exists with motor vehicle manufacturing; Missouri added 3,800 jobs in a category in which Kansas has no reportable employment, and that estimated 47.5 percent increase could easily be adjusted downward next month.

Both states have reportable employment in Transportation Equipment Manufacturing but Missouri grew by 11.2 percent over the year while Kansas remained steady.  To understand the implications here, one needs to know whether the states produce different types of equipment and whether each is subject to greater degrees of national or global demand. One must also wonder how much of Missouri’s unusual 11.2 percent gain will be adjusted away next month.

These four small employment sectors significantly impacted overall private sector job growth in May.  Missouri grew by 0.7 percent overall but the other 98 percent of its job market only grew by 0.3 percent.  Kansas grew by 0.5 percent overall but absent those four small sectors, all other jobs collectively increased by 0.8 percent.

One game is no indication of a baseball team’s seasonal performance, let alone its long term prospects.  The same is true of a single month’s job numbers.  It may take as much as a decade’s worth of data for economists to sort out disparate industry-specific changes and many other factors (including urban versus rural) to determine the incremental impacts of tax reform.  In the meanwhile, it’s much more important to understand how all of the economic engine’s moving parts are working and look for movement in long term trends.

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