July 2010

July 31st, 2010 by Daniel Lee

Recovery is losing steam.

In June, there was little good news for the Coos economy. It retreated on all fronts, except the estimated wage and salary. The housing sector continued to struggle without the home-buyer tax credit. The hospitality industry could not dodge the fall either. Both of its indicators – the estimated rooms and meals revenues and the average Saturday vehicle traffic – fell. Waning forces of recovery was more evident in the labor market. The number of employed residents declined three months in a row after steadily improving in the first quarter of the year. Industrial electricity sales also fell, suggesting that rejuvenated production activity in the region may be slowing too.

The State economy was sluggish. Although the State Index bounced back after slipping in May, half of the component indicators turned down. The stagnant labor market is most worrisome. The pace of increase in the number of employed residents has slowed steadily in the past four months, indicating that a turn to losing employed residents may be imminent. This contradicts the falling unemployment rate widely reported within the State as evidence supporting improving economic conditions. This decline in the unemployment rate is in essence a statistical coincidence, which has more to do with the shrinking labor force than the improving labor market. That is, many are no longer counted as “unemployed” not because they found a job, but because they stopped looking for work due to gloomy job prospects.

Coincident Index

The Coos Coincident Index, which tracks the current state of the Coos economy, fell to 95.8 in June from May’s revised value of 96.7, for a loss of 1.0%. This loss was the second consecutive decrease after increasing four straight months. On a monthly year-over-year basis, the Index increased 1.1% from its June 2009 value for the fourth consecutive month.

The New Hampshire Coincident Index bounced back rising to 97.4 in June, after dropping for the first time in four months last May. On a monthly year-over-year basis, the Index increased 1.5% from its June 2009 value for the third consecutive month.

How strong are the forces of change?

In June, the Coos Coincident Index retreated for two straight months. Five of the six component indicators contributed to this fall, suggesting that the gloom may be spreading to the broad economy. The State economy bounced back with a meager gain after unexpectedly slipping in May. Only half of the component indicators contributed to this increase.

Household Employment

Household employment measures the number of employed residents. In contrast to non-farm payroll employment that is more commonly used in the national and state indexes, household employment includes self-employed, unpaid domestic help and both farm and non-farm workers, all of which June be more significant in rural than urban economy. Employment tends to rise as economy grows.

Coos County

Employment index, adjusted for seasonal variation, slid in June for three months in a row, and was down from its June 2009 value.

New Hampshire

Employment at the state level, adjusted for seasonal variation, inched up in June for the sixth time in a row, and was up from its June 2009 level.

Home Sales

It tracks the number of homes sold, which include both new and existing homes. Home transactions not only generate income for real estate brokers and mortgage bankers but also bring more businesses in other sectors including moving services, home furnishings and appliances. The latter is particularly true for new home sales. In interpreting percentage changes in the County’s home sales data, though, one should note that percentage changes can be highly volatile due to small sales volumes.

Coos County

Home sales, adjusted for seasonal variation, retreated in June for three months in a row. And, they fell compared to a year earlier for the first time since January.

New Hampshire

Home sales, adjusted for seasonal variation, fell in June for the second month in a row. Still, they were higher than a year ago.

Rooms and Meals Revenues

It is estimated from total tax yielded from rooms and meals sales. It tends to increase with tourism activities.

Coos County

The estimated rooms and meals revenue, adjusted for seasonal variation and inflation, decreased in June for the second consecutive month. Still, it was up from where it was a year ago.

New Hampshire

The estimated rooms and meals revenue, adjusted for seasonal variation and inflation, retreated two months in a row. And, it was down from a year ago.

Traffic Counts

It tracks the average vehicle traffic counts on Saturdays each month, which is automatically collected from traffic recorders located throughout the State. Two recorders are placed in the Coos county – Jefferson and Northumberland.

Coos County

Average Saturday traffic counts, adjusted for seasonal variation, slid in June for three months in a row, and it was also down from where it was a year ago.

New Hampshire

Average Saturday traffic counts, adjusted for seasonal variation, soared in June after taking a plunge in the previous month, and it was up from its June 2009 level.

Wages and Salaries

The estimated wage and salaries disbursements represent total compensation including pay for vacation, bonuses, stock options, and tips. This data is derived from all workers covered under state and federal unemployment insurance laws; but it excludes self-employed, domestic workers, and most agricultural workers. For its difference in the coverage, wages and salaries series complements household employment in monitoring the labor market conditions. A change in wages and salaries, adjusted for inflation, June reflect changes in the number of jobs, the ratio between part-time and full-time jobs, and wage rates.

Coos County

The estimated wages and salary disbursement, adjusted for seasonal variation and inflation, advanced in June for five months in a row, and was up from its June 2009 level.

New Hampshire

The estimated wages and salary disbursement, adjusted for seasonal variation and inflation, increased in June for four months in a row, and was up compared to a year ago.

Industrial Electricity Sales

It measures sales of electricity (kWh) to industrial customers. Utilities categorize consumers into classes of service, which are used to determine their rates for electric service. The industrial sector includes manufacturing, construction, mining, agriculture, fishing, and forestry establishments. Among these industries, manufacturing is a primary industry in Coos County making up 69% (73% for New Hampshire in 2008) of the total number of jobs in the industries mentioned above according to the 2006 QCEW data. Therefore, a rise in industrial electricity sales may largely indicate invigorating manufacturing activities in the economy.

Coos County

Industrial electricity sales, adjusted for seasonal variation, contracted in June, for the first time in four months. However, they ended up higher than a year ago.

New Hampshire

At the state level, industrial electricity sales, adjusted for seasonal variation, fell for the second time in the past four months. Still, the sales were up from where they were a year ago.

Month-to-Month Comparison vs. Year-over-Year Comparison

Interpreting economic indicators may not be as easy as it might seem. This is particularly true when dealing with regional indicators that tend to be highly volatile. The month-to-month changes can be very volatile and may not represent true changes in economic conditions. To reduce the volatility and better detect the underlying trend in the economy, economists often use the year-over-year percent changes. However, this year-over-year percent comparison has a problem of its own. It doesn’t tell us anything about what happened between a year ago and the current period. It misses out the most recent changes in the economy. The recent changes should be reflected in the month-to-month percent changes. The bottom line is that one should be careful in interpreting economic indicators and should examine both the month-to-month changes and the year-over-year changes to get a good sense of what is happening in the economy. In addition, one should also apply the 3 Ds principle in interpreting economic indicators. The 3 Ds are duration (how persistent the change has been), diffusion (how widespread the change is) and depth (how large the change is). Refer to “How should economic index be interpreted?” on the About page.

Leading Indicators

This section is under construction. The future reports will include building permits, initial unemployment claims, new business formation, real estate indicators and possibly freight volumes.

Technical Notes

  • Employment is the number of people employed from the household survey.
  • The current values of rooms and meals revenues are estimated using the data obtained from participating local hoteliers.
  • The quarterly wages and salary disbursements are smoothed into the monthly series after the current values are estimated using the Vector Error Correction Model.
  • These models to estimate the current values of rooms and meals revenues and wages and salary disbursements are re estimated once a year in February using new and updated data.
  • The data series reported in the dollar values are adjusted for inflation.
  • The data series are adjusted for seasonal variation when identifiable seasonality is present.
  • Seasonal factors are recalculated once a year in February using new and updated data. Thus, the seasonally adjusted data series are to be revised accordingly.
  • Real Estate data is obtained from the Northern New England Real Estate Network (NNEREN). All analysis and commentary related to the statistics is that of the authors, and not that of NNEREN.

© Copyright 2010: Daniel Lee and Vedran Lelas, College of Business Administration, Plymouth State University.