Thursday, October 9, 2014

All indications point to prolonged slump

As November approaches, it may be important to understand where Guam's economy stands (from those indicators which are readily available). As a student of economics, I am most interested in knowing how big the output gap is. There are a number of lines of evidence that one can use to tell how far we are from full employment, which I will reproduce below:
  • Employment as a Percent of the 16-64 Population
  • Average Hourly Wages in the Private Sector
  • The Employment-Population Ratio
  • Changes in the Rate of Inflation
The sources of these pieces of information are the Current Employment Reports and the Unemployment Situation, both released by the Guam Department of Labor Bureau of Labor Statistics, and the Guam Consumer Price Index, which is released by the Bureau of Statistics and Plans.


Current Employment Reports

Data Sources: Current Employment Reports (GDOL), Census Demographic Database

The above graph shows the 5-quarter centered moving averages of employment as a percent of the 16-64 population. The centered average begins declining just as the current administration is about to take office. I should point out that the peak period was actually December 2010 (just before the Calvo-Tenorio Administration took office), which is masked in this graph (looking like it is September 2010), since I'm using a centered moving average, which would give a pretty good indication of the trend, but turning points tend to be distorted. Another example is that the low point is actually located on in the June 2012, but the centered moving average low point is at the December 2011. If there is a takeaway from this data, it is that, adjusted for demographics, there appears to be a large shortfall in employment since shortly after the Calvo-Tenorio Administration took office and there has been little progress in bringing back full employment.

Data Sources: Current Employment Reports (GDOL)

The graph above indicates that a similar "depression" has occurred in the average hourly wage of private sector workers. As one can see, prior to 2011, the progress of wages tracked a trend line, showing signs of movement back toward that line during practically every deviation.  In 2011, wages slumped and basically haven't come back to trend.

Unemployment Situation

Source: Unemployment Situations (GDOL)

The above graph represents the employment-population from the first quarter of 2011 to the third quarter of 2013, the latest report which this administration has released. For most of the data, I used a three-quarter centered moving average, but for the first quarter of 2011, there was not any data immediately before or after, so the number is not an average. In the first quarter of 2012 and the third quarter of 2013, I took an average of that quarter and the nearest quarter. If you compare this result with the graph of employment as a percent of the 16-64 population, you'll find that these are very similar, which is an encouraging sign. The employment-population ratio is simply taking the percent of the civilian non-institutional population which is employed, while the other is doing something very similar with the current employment report data. The numbers won't line up for various reasons, but they can give a complementary look at the position of the labor market.

Guam Consumer Price Index

Data Source: Guam Consumer Price Index

The Guam Consumer Price Index data is very interesting because by economic theory (specifically the new keynesian phillips curve), we would expect changes in the rate of inflation to be negatively correlated with the unemployment rate or, if one uses the measures shown earlier, we would expect changes to be positively correlated with the employment ratio or employment as a percent of the 16-64 population.  What we find is that the 2-year trailing average inflation rate begins declining in 2012, which, if I chose to center this upon the middle period where the rate of inflation peaked, would have been the beginning of 2011. Core inflation is the better measure of inflation because it usually better represents the longer-term trend of inflation, rather than bouncing around as much as headline inflation does. What this graph illustrates is that Guam's economy may be headed for outright deflation, which demonstrates the weakness of our economy and, potentially, hints that the economy could remain depressed.

Conclusion

To conclude, in brief, Guam's economy, by the lines of evidence I have examined, seems to have suffered from a prolonged slump since just after the Calvo-Tenorio Adminstration began and may remain depressed for a while longer. I would not say this is destined because (a) things can be done to address shortfalls in aggregate demand (which is at the center of the depressed economy) and (b) things may change without a specific intervention (or as some say, "The trend is your friend till the end," or, alternately, "stuff happens.").

Friday, February 21, 2014

Facts about Guam's latest unemployment report

A recent anonymous commenter on my last blog post, "Running to catch up to low employment numbers" wrote the following:
So you counter hard evidence that the economy is improving with simple pessimistic conjecture? Anyone can be a naysayer, but to be a naysayer in the face of hard evidence of improvement just shows that the you take the contrarianism that Democrats have exhibited with our administration as gospel.
This criticism of my blog post is incorrect because my argument was not about whether the economy was getting better, but about the depressed state in which Guam's economy finds itself.  Obviously this comment is one piece of evidence that there is popular demand for an analysis of Guam's employment situation and whether it is, in fact, getting better.  I would certainly hope so, but let's see where the evidence leads.

Look at a snapshot of the latest unemployment report and the year-on-year changes in different measures.  According to the September 2013 unemployment report:
  • The Civilian Labor Force declined by 1,550, or 2.1%.
  • Employment declined by 1,300, or 2.0%.
  • Full Time Employment declined by 2,260, or 4.2%.
  • Part Time Employment increased by 1,520.
  • Unemployment declined by 810.
Is this hard evidence of improvement? No. Full time employment declined by about 4.2% and employment overall declined by 2.0%.  Unemployment declined but more than all of the decline in employment is accounted for in the drop in labor force participation.  Additionally, the number of people outside of the labor force who did not want a job increased by about 3,380. Is that good news? No. It is a further sign of economic stagnation: that many people have not only stopped looking for jobs, but now are telling themselves they didn't want one, in the first place.

When I approach these numbers, I prefer to actually look at ratios rather than the raw numbers, since the reported numbers are no more than estimates of the current population.  The main ratio I examine is the employment-population ratio, since it gives a good glimpse of how many of Guam's civilian population are employed. What we find is that the employment ratio was 53.7% in September 2012 but only 52.5% in September 2013, a decline of 0.8 percentage points in a year.  A curious fact is that the employment-population ratio has only been at or below 52.5% one time before the current administration, in May 1976. As I pointed out in my previous post, the employment-population ratio has remained below its rate of 54.3% in March 2011 since that point, as far as data is available.  Here is a list of quarters where employment ratio was at or lower than 54.3%:
  • May 1976: 51.2%
  • March 1982: 53.6%
  • March 2011: 54.3%
  • March 2012: 49.9%
  • June 2012: 51.9%
  • September 2012: 53.7%
  • December 2012: 53.4%
  • March 2013: 52.4%
  • June 2013: 53.7%
  • September 2013: 52.5%
Please note that only two are prior to the current administration. Unfortunately, employment remains very low and the apparent direction of change is not unambiguously positive.

Monday, February 17, 2014

Running to catch up to low employment numbers

Since the early days of the Governor Eddie Calvo's administration, Guam's employment has struggled to get back to comparable levels of opportunity experienced in the first months of 2011. Shortly after Governor Calvo took office, the employment-population ratio was 54.2% (March 2011), currently the ratio stands at 52.5% (September 2013), a loss of 1.7% percentage points.  Here are some numbers to put things into perspective:


  • The labor participation rate has declined from 62.6% in March 2011 to 58.9% in September 2013.
  • Full time employment has declined by 2,270 or about 4.2% from March 2011 (54,450) to September 2011 (52,180), while part time employment has increased by 1,570.
  • From the Current Employment Reports, we can find that over the same period, average hourly private sector wages increased by only 3.2%, while the Consumer Price Index increased by 5.2%. That means that an average hour of work for production workers in September buys 1.9% less stuff than in March 2011. If this trend continues, the average private sector hourly wage will buy 5.2% less stuff by March 2019, right after the next elected governor leaves office.

The Governor's office recently issued a press release claiming victory over unemployment, proclaiming, "Unemployment Drops… in Almost Every Category." That's correct, as far as it goes, but it is terribly misleading if you don't take a longer view and look at the measures that really matter to the quality of life of many Guamanians. They also point out that those who are not in the labor force, but want a job is down. That is correct, but it probably has more to do with the length of unemployment and the loss of hope that can come with extended unemployment than a sign that things are getting better. If you look at just about any method of measuring employment without looking at misleading unemployment numbers, it's a dismal picture.

Right now, there is a little blip up in the data that indicates that maybe employment is increasing, but I'm not optimistic that there is a positive trend at this point.

Update: a good friend of mine has pointed out that I should have written 1.7 percentage points instead of 1.7%. Since he's right, I've corrected the figure. The percent change is actually -3.1%.

Wednesday, October 16, 2013

Lieutenant Governor Tenorio comes out against paying tax refunds

Tuesday's Pacific Daily News had a letter from Lieutenant Governor Ray Tenorio where he came out against Governor Eddie Calvo's decision to use the $15 million Section 30 windfall for tax refunds.

However, rather than acknowledge that if the Lieutenant Governor has a bone to pick with anyone, he should turn to his boss, Tenorio emerged with partisan vitriol:
Sen. Aline Yamashita sponsored a bill that would have funded a plan to maintain all public schools and build new ones. The governor felt it was such a critical bill, he called the Legislature into special session to vote on it.
Instead of acting on the important bill, the legislative majority felt session was unnecessary, so they adjourned before even talking about it. That bill would have started the process of funding Sanchez High and all the other school facilities.[1]
In other words, he is accusing the Democrats in the legislature for killing Aline Yamashita's bill. The bill Lieutenant Governor Tenorio is discussing is Bill No. 184-32 (COR), which was introduced by Senator Aline Yamashita, and would have appropriated $3 million to implement Public-Private Partnerships to maintain, operate and repair facilities of the Guam Department of Education.[2]

Lieutenant Governor Tenorio is right that the majority of senators in the Guam Legislature removed the bill from the session agenda, but his implication that the bill was killed by the Democratic majority is dead wrong. At that point, the bill could have received a public hearing and gone through the standard legislative process.

Governor Calvo destroyed any chance that the bill would become law, when he used the funding source identified in the bill to pay tax refunds. It is hard to argue against paying people the tax refunds that are owed to them by the government of Guam, but that is what Lieutenant Governor Tenorio is arguing, implicitly.

Probably most people would agree with Lieutenant Governor Tenorio that our public schools should be well-maintained. On the other hand, tax refunds represent borrowed money that has to be paid back soon. Currently, the government of Guam is required to pay tax refunds within 6 months. The Governor is meeting the minimum requirements of his job, by paying tax refunds within the legally required time-frame.

Perhaps the Lieutenant Governor would rather divert money for tax refunds to operational expenses of the government, but I do not think that is a good idea. If Lieutenant Governor Tenorio has a problem with paying tax refunds instead of using the $3 million for maintaining public schools, he should take it up with his boss.


Friday, October 11, 2013

Surprise! Low employment associated with bad things

I just read an extended 1,000+ word free advertisement rant column by Governor Eddie Calvo published in the Pacific Daily News today. Throughout the column, Governor Calvo talked about everything but the obvious, that most of the problems he cited are primarily caused by low employment.[1]

Wednesday, October 2, 2013

The truth about the government shutdown (as I see it)

Yesterday, the U.S. Federal Government shut down. The Pacific Daily News ran a story online titled, "BREAKING NEWS: Federal government shuts down". Surprisingly, the Pacific Daily News' initial release was relatively accurate in its characterization of the cause of the shutdown:
The federal government shut down for the first time in nearly two decades following more than a week of legislative jockeying by House Republicans to extract concessions from President Obama and Senate Democrats on the Affordable Care Act.[1]

Tuesday, September 10, 2013

John Boehner ignores the elephant in the room

Two days ago, Speaker of the House of Representatives', John Boehner's, editorial was printed in the Pacific Daily News. In it, Mr. Boehner said a few misleading things and left very important things unsaid about the U.S.'s financial conditions and its impact on the U.S. economy.