Quick Take on the Economy: Income picks up steam, unemployment edges downward

The nation continues to show signs that it is emerging from the deep and prolonged economic recession that began in late 2007.  April’s edition of Numbers You Need, our monthly bulletin of key economic and budget trends, paints a mixed but mostly positive picture of economic recovery in Oklahoma. While the state was not the hardest hit during the recession, we saw noticeable spikes in unemployment, foreclosures, and bankruptcies, and increased reliance on social safety nets like food stamps.  Considering Oklahoma came late to the recession, might it also be late in joining the recovery?  That doesn’t appear to be the case.  The most recent data suggest that Oklahoma may be slightly outpacing the nation in two key areas of economic growth: personal income and employment.

Personal income growth in Oklahoma paints an encouraging picture of economic recovery over the last year.   Personal income is reported quarterly and encompasses all of the different kinds of income received by Oklahomans.  When personal income rises, so does the amount citizens have available to spend, save, or invest in the economy.  Tax revenues also increase with personal income, meaning states have more to spend on infrastructure and social services.  Since a large majority of small business income is reported as personal income, it is an excellent overall measure of the health and growth of the state’s economy.

Personal income in Oklahoma grew by 1.1 percent in the last quarter of 2010, marking six quarters of continuous growth.  Oklahoma outpaced the nation in personal income growth in every quarter in 2010 and ranked 7th best of all the states in terms of growth in the 4th quarter.  State general revenue collections are also beginning to pick up steam, as we blogged about here, with March collections exceeding the certified estimate by 10.5 percent.

The second key indicator, employment, is not quite as straightforwardly encouraging as personal income, but generally reveals that Oklahoma is better off than most states.  Employment, often referred to as a ‘lagging’ indicator because it registers economic improvement only after the improvement has occurred, is recovering slowly but surely in Oklahoma.  The national and state unemployment rates both fell for the third straight month in February 2011, reaching 8.9 percent and 6.5 percent respectively.  Oklahoma has the 10th lowest unemployment rate in the country.

Although the unemployment rate is steadily edging downward, the employment picture measured in terms of jobs is mixed.  Oklahoma lost 5,200 non-farm jobs between January and February 2011.  The unemployment rate has crept steadily downward since October 2010, but the non-farm employment sector has actually lost 13,400 jobs in the same period.

How can we reconcile job losses occurring alongside a falling unemployment rate?  It could be a sign that the economy is becoming more efficient and employees are more productive.  With fewer people doing more work, the economy can shed excess jobs.  However, the falling unemployment rate could also be attributed in part to people who have given up on looking for work and dropped out of the labor force altogether.

According to preliminary 2010 data from the Bureau of Labor Statistics, 45.3 percent of people who were unemployed in Oklahoma had been looking for work for more than 15 weeks, while 26.1 percent of people looking for work had been looking for over six months.  If an unemployed person stops looking for a job, they drop out of the statistical employment picture.  The unemployment rate only measures people who are jobless and actively seeking employment.  While there is no state-specific data, the national employment-to-population ratio (EPOP) shows some evidence that falling unemployment might be attributed a shrinking labor force.  The percentage of the population that is employed has dropped from 63.3 percent in December 2007 to 58.5 percent in March 2011, a drop of 4.8 percentage points.  The employment-to-population ratio has not been consistently below 60 percent since the early eighties.

A falling unemployment rate is an unequivocally positive sign for Oklahoma, and impressive growth in personal income is the best news we can hope for when emerging from a prolonged recession. However, if the state economy continues to lose jobs in the coming months and the employment-to-population ratio doesn’t show signs of recovering, we must begin to consider the long-term effects of underemployment.  If a full economic recovery is to be realized, we need enough jobs available for every person who needs one.  Continued underemployment is a drag on economic growth, dampens revenue collections, and puts excess pressure on social services and work supports.