Updating NC Job Numbers

by John Hood

Has North Carolina’s economy turned the corner? It depends on how you define “turn the corner.” And it depends on what measure you choose.

In politics, the measure that typically gets the most attention is unemployment – or to be precise, the U-3 unemployment rate. North Carolina’s U-3 rate was 9.4 percent in December 2012, comparing with the national average rate of 7.8 percent. Our state has consistently had one of the highest unemployment rates in the country since the onset of the Great Recession.

Because Republicans took control of both houses of the North Carolina General Assembly in 2010 in part by campaigning against the economic stewardship of the Democratic Party, both sides have a keen interest in assessing the new GOP majority’s economic record. (The new Republican governor, Pat McCrory, has obviously been in office too short a time to factor into the analysis.)

If we are looking at the standard unemployment rate alone, both sides will be able to produce a useful sound bite. Prior to the GOP takeover of the legislature, the state’s jobless rate rose rapidly – from 8.4 percent in December 2008 to 10.5 percent in December 2010. Under the governance of the Republican legislature, then, the jobless rate has fallen by 1.1 percentage points.

Democrats might point out, however, that North Carolina’s economic trend can’t be interpreted in isolation. The rest of the country was going through recession and (gradual) recovery at roughly the same time. From December 2008 to December 2010, the national U-3 unemployment rate went up by two percentage points, slightly slower than North Carolina’s 2.1 point rise. From December 2010 to December 2012, while North Carolina’s jobless rate dropped 1.1 points, the national jobless rate dropped by 1.5 points.

Still, keep in mind that U-3 unemployment is a fraction. Its value depends on both the numerator and the denominator. North Carolina can be adding jobs every month and not see a commensurate reduction in the unemployment rate if the civilian workforce keeps growing – if working-aged people keeping moving to the state, for example, or previously discouraged workers reenter the job market.

That appears to be what’s been happening in North Carolina over the past couple of years. The unemployment rate is computed from a federal survey of households conducted during each month. According to this survey, the number of employed people in North Carolina has gone up 3.9 percent over the past two years, compared with the national average gain of 2.9 percent. Our unemployment rate hasn’t improved as much vs. the national average, however, because North Carolina has had a relatively large rise in the number of people looking for jobs, thanks in large part to continued in-migration. We are, in other words, importing some unemployment.

Let me throw one more set of measures at you. The federal government conducts a separate survey of business establishments to track monthly changes in the number of jobs. The establishment survey and the household survey don’t always line up. For example, if you ask a business what happened last month, you may be told that 50 people were laid off. But if you ask those 50 people what happened last month, some of those who remain in the labor force will say they are unemployed, others will report getting a new job, and still others will say they are self-employed. These latter two events don’t always show up in the establishment survey. That doesn’t make one survey inherently more useful than the other. They are just different.

Using the establishment survey, I computed that North Carolina’s economy added about 106,000 jobs from December 2010 to December 2012, a 2.7 percent increase over two years. During the previous two years, 2009-2010, North Carolina lost 162,000 jobs by the same measure, a 4 percent drop.

In both cases, our state fared worse than the national average. But the recent period still represented a relative improvement – North Carolina’s rate of job creation was 0.6 percentage points worse than the national average from 2010 to 2012, while our rate of job loss was a full percentage point worse than the national average from 2008 to 2010.

On balance, then, North Carolina Republicans might have a somewhat better political story to tell than their Democratic rivals do. But given how many different factors influence economic trends, and the short periods involved, I wouldn’t push the point too far at the moment. There will be plenty of time – and statistics – with which to make partisan arguments in another couple of years.

John Hood is president of the John Locke Foundation and an NC Spin Panelist