How do we know what’s happening to our state’s economy? Certainly we can rely on our personal experiences, but there’s no assurance that what’s happening in our own economic life is representative of the entire state.
This is why we rely on economic statistics to give us an idea of what’s occurring. But there are lots of economic numbers and measures. What do they mean, and what are they saying about our state’s economy today? Let me try to give you a road map, and then let you decide.
The gold standard for measurement of the economy is gross domestic product, or GDP. Think of GDP as the value of total production of both products and services in a particular region, like a country or state. The value of anything used in the production made outside the region is not included. Thus, GDP only includes the work of people and other resources from inside a state like North Carolina. This is a big reason why economists like it.
Updates to GDP are available every three months for the nation but only every year for states.
Personal income is another closely watched economic measure. For a state, it includes income to households from all sources — earnings from working, investment returns, pensions, Social Security and monies from various public-assistance programs. It is often expressed on a per person basis, going by the name per capita income.
It is important to recognize that per capita income is not the same as a worker’s salary. The income included is broader than what is earned from working. Also, in expressing the income on a per person basis, all persons are used, those working, not working, retired and including children.
Fortunately, there is a measure focused only on what people receive from working. It is called compensation per worker, and luckily, it is available for each state. The compensation includes both what a worker earns in salary or wages plus the value of benefits (health insurance, sick leave, vacation time and company retirement contributions).
Still, there is no question that the most followed economic statistics are those related to jobs. Unfortunately, measuring something that would appear to be simple — like jobs — can be complicated. There are three commonly followed job statistics: the unemployment rate, the number of jobs derived from interviewing people and the number of jobs calculated by interviewing businesses. Each of these measures is based on a statistical sample; that is, they are not 100 percent counts, and the samples are run by the federal government.
And each measure has its own pluses and minuses. The count from interviewing households includes people working away from home or at home as well as at new business start-ups. The interviews of existing businesses may miss some of these. However, the household interviews are a much smaller sample than the business interviews, so the latter have an edge in statistical robustness. Finally, the unemployment rate can move around solely based on whether jobless individuals are actively looking for work.
Whew, that’s a lot of statistics! Now what do they say about the current condition of the North Carolina economy?
GDP is up in North Carolina over the last three years, and is now above pre-recessionary levels. Last year (2012), growth in GDP in North Carolina was actually faster than in the nation.
The pattern in personal income has been the same, with a definite rebound since 2009. Per capita personal income fell from 2007 to 2009 but is up from 2009 to 2012. Compared to the nation, however, per capita personal income in North Carolina fell more during the recession, meaning the ratio of North Carolina per capita personal income to U.S. per capita personal income is lower today than prior to the recession.
But in contrast, compensation for the average North Carolina worker has been rising faster than in the nation, resulting in the ratio for North Carolina to the nation now being higher than in the past!
Finally, what about jobs? Both job surveys (household and business) show North Carolina has added jobs at a faster rate than the nation between the bottom of the job market in early 2010 to now. Why then is our state’s jobless rate still more than a percentage point higher than the national rate? A big part of the answer is that our labor force has continued to expand faster than the nation’s. During the recession North Carolina’s labor force grew while the nation’s contracted; in the last four years, the state’s labor force increased one-third faster than the country’s. People continue to move to North Carolina, and our schools are graduating future workers at a faster clip. If these individuals don’t immediately find work, they are unemployed.
Statistics can be confusing — believe me, I know — and they can be interpreted in different ways. I’ve given you the numbers; now you decide on the interpretation.
Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy.