The counter-cyclical direction of New Mexico’s rising unemployment rate summarizes the state’s economy in 2015, said Jeffrey Mitchell, director of the Bureau of Business and Economic Research at the University of New Mexico.
“The national economy is creating jobs at a slightly higher rate than people are joining the labor force,” he said. “The national unemployment rate clicks down a tenth of a percent every month or two, whereas New Mexico has been clicking up a tenth every month and is now the second-highest in the country (behind West Virginia).”
So, despite 38 months of job growth in New Mexico, the upshot is that the national rate stood at 5 percent nine months into the year, while New Mexico’s unemployment rate climbed to 6.8 percent, a full percentage point higher than the fourth quarter of 2014.
“On the surface, that’s bad news,” Mitchell told the Journal for the twice-yearly Economy Watch review of state and local conditions. “The reason for the increase in unemployment rate is more people are participating in the labor force and looking for jobs.”
In other words, layoffs aren’t driving the unemployment rate higher, but rather pent-up demand for jobs that don’t exist quite yet. The unemployed tend to be people either returning to the workforce or just entering it.
“There’s generally more optimism now,” he said. “People are speaking less in negative terms than they were, say, a year ago. The challenge is to see that promise come to fruition.”
In a separate report on New Mexico’s labor force participation rate – the official count of the employed and unemployed combined – the state Department of Workforce Solutions says data point to thousands of work-age New Mexicans still sitting on the sidelines.
The state’s labor force participation rate averaged about 63.5 percent in the seven years leading up to the Great Recession (Dec. 2007-June 2009), before sliding to a low of 57 percent in July/August 2014, the report says. The rate rallied to 58 percent as of August of this year, compared to 62.6 percent nationwide.
Labor force participation rates are rough estimates at the state level, Mitchell said, but do help to explain the direction of unemployment rates.
New Mexico has registered 13 straight quarters, or just over three years, of employment growth, Mitchell said. The pace of the job growth began to slow over the summer, he noted.
“The numbers in Albuquerque are trending up,” he said. “Albuquerque is now doing better than the rest of the state. We’ve said you won’t see meaningful statewide (job) growth until you see it in Albuquerque.”
The bright spot: health care
The employment sector leading the way in job growth is health care, with the impetus coming from the federal Affordable Care Act. The state’s expansion of its Medicaid program, called Centennial Care, is generating not just medical jobs, but also back office or customer support jobs, he said.
The federal government is currently underwriting the Medicaid expansion, Mitchell said. Ten percent of the funding burden will gradually shift to the state by 2020 when the Legislative Finance Committee estimates the state’s cost will grow by about one third to more than $1 billion.
“Some people in the state government are concerned about what the very broad growth of Medicaid enrollment means in the future as the federal government rolls back its share,” Mitchell said. “They’re concerned about the state’s increase in share.”
The funding squeeze from the Medicaid expansion reflects a theme across all levels of government – tight budgets – which is why the public sector won’t be leading the way in a jobs recovery, he said.
Neither, apparently, will the state’s oil and gas industry, thanks to the global drop in petroleum prices. Taxes and royalties from the industry provide from about one-fifth to a third of the revenue going into the state’s general fund.
The conventional theory is the drop in prices hurts the energy industry, and thus states like New Mexico, but is a boost to broader consumer spending, Mitchell said. The reasoning is that people will take their savings at the gas pump, and spend it on other goods and services.
The boost hasn’t happened, as evidenced by recent national data that retail sales barely moved in October.
“Nationally, people have been scouring the books for evidence where that money is going,” Mitchell said. “Lower gas prices are not clearly leading to a proportionate increase in consumption. That story is not inconsistent with the data we have (for New Mexico).”
As a result, New Mexico gets hit with the double whammy of a decelerating energy sector and a lot of households too cash-strapped for the kind of discretionary spending that builds the economy.
Even more of a concern is financial constraints at the local level, Mitchell said. Particularly in municipalities, local governments provide a host of services – police and fire protection, trash pickup, water and sewer service, among others – that basically hold communities together, he said.
“Local governments are really struggling and they are by far the largest (public) employers,” he said.
One of the new fiscal hits that local governments face is the state’s phasing out of so-called “hold-harmless” payments to reimburse localities for revenue lost through the gross receipts tax exemption on food, he said. The exemption was passed by the state Legislature in 2004. The phase-out begins this fiscal year.
“This is not a small chunk of change,” Mitchell said. “Over time, the amount of money coming out of the system will be quite large. Local governments are really facing a long-term fiscal crunch.”
Early indications for the current fiscal year, which began in July, indicate Albuquerque and Rio Rancho might be doing better. Both reported growth in revenues from gross receipts taxes for the first couple of months of the year.
Other fundamentals improving
From a broader perspective, in 2015, Mitchell said many economic “fundamentals” have been improving. In addition to job growth, household incomes having been rising. Household debt levels are lower than before the recession. Mortgage and consumer debt delinquencies have been dropping.
BBER is forecasting 1.2 percent job growth statewide in 2016, he said, noting that it’s less than the current national rate of 2 percent, give or take.
“We see the rate of growth of employment in New Mexico might parallel that of the nation by mid-2017,” he said.
While average employment nationwide returned to the pre-recession level in 2013, New Mexico isn’t expected to do so until 2017, he said. The state’s average employment so far in 2015 has been 806,600, down 2.3 percent from the 2008 average of 825,800.
“We’re one of only 2-3 states to remain way below the peak employment level prior to the recession,” Mitchell said. “That’s more a story about the pre-recession highs.”
