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© Copyright 1997 by the Wyoming Department of Employment, Research & Planning

For the past several months there has been very little growth in Wyoming's economy. One possible explanation is the slowdown in growth of federal expenditures in our state. This article will illustrate the size of federal spending in Wyoming, explain how growth in federal spending has slowed across almost all states, and describe the relationship between federal spending and total employment in our state.

Relative Size of Federal Expenditures

By some measures, the federal government does not seem to have a large presence in Wyoming. For example, in 1995 there were only 7,465 federal employees in the state. That is just 3.5 percent of the unemployment insurance (UI) covered workforce. However, if we look at all federal expenditures in the state, we see the true size of the federal sector. In fiscal year 1996, the federal government spent 2.5 billion dollars in Wyoming⁽¹⁾. Compare this to our state's total agricultural output of less than one billion dollars⁽²⁾, total UI covered wages of 4.7 billion dollars⁽³⁾ or a gross state product of around 13 billion dollars⁽⁴⁾ and the potential impact of a change in federal spending becomes very apparent.

In Table 1, total federal spending for fiscal year 1995 is compared with total covered wages for 1995, and the 50 states are ranked by their dependence on federal expenditures. Wyoming is 15th in the nation. Another measure of our dependence on federal funding is the amount of funds Wyoming receives per capita each year. For fiscal year 1996 in the category of grants to state and local governments, Wyoming ranks second in the nation (Alaska is first), and in the category of federal salaries and wages Wyoming is 10th.

Slowdown in Growth of Federal Expenditures

From fiscal year 1983 to 1995, federal expenditures in Wyoming grew at an average rate of 6.3 percent per year, but from 1995 to 1996 they only grew 0.36 percent. In other words, the growth in federal expenditures in Wyoming all but stopped. This situation is not unique to Wyoming. Table 2 shows that in almost all states the 1995-1996 change in federal expenditures was lower than the average of 1987 to 1995.

Federal expenditures contain several components--grants to state and local governments (i.e. federal transportation grants, unemployment insurance administration grants, etc), Salaries and wages (for federal employees), direct payments for individuals (i.e. Social Security, federal retirement benefits, etc.), procurements, and other direct expenditures. Of these five components, direct payments for individuals is the largest, making up more than 47 percent of the total. Grants to state and local governments is second, and salaries & wages are third. This can be seen in Figure 1.

Where has spending growth slowed the most? All of the five components showed less growth in Wyoming from 1995 to 1996 than the average over previous years. However, the most obvious decline was in grants to state and local governments, which fell by 40 million dollars from 1995 to 1996.

Figure 2 is a scatterplot representation of data from Tables 1 and 2. On the X-axis is federal spending as a percentage of covered wages (this variable is used as a measure of a state's dependence on federal spending). The Y-axis is the percent change in federal spending from 1995 to 1996. States in the lower right corner were highly dependent on federal spending and saw a decrease in spending while states in the lower left corner saw a similar decrease in spending, but were less dependent on federal expenditures. This graph suggests that Wyoming, North and South Dakota, and the other six states in the lower right (shaded) area of the scatterplot are in the precarious position of being dependent on federal expenditures and having very low or negative growth in spending.

Relationship between Federal Expenditures and Employment

As the relative size of federal expenditures might suggest, there is a correlation between the amount the federal government spends in Wyoming and the performance of our state's economy. Running a linear regression of the year to year change in federal expenditures on the change in nonagricultural employment from 1983 to 1996 revealed that the change in federal spending explained over 25 percent of the change in nonagricultural employment (R²=0.261) and the relationship was significant (t=2.289) at the five percent level. The coefficient for expenditures was 39, meaning that this model predicts that for each increase (or decrease) in federal spending of $1 million, employment increases (or decreases) by 39 people. The results of this regression are shown in Table 3. Figure 3 is a graphical representation of the relationship expressed in the regression equation.

Conclusion

Federal expenditures make up a significant part of our state's economy. The recent slowdown in their growth seems to have a negative effect on employment growth in Wyoming. While this analysis does not show that the slowdown in growth of federal spending in Wyoming has caused the slowdown in our economy, it does show that there is a positive linear relationship between the two variables. Further research is needed to better understand this relationship and its consequences for our state's economy.

David Bullard is a Statistician with Research & Planning and is an Associate Editor of TRENDS.

1 U.S. Bureau of the Census Federal Expenditures by State for Fiscal Year 1996. A downloadable PDF of this report is available here.

2 Economic Research Service, U.S. Department of Agriculture, Wyoming Farm Income Indicators 1991-1995.

3 Research & Planning, Wyoming Department of Employment, Annual Covered Employment and Wages 1995.

4 Economic Analysis Division, Wyoming Department of Administration and Information, Equality State Almanac 1996.

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