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© Copyright 1997 by the Wyoming Department of Employment, Research & Planning
In the next twelve months, Trends will present in depth examinations of Wyoming industries. Employment levels for the past several years, projections for two years into the future, major indicators or influences in each industry and industries related to those in question will also be discussed. For example, this month includes employment levels for the Construction and Real Estate industries from 1991 to the present, along with two-year projections. Also, housing starts/building permits, interest rates, wages, population, Wyoming Department of Transportation (DOT) road costs and home sales are examined, as well as how they may affect employment levels for the particular industries, and the general trend of the economy.
Examining the last two years of housing starts/building permits and home sales suggests how well Wyoming's economy is performing overall. New construction building permits are often used as a leading economic indicator which forecast the general direction of the economy(1) because they make up the largest part of the Gross Domestic Product (GDP), the Consumer Price Index (CPI)(2) , and fluctuate rapidly with the demand for housing. New construction affects the Building Construction (Standard Industrial Classification SIC 15) and Special Trade (SIC 17) industries first and foremost compared to all other industries. Looking at aggregated employment time series data (measure each month over a period of years, in this case), for past employment and wage interaction in these industries we see employment increasing over time and forecasted to continue growing (refer to the Figure). As we will illustrate, the import on Heavy Construction (SIC 16) lags behind current Construction events.
Previous employment, wages (total payroll), and housing starts for the Construction industry affect current and future total employment. But housing starts and home sales are also directly correlated with employment through the hiring of new workers, the purchase of construction materials and the eventual purchase of household appliances, furniture and other household items; all of which are a function of population growth. As interest rates decline, and incomes and the number of households grow, housing construction activity increases. As interest rates fluctuate, housing starts, costs and sales will move up and down causing employment in the Real Estate and Construction industries to fluctuate over the year. Traditionally, interest rate increases influence the Real Estate industry first. Then the Construction industry is affected six to twelve months later. For example, an increase in interest rates causes total housing costs to increase, along with decreasing the number of housing units built. However, housing starts and costs are correlated with the seasonal factor of weather in Wyoming, with the second and third quarters having the largest number of housing permits issued (refer to the Table).
Employment in the Construction industry also includes heavy construction, particularly in road and airport construction. Looking at the dollar amount DOT let to contract projects, we can see the amount spent by DOT will also affect the Construction employment levels. The aggregated time series data for past employment and wage interaction in Heavy Construction (SIC 16) shows employment has slowed considerably; this may be due to the reduction in federal expenditures(3). Employment forecasts for the next two years are expected to remain flat in this industry (see the Figure).
Examining aggregated time series data for past employment and wage interaction in Real Estate (SIC 65) from 1995 to the first quarter of 1997 helps to explain more about the variability in employment (see the Figure). Construction and Real Estate employment and wages peak in the summer and drop to their lowest in the winter due to the seasonal nature of the Construction industry. Employment hit a low in 1989 after the bust and started to rebound in 1990.
Two other contributors to fluctuations in housing starts and home sales are the income and wage level of the population, and the composition of the population. As average income levels go up beyond inflation, consumer spending power goes up as well, increasing housing starts and sales.
Wages/total payroll explain the largest percentage of the total variation in employment due to the employment and wage correlation. For example, from 1995 to 1996 total payroll increased below the rate of inflation(4), but in the third and fourth quarters, due to bonuses and increases in Construction payrolls, total payroll for the state increased above inflation. In the fourth quarter, total payroll in Big Horn, Hot Springs and Park Counties increased substantially due to pipe line construction. Local impacts like these influence state totals dramatically. Also, Casper employment from 1995 to 1996 had no growth, but in early 1997 the Construction and Real Estate industries increased substantially over the year causing the total Casper employment levels to increase.
Comparing closely related industries such as forestry, lumber, wood products, furniture and building materials will also indicate the strength of the Construction and Real Estate industries. The Construction industry influences the economy as a whole, though more so in some states than others. In the last six months, housing starts and employment(5) have leveled off statewide (see the Figure). Housing starts were around 226 in the first quarter of 1995 compared with 365 in the first quarter of 1996 and 211 in the first quarter of 1997. Many other factors and/or variables will affect the Construction industry and can also be useful as economic indicators. Demographic factors (i.e., age composition of the population, net domestic migration patterns), rental prices and wood prices may all be used in future research to verify our findings.
Mike Evans is a Senior Economist, supervising Bureau of Labor Statistics (BLS) programs with Research & Planning.
1 "Wyoming Housing and Home Improvement Markets: An Economic Indicator", Wyoming Labor Force Trends, December 1995.
2 Federal Register, June 17, 1997, Volume 62, Number 116, pages 32826 and 32827.
3 "Federal Expenditures in Wyoming: A Partial Explanation of our Stagnant Economy", Wyoming Labor Force Trends, June 1997.
4 "Work, Pay and Consumer Spending, Part Two: Current Employment Statistics, Total Payroll and Sales Tax Collection", Wyoming Labor Force Trends, June 1997.
5 "Nonagricultural Wage and Salary Employment", Wyoming Labor Force Trends, Current Issue.
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