Josh Elliott-Traficante

September, 2013

While the unemployment rate in New Hampshire dropped to 5.0% in August, the decline was not caused by an increase in employment, but by a decrease in the size of the workforce. According to the Household Survey, the number of employed residents dropped by 120, the number of unemployed residents dropped by 650, while the labor force as a whole shrank by 770.

The August data continues a trend, seen in the New Hampshire labor market over the last few months, of declining unemployment coupled with a shrinking labor force. This is not unique to the state however; this trend is seen in the national data as well.

This means that discouraged workers are still dropping out of the labor force largely accounting for recent “improvements” in the unemployment rate.

Turning to the Establishment Survey Data, the state had a net loss of 1,000 jobs. The total number of private sector jobs declined by 3,200 and the public sector grew by 2,200.  Areas seeing the biggest losses were Construction (-500), Professional and Business Services (-1,100) and Leisure and Hospitality (-1,100). Sectors seeing the most growth were Local Government (+2,400) and Wholesale Trade (+300).

The Manchester area saw no change in employment in the month of August, while Nashua added 700 jobs, Rochester-Dover: 200 and Portsmouth lost 700.

By Josh Elliott-Traficante

September 6, 2013

The August jobs report seemed rosy on the surface; unemployment dropped from 7.4% to 7.3%, and 169,000 jobs were added. Looking closer at the data we see that this is anything but good news.

While unemployment did drop by just shy of 200,000, the size of the labor force also contracted by 300,000 resulting in more than 500,000 people no longer seeking work. As detailed in earlier posts on the subject, all of the attempts to chalk up this decline to baby boomers retiring, or some other, non-economic phenomena can easily disproved by the data. In fact, most baby boomers are delaying retirement, resulting in an above average labor force participation ratio for that age band. So rather than dragging down the national ratio, they are helping to increase it.

The Labor Force Participation Rate, the measure of how many non-institutionalized, non-enlisted Americans are in the workforce, hit a record low of 63.2%. The last time the rate was this low was August of 1978. At the time, the rate was surging to new highs as many women entered the workforce for the first time. In 2013 on the other hand, the rate has been hovering at near, or hitting in the case of August, record lows. Some decent improvement had been made in the first half of the year; however, all of the gains made for the year have been given up and then some.

Turning to the alternative measures of unemployment, the U-4 rate decreased from 8.0% to 7.8%, U-5 from 8.8% to 8.7% and the U-6 from 14.0% to 13.7%

Oddly enough, the number of people “out of the labor force, but would like a job” actually dropped by roughly 335,000. Why this is the case is not clear. There are some indicators that suggest that it could be a ‘back to school’ effect, but the data is mixed.

The Establishment Survey showed that 169,000 jobs were created in August, of which 152,000 were private sector positions. Industries showing the biggest gains were Retail Trade (+44,000), Healthcare (+38,200), and Food Services (+21,200). Sectors seeing the largest losses were Information (-18,000) and Non-Durable Goods Manufacturing (-8,000). This continues the trend of small numbers of layoffs, combined with low levels of hiring. If the job growth seen in August continued uniformly, to return to 5% unemployment and a pre-recession labor force participation rate, it would take roughly 13 years.

Charlie Arlinghaus

August 21, 2013

As originally published in the New Hampshire Union Leader

Both the state and the country can better focus their efforts on budgets and economic development by following the example and the reasoning of that bastion of conservative economics called Sweden.

In the face of economic crisis, advocates of what they call “stimulus” suggest it is the only alternative to the horrible-sounding “austerity” — as if our only two choices are to give ourselves completely to bureaucrats and administrators to spend as they wish or to subsist on bread and water.

The finance minister of Sweden chose to reject both choices. Anders Borg of Sweden’s right-of-center Moderate Party looks like American magician Penn Jilette, complete with ponytail and earring. But he sounds like Milton Friedman (to be fair, on economics, so does the libertarian-minded Jilette).

While most of Southern Europe got into trouble following the advice of professional advice-givers like the International Monetary Fund, Sweden chose to focus on jobs. According to Borg, “we can see that very little of the stimulus went to the economy. But they are stuck with the debt.” Sweden chose to permanently cut taxes to bring its economy back. Their goal was to create a climate to attract business owners and entrepreneurs.

“Ownership is a production factor. Entrepreneurs are a production factor,” Borg noted. “It is problematic if you drive out entrepreneurs from your country because they are the source of job creation.”

Sweden cut taxes four times (and has proposed a fifth cut this week). After a 20 percent cut in its corporate tax rates, Sweden’s top rate is about half of ours.

The results are worth noting. Sweden’s economic growth has been dramatically higher than the rest of the Euro region’s despite labor costs that, while lower than the European average, are 20 percent higher than in Germany and 40 percent higher than in the United States. In the last two years, the Swedish Kroner has gained 35 percent compared to the Euro.

Borg doesn’t see growth and tax cuts as inconsistent with fighting deficits. His advice to “keep dealing with the deficit because deficits destroy everything else” is consistent with their experience. Swedish debt has declined by 50 percent as a share of the economy during a time when U.S. debt has more than doubled by the same measure.

This idea is neither new nor exclusively Swedish. After the relatively anemic growth of the 1950s and early 1960s, President Kennedy proposed a permanent cut to income tax and corporate tax rates in the United States. Kennedy said “every dollar that is released from taxation that is spent or invested will help create a new job and a new salary. And these new jobs and new salaries can create other jobs and other salaries and more growth for an expanding American economy.”

Kennedy specifically touted his 25 percent cut to the top rate as a means to turn budgetary deficits into budgetary surpluses. In fact, income tax collections went up by 85 percent in the first five years after the cuts came into effect. Real economic growth was twice the post-war average during the nine-year boom that followed.

What the Democratic Party’s Kennedy and the Moderate Party’s Borg have in common is a focus on job growth. More jobs for more people is a better stimulus than any plan to give this department or that commission some spending that was denied in the last budget debate.
At the federal level, this means taxes should go down, not up. At the state level, it means fewer programs and fewer regulations. The most innovative program is one that reduces barriers to entrepreneurs and job creators investing their own money here instead of somewhere else.

Underlying Weaknesses Remain

Josh Elliott-Traficante

The unemployment rate for New Hampshire was 5.1% for the month of July, remaining unchanged from June. According to the Household Survey, the number of employed residents fell by 390, the number of unemployed fell by 460, while the labor force has contracted by 850. This contraction in the labor force is represented in the .1 percentage point drop in the labor force participation rate to 65.7% from 65.8% the month prior.

The recent decline in the size of the labor force, as well as the labor force participation ratio in New Hampshire over the past several months has appeared in the national data as well.

A shrinking labor force is troubling because it indicates that people are discouraged at their prospects and have given up looking for work. While the state is doing better than it had been in the depths of the recession, the retreat is disconcerting.

The Establishment Survey showed the loss of 3,200 jobs across the state, reflecting the weaknesses seen in the Household Survey data. These jobs losses were largely concentrated in Retail Trade (-1,000) and Local Government (-4,100). Sectors seeing growth included Education (+900), Financial Activities (+500) and Construction (+400).

It is worth noting that the recent closures of all of the state’s Stop and Shop locations as well as the closing of 6 Shaw’s stores are not represented in this data. Due to the timing of layoffs, they will appear in subsequent jobs numbers.

Turning to the cities, Rochester-Dover gained 500 jobs, while Manchester and Portsmouth each added 400 jobs. Nashua on the other hand lost 300.

Charlie Arlinghaus

August 7, 2013

As originally published in the New Hampshire Union Leader

In the spirit of carrying coals to Newcastle, I write a newspaper column today on the importance of newspapers to the public square. More specifically, I fear the effect on public policy and the public debate of the continuing decline of newspapers. For all the bluff and bluster so many of us have about new media and technology, the skeletal underpinning of almost all news today is news gathering that comes from the old fashioned, grandfatherly, dead tree, black and white broadsheets we love to ridicule.

As newspapers began to flourish in the 1800s, they became a historical archive of who we are. The history of almost any single event, trend, or period of development can be traced by simply researching the records scratched out on a daily basis in papers right and left, high-brow and low-brow, sensational, and staid.

As radio and, particularly, television became more important people became immersed in media sources that added sound and pictures to the less exciting printed word. Some of that change was reflected in language. The words journalism (which describes a written periodical) and press (the means of producing those written words) began to be replaced by media (which is simply a plural of mediums of communication).

Through the changes and the excitement of television anchors with nice hair, though, much of the underlying work, the more detailed background work that might inform a shorter visual piece, came from an industry that relied on humans gathering information, sifting through it, and explaining it in longer form printed pieces that still managed to encompass a historical record.

I had the interesting experience five or six years ago of sitting in a radio studio, waiting to go on the air, and reading a local newspaper sitting on the desk. About two-thirds of the front page was highlighted and I noticed that the pre-taped news report was taken word for word from the page without credit. The listener thought he got his news from the radio but it was gathered by the newspaper.

Through the rise of broadcast media, newspapers continued to thrive. For many years, a typical newspaper was supported by about 80% advertising revenue and 20% circulation revenue. For more than a half century revenues kept rising from about $20 billion nationally in 1950 to a peak of $65 billion fifty years later.

Then the bottom fell out with modest decline and a collapse during the recession. Today revenues are about what they were in 1950 ($22 billion in 2012). The last few years have seen very small declines in revenue so perhaps things are stabilizing. Certainly things are changing. Online revenues are now 15% of ad revenues. One major paper, The New York Times, has changed its payer mix to 50% ads/50% circulation though that model may be unique to that product.

What is still true is that newspapers remain the most important part of our public square with no obvious replacement available. Many people are quick to tell you that they get all their news from the internet and so have no use for papers. But they’re wrong.

Most blogs, facebook aficionados, and other new media opinion leaders take news gathered by someone else and recast or interpret it. The person who gathered the news you reposted, respun, or re-reported was employed, in most cases, by the supposedly archaic newspaper. Few internet opinion influencers of either right or left go to the hearing, the council meeting, file the public information request, or interview the newsmaker directly. So, perhaps 80-90% of the information being used to form opinions come from the fewer and fewer newsroom employees who remain.

It’s all well and good to claim “I get my news from twitter” but there are few events which your twitter feed covers and even then there are some limitations to capturing nuance and detail in 140 characters.

It is natural for me to fret about the loss of opinion collection and news gathering. I write down my thoughts on a weekly basis for “old media” and re-pontificate those scribblings regularly over the airwaves and the newfangled intertubes. But you should worry too.

The blogger you like to read and your favorite twitter smart aleck needs the information that he or she can react to or battle wits against. Bloviating politicians get windier when no one is there to listen to and report on their more ridiculous output. Think of the mischief they can get into if no one is watching.

Worst of all, without some poor guy just out of journalism school to take our place, we might have to attend all those meetings or read the state’s financial reports ourselves.

Josh Elliott-Traficante

August 2013

According to the data released by the Bureau of Labor Statistics, the unemployment rate dropped by .2 percentage points, to 7.4%. The Establishment Survey Data showed the creation of 161,000 non-farm pay roll jobs. On the surface it looks like a fairly decent report: unemployment down and job growth, while not stellar, is enough to keep up with natural population growth.

Digging into the data however, what once may have been a mediocre report quickly turns gloomy. The drop in unemployment was not the result of people getting jobs; rather, they gave up looking for work and left the workforce entirely. The number of unemployed decreased by 263,000 while the number of those no longer in the labor force increased by 240,000.

This decline was reflected in the .1 percentage point drop in the critical labor force participation rate to 63.4. The labor force participation rate has been hovering close to record lows for the better part of the last year. The rate had climbed .3 points over the last several months, showing some, albeit minor, improvement. Whether the drop in July is just a temporary setback from the improving trend of the last few months, or a return to just ‘skipping along the bottom’ remains to be seen.

The other measures of unemployment saw drops in their rates, [U-4: 8.2% to 8.0%]  [U-5: 9.1% to 8.8%]  [U-6: 14.3% to 14.0%] however, these too can be attributed to the contraction of the labor force, not economic growth.

Since those no longer in the workforce do not count towards the unemployment rate, what would the rate look like if they were? If they were counted as unemployed and taking into account historical norms, the unemployment rate for July would be 8.5%. (Follow the link for an explanation of the methodology

Looking at the Establishment Survey Data, the areas seeing the biggest growth were Retail Trade (+ 46,800) and Food and Drink Services (+38,400). While job growth is always a good thing and hiring in these sectors are indicative of growing consumer confidence, jobs in these sector are largely part time positions. Job losses were minor and scattered over several, non-related sectors, indicative of issues within certain sectors and not of the economy at large.

Despite the optimistic appearance of a .2 percentage point drop in the unemployment rate, the drop is a sign of economic weakness, not strength.

Charlie Arlinghaus

July 24, 2013

As originally published in the New Hampshire Union Leader

The hardest thing for any government to do is to pay attention to the long term. The system creates incentives for politicians to focus on short term solutions and ignore long term outlooks. The inability to look beyond this morning’s political fight defines the dysfunctional entity that passes for a federal government but has also crept into our state politics as well.

Policy is made by elected officials, usually in two year increments. Whether the particular elected official serves for just two years or longer, he or she is nonetheless focused on the next biennial election. Things that will turn out beneficial five or six years from now are of less interest.

The federal budget is case study in short term thinking. Every federally elected official believes that the United States should balance its budget. But there is no actual requirement to balance the budget so they don’t. As a result the country’s debt has grown every year since 1957 — growing from $5.8 trillion to $16.9 trillion just in the last twelve years.

Automatic spending reductions were enacted because no elected officials could possibly withstand the electoral onslaught of any reduction in the growth of spending. Mind you, the reduced increases (or automatic cuts depending on your perspective) wouldn’t come anywhere close to balancing the budget. Nonetheless they were portrayed as draconian austerity which no politician could withstand.

The benefits of balancing the budget would accrue over time as they kept us from a fate similar to some European nations whose fiscal house has collapsed. That sort of benefit is long term and subtle. The pain of even the smallest reductions is considered too much to openly advocate. So an automatic reduction is crafted that politicians can all be annoyed with but that does their job for them.

At the state level, we don’t have any such option. The federal politicians are incapable of balancing the budget because they don’t have to. At the state level, we have to. We may not shrug our shoulders and run a deficit. The budget must balance. But even in that construct, some decisions are passed off.

An example of what we can’t avoid was the 2011 state budget. One elected official explained to me “we spent every dime had. We just didn’t spend any we didn’t have.”

Whatever cuts were made, were dictated not by a policy choice but budget necessity. There was an argument over whether revenue projections were set high enough (the final budget was as close to spot on as they come). However, once that number was determined every dime was spent and no more.

Previous budgets had been at higher levels through the introduction of borrowing and two federal bailout programs for state budgets. Those sources were gone and the budget had to come back to reality. Many politicians knew they would be politically attacked for it and they were. But the new balance formed the basis of the next budget too.

There are two areas, though, were the incentives don’t align: state debt and infrastructure.

The state’s debt skyrocketed in the period from 2007-2011 after having been steady for more than a decade under governors of both parties. The debt explosion saw the state’s debt climb from $654 million to $939 million in just four years. New Hampshire’s debt is still good by national standards and the growth has slowed since. But it was easier for some politicians to borrow money than to not spend it. New Hampshire should guard against that Washington mentality.

Transportation spending is also an incentive problem. In general terms, we don’t raise enough money to pay for maintaining the current system of roads. Pavement conditions deteriorate more and more each year (replacing costs a lot more than maintaining) and our bridges were rated 41st worst in the country by the libertarian Reason Foundation.

Gas tax receipts are almost identical to what they were 10 years ago before adjusting for inflation even though spending increased 72%. Gimmicks have made up the difference – the turnpike paid $100 million to the highway fund for a few miles of highway and accelerated the payments over a few years. In addition, a temporary and regressive motor vehicle surcharge plus a one-time federal stimulus grant plugged holes temporarily.

The difficulty is that bridges last 75 to 100 years and no one can campaign on “we completed routine maintenance that will extend the bridge’s life to 2040.” It benefits some guy running 30 years from now but does nothing for me.

Sound fiscal management is boring and boring doesn’t win elections. I wish it did.

Josh Elliott-Traficante

The unemployment rate in New Hampshire fell by one tenth of a percentage point in June to 5.2%, representing a decrease in the number of unemployed by 1400. The number of jobs created according to the Household Survey however was only 250, meaning the balance of the no longer unemployed (1,150) left the workforce. While the size of the state’s labor force has rebound since the depths of the recession, the last 6 months have seen a series of declines.

Whether this is a short term pull back or the sign of a larger trend remains to be seen. While it is true that New Hampshire is a “graying” state, the dip as of late is too large and too rapid to be attributed to the aging of the labor force.

Turning to the Establishment Survey Data, 1,900 non-farm jobs were created in the month of June. Sectors seeing the largest gains were Durable Goods Manufacturing (+600), Financial Activities (+700) and Accommodation and Food Services (+1,700). Retail Trade (-600), Professional, Scientific and Technical Services (-600) and State Government (-900).[i]

The cities do not seem to have fared as well this month, with all four losing jobs: Manchester     -500, Nashua -500, Rochester-Dover -600 and Portsmouth -200.

[i] This ‘loss’ seems to be a partial correction from last month’s gain of 1300 state government jobs


Grant D. Bosse

July 9, 2013

As originally published in the Concord Monitor

Gov. Maggie Hassan was flanked by Republican and Democratic leaders as she signed into a law a much-needed update of New Hampshire’s Business Corporation Act. There were no great ideological issues at stake. The bill brings New Hampshire government up to date on handling technical corporate practices, such as domicile and dissolution.

The legislation was a top priority for the New Hampshire Business and Industry Association and was expertly guided through the State House by Republican Sen. Jeb Bradley. The new code goes into effect in January.

Business owners should also be happy for a change that didn’t happen. Gov. Hassan has hoped to delay two popular tax reforms approved by the last Legislature in order to boost tax revenues in her proposed budget.

Last year, Republicans and Democrats overwhelmingly approved increasing the business income threshold for paying the Business Enterprise Tax. They also extended the ability of businesses to carry forward BET payments against the Business Profits Tax. These small changes in the tax code benefited struggling small firms and those just starting to show a profit.

Hassan would have reinstituted the lower BET threshold just months after it went up and put off the carry-forward for two years. That would have meant a tax increase of $17 million on small business, and it would have undermined confidence in New Hampshire government.

The private sector doesn’t like high taxes, but it despises uncertainty. Repealing these two modest tax reforms would have sent a horrible signal to anyone looking to start a business in New Hampshire just to fuel a small increase in state spending.

In a year when partisan rhetoric overstated minor policy differences, it’s nice to see Republicans and Democrats working together to make New Hampshire more welcoming to business owners.

Charlie Arlinghaus

July 17, 2013

As originally published in the New Hampshire Union Leader

There is a right way and a wrong way for the government to do something stupid. It won’t surprise anyone that the current administration in Washington has chosen the wrong – and almost certainly illegal – way while New Hampshire managed to do a whole host of silly things but in the right way.

Routinely, governments find that laws previously passed are quite inconvenient and get in the way of something they are trying to do (or not do) today. But they don’t want to repeal the law for the future, they just don’t want to follow it this year.

That happened recently with the byzantine federal health care law. Those following closely will recall that the law includes mandates to purchase health insurance for both individuals and for businesses. Implementing the law has taken longer and been more complicated than some administrators had expected.

Citing concerns about the complexity of the requirements under the law, the administration unilaterally suspended for a year the portion of the law that applies to businesses. They didn’t ask Congress to pass a temporary repeal. They merely announced that they will cease to enforce a law of the land for a year –businesses get this break, individuals are still out of luck. Apparently the law is too complex for businesses to follow but perfectly fine for individuals.

Businesses with more than 50 employees, the ones to whom the law applies, are only a few percent of all firms but they account for 72% of employment.

While I think delaying the very complex law is reasonable, I would have delayed for both businesses and individuals just to be fair. But, a much more important point, administrators do not have the authority to pick and choose which laws they will enforce or not. If a law making the tax rate 35% passes, can the IRS announce it will only enforce the first 30%? If Congress chooses to require airbags on new cars, would it be OK for the transportation secretary to announce that they won’t actually enforce that?

Administrations can request laws be repealed or suspended but they may not choose to enforce or not laws they disagree with. If a Republican had replaced the current president, would it have been acceptable for him to not try to repeal ObamaCare but instead just announce he won’t be enforcing it? Of course not.

In New Hampshire, we pass temporary restraints on laws all the time. But the governor doesn’t decide to just enforce it. Instead the legislature passes a law temporarily suspending another one.

For example, technically we have a law that requires surpluses left at the end of the two-year cycle to be deposited into a “rainy day fund” – in theory to allow the extra in good years to be a reserve to balance out small revenue shortfalls in bad times. But every budget for the last five has suspended that law.

After state reserves had been drained from $188 million to $17 million by 2003, then-Gov. Craig Benson set of a goal of building the state’s operating reserving back to a more prudent $100 million. Benson’s $82.2 million surplus would have brought the state’s reserves to $99.5 million had the law been allowed to work. Instead, the next governor and next legislature passed a law suspending the rainy day fund law so the surplus would be available for them to spend.

The surplus turned out larger than they thought so they put some of it and some of the $51 million surplus two years later aside but they kept and spent a total of $61 million that should have been set aside for the rainy day that was on their doorstep.

The Republican legislature that decried this sort of practice in 2011 nonetheless passed a law preventing $17 million from going in the rainy day fund and the current divided government hangs on to that $17m and an additional $39m surplus the last budget generated. At this point, it isn’t clear why we have a rainy day fund at all.

As annoying as I find the bipartisan effort to neuter the state’s rainy day fund, our governors and legislatures do it legally. This was never done by executive fiat. Instead, the law was duly suspended by passing another law as opposed to administration in Washington which is just refusing to enforce the laws they are elected to administer.