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NM grapples with diversity, job growth

ALBUQUERQUE, N.M. — Here are a couple of goals that unite leaders in the state, regardless of party affiliation: Bring more jobs to New Mexico and diversify the state’s economy.

It’s been something of a mantra since at least the Great Recession, which officially ended in summer 2009 but continues to traumatize the state’s economy. The recession, plus an overall loss of government jobs and a plunge in oil prices several years ago, has caused a clarion call to lure new businesses to New Mexico and to increase the share of private sector jobs in the state’s employment picture.

So how have we been doing?

When it comes to job growth, the number of non-farm jobs in the state has increased by 3.7 percent since the end of 2010, just before Gov. Susana Martinez took office, according to the U.S. Bureau of Labor Statistics. That translates to 29,800 new jobs, and that’s good news for the people hired to fill those positions and the businesses they frequent.

But job growth nationally for that period was more than three times higher, at 12 percent. And the total number of jobs in the state is still 2 percent below the number New Mexico had just before the recession started.

Matthew Christie sets a table at a Hotel Chaco restaurant. While hospitality-related jobs have been on the upswing in New Mexico, growth in the state’s overall private sector has been muted. (Marla Brose/Albuquerque Journal)

Diversification? It depends on whom you’re asking.

It’s not a pretty picture, according to two leading economists at the state’s largest universities.

While private sector jobs make up a larger share of the state’s employment picture than in 2010, that has more to do with the government sector shrinking than it does creation of new jobs, said Jeff Mitchell, director of the University of New Mexico’s Bureau of Business & Economic Research.

“The reason why private sector jobs account for more of the total number of jobs is not because we’re creating private sector jobs,” he said. “It’s because we’re not creating government sector jobs.”

“There’s no evidence of diversification as a result of creating private sector jobs.”

Lab technician Matt Garcia was among the new employees at Southwest Labs, an Albuquerque drug-testing business that opened in June. The state’s health services sector has seen a growing number of jobs. (Adolphe Pierre-Louis/Albuquerque Journal)

As of the first quarter of this year, New Mexico ranked second last in the nation for the percentage of its GDP attributed to the private sector. In the bottom spot was Washington, D.C.

Jim Peach, New Mexico State University economist, adds another statistic to the mix: a state unemployment rate – 6.3 percent in July – that’s been stuck in the basement compared to the rest of the nation.

“For measuring an economy, there is no way to spin this as a good news story,” Peach said.

The Journal’s request for an interview with Martinez received this emailed response from spokesman Michael Lonergan: “Unfortunately, we don’t have availability for an interview in the Governor’s calendar at this time.”

But Matt Geisel, the state’s economic development secretary, pointed out that the loss in government jobs has been more than outweighed by an increase in private sector jobs. In fact, he said, for every one government job lost (total: 11,000), nearly four private jobs (total: 43,000) have taken its place.

“It’s showing that the reforms and the actions are helping us steer our destiny,” Geisel said in an interview.

And, he said, the 1 percent growth in jobs over the past year is evidence the state is headed in the right direction with “incremental, positive progress.”

Shifting from oil, gas

Melissa Yelton, a surgical tech at Lovelace Women’s Hospital, works with a surgical robot used in minimally invasive surgeries. (Marla Brose/Albuquerque Journal)

State leaders look to diversify New Mexico’s economy as a way to shield the state from the vagaries of the oil and gas industry and from a shrinking number of government jobs, especially at the state and local levels.

While oil and gas prices are starting to recover from the low of $30 a barrel after the plunge began in 2014, it’s no more than a modest recovery and smaller producers in New Mexico’s oil patch are struggling to hold on.

In the government area, state and local jobs have been shed as a consequence of low-growth revenues that have strangled government coffers.

Martinez, who took office in January 2011, has been consistent in saying that from “day one” her goal has been to grow and diversify the economy by boosting the number of private sector jobs.

“Through a relentless commitment to reforms – balancing budgets, cutting taxes and streamlining regulations – we’re growing and diversifying our economy, and competing for jobs and investment with neighboring states like never before – and even beating them,” Martinez said last month when announcing that the state was No. 3 in the nation for growth in gross domestic product in the first quarter of 2017.

However, the main reason for the state’s 2.8 percent growth during that most recent quarter was a boost in the oil and gas industry, according to the U.S. Department of Commerce.

Looking at the private sector as a whole, the percentage that makes up the state’s GDP has gone up about 1 percentage point: from 76.6 percent of total GDP in 2010 to 77.5 percent as of the first quarter of this year.

GDP is considered among the broadest measures of economic health.

Slow private sector gains

Another way to look at how much the state has diversified is through its employment numbers – in other words, where the jobs are.

Server Emma Nicholson outlines dessert options for customers at a restaurant in Hotel Chaco. (Steve Sinovic/For the Albuquerque Journal)

In terms of sheer numbers, July brought good news in the number of private sector jobs, with a 1.8 percent increase compared to the year before, according to the state’s most recent jobs report. Fastest-growing industries were education and health services, leisure and hospitality and construction, which has been on the upswing since last November.

And private sector employment, as a percentage of total employment, has indeed gone up since 2010, according to the state Department of Workforce Solutions and the U.S. Bureau of Labor Statistics:

• In 2010: About 75 percent of New Mexicans employed held private sector jobs; 24.8 percent held government positions.

• In July 2017: Private sector employment was at 77.4 percent; government, 22.6 percent of employment.

But the overall employment pie has been growing so slowly – 1 percent over last year, according to the most recent state figures – that the increased share of private sector jobs is primarily just a reflection of the drop in the government share, Mitchell and Peach said.

“How fast are we creating private sector jobs?” Mitchell said. “The answer to that is we are creating private sector jobs very, very slowly.”

Ben Cloutier, spokesman for the state Economic Development Department, pointed to a recent announcement by the governor that the film industry has injected more than a half billion dollars into New Mexico’s economy.

In addition, the state “just saw its fifth straight year of record-shattering tourism numbers,” Cloutier said. In 2015, that industry “generated the largest economic impact in state history for the sixth straight year, injecting $6.3 billion into New Mexico’s economy and supporting more than 90,000 jobs. Those jobs generated $2.4 billion in salaries.”

Narrowing tax base

Peach adds a cautionary note when it comes to diversification, which he calls a “mixed bag in terms of economic growth.”

That’s because of wages.

Jobs in the oil and gas industry and in the government sector tend to be relatively high-paying compared to overall wages paid in New Mexico.

“Diversification, if it means looking more like the national economy in New Mexico, would mean reducing the proportion of workers in these high-wage industries,” he said. “That doesn’t mean we shouldn’t try to get some other industries here. It just means the standard measures of diversity may not be what we want to go after.”

“If you want fast growth, you want not diversification but concentration in fast-growing, high-wage industries,” Peach said.

Mitchell said the real importance in diversifying New Mexico’s economy is to protect state revenues.

Cuts in personal income taxes and corporate taxes during the past couple of decades have narrowed the state’s tax base, and private sector economic activity remains limited, he said.

“We’ve narrowed our tax base, and we’ve become increasingly dependent on oil and gas, over which we have no control,” Mitchell said.

“That’s where diversification really matters,” he said.