Following the release of May jobs data on Friday, we spoke with a very glum Tom Stinson. Minnesota’s state economist said that the employment figures came to about 10 percent of the real job growth he’d been hoping to see in the report.
Closer to home, said Stinson, payroll withholding taxes and gross sales tax receipts have been a little higher than expected. But those gains, he added, have been more or less canceled out by final tax year 2009 receipts that are even lower than forecast.
PIM: In the past couple of days, you’ve seen the May jobs figures and a new economic forecast from Global Insight. What do you make of them?
Tom Stinson: Let’s talk about the May jobs figures first, because they’re real information. Global Insight’s just a forecast. The May job figures were really disappointing – very, very disappointing. They’re still positive after you take the census workers out, but they weren’t nearly as positive as we’d hoped. They just aren’t satisfactory at all for this point in the recovery.
We added 431,000, but 411,000 of them were census workers, so that means we really only added 20,000 jobs. We need to add somewhere around 150,000 jobs a month just to stay even with the growth in the labor force. Over the last two months, we’ve added about 125,000 jobs. In April we added over 200,000, so that was good. But now we’ve dipped back a lot. And if you look since the first of the year, we’re not anywhere close to being on that 150,000 average [pace].
There was some good news in the jobs report as well. The work week hours are up. Earnings are up. That means that people have more money to spend, and if they spend more money, there’s going to be more demand for goods and services, and that’s going to stimulate the demand for more jobs, and we get that virtuous cycle going.
But this was just really disappointing. I was looking for a number more on the order of 200,000 after taking out the census workers.
The Global Insight forecast came out [Thursday] ahead of the jobs numbers, so that information isn’t reflected in Global Insight’s forecast. They are slightly – but only slightly – more optimistic than they were last February. What they’re saying is that they now think real GDP growth in 2010 is going to be on the order of 3.4 percent. In February, the estimate was about 3 percent. Based on these [jobs] numbers, and other things being equal, they’re probably going to ratchet those back down a little more. That’s good for the state’s financial outlook, because it’s always good to have the economy doing a little bit better than you thought rather than a little worse than you thought.
We’re still in a very subdued recovery. That’s what we forecast, and it’s what we’ve been talking about for most of the last two years – that this is going to be a very slow recovery. It’s not going to be a V-shaped recovery. And that forecast is being borne out. Things are more or less on track, but it’s not the path that we would really like to be on.
PIM: So the jobs figures reflected about 10 percent of the real growth you were hoping to see. Do any explanations come to mind for how we underperformed so badly?
Stinson: There’s not really any good information as to what’s going on. Of course these figures can be revised, up or down, next month or the month after. This is a survey, it’s not a complete count of all jobs. That comes later. So if there are new firms being formed or new firms adding employees, that wouldn’t be caught until later on, through revisions.
At this point in the recovery, one would expect that you would be seeing some new firms start up. And it’s always hard to know how much in the way of start-ups have occurred in the previous month or so. In a single month, you can have noise come into the statistics. Maybe more jobs were attributed to the prior month than appropriate, for example. If you take a two-month average [for April and May], we’re at 125,000.
That’s just a little less than what we need to keep the unemployment rate even. But that’s not good enough in the situation that we’re in. Coming out of the Great Recession, we have an unemployment rate at almost 10 percent. It came down a little this month, but it’s still way unacceptably high – more than double what would be acceptable. We need to see job growth of 200,000, 250,000, 300,000 a month.
It’s not that we’re back where we were in 2008 and early 2009, where we were losing hundreds of thousands of jobs each month. It’s just that we’re not growing as fast as we had hoped.
PIM: There are certain key indicators you look at in monthly state revenues, like the withholding tax. How have they been looking lately?
Stinson: Withholding’s actually running just a little bit better than we thought. Gross sales tax receipts are also running just a little better than we thought. So that’s good news. Now the bad news with respect to [tax receipts] is that the final payments and refunds [for tax year 2009] to this point appear to be noticeably less than we thought.
That reflects not how the economy is doing right now, but how it did in 2009. That would say that the economy was even weaker in 2009 than we thought it was, and we didn’t think it was very strong.
We had Minnesota wages declining about 5.5 percent between 2008 and 2009. That’s the first time we’ve ever seen a decline on a year-over-year basis, let alone a decline of that magnitude. We had capital gains down 50 percent in 2008 and another 25 percent in 2009, so we had capital gains dropping by more than 60 percent compared to what they were in 2007.
We were pretty conservative, we thought, but it appears that we weren’t conservative enough with the estimate for 2009, and that’s showing up as more refunds and fewer final payments than we anticipated.