U.S. unemployment rate drops to 3.7 percent in September, lowest rate since December 1969

The U.S. unemployment rate fell to 3.7 percent in September, according to today’s release from the Bureau of Labor Statistics. 

The unemployment rate declined to 3.7 percent in September, and total nonfarm payroll employment increased by 134,000, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, in health care, and in transportation and warehousing.

The Associated Press notes that the unemployment rate is the lowest since December 1969. The AP also reports trends are looking up.

Last month, average hourly pay increased 2.8 percent from a year earlier, one tick below the year-over-year gain in August.

That figure could rise in the coming months. With the unemployment rate so low, companies are facing intense pressure to boost pay to find the workers they need. Amazon responded on Tuesday by raising its minimum wage to $15 an hour.

Consumers, business executives and most economists remain optimistic. Measures of consumer confidence are at or near their highest levels in 18 years. Retailers have begun scrambling to hire enough workers for what’s expected to be a robust holiday shopping season. A survey of service-sector firms, including banks, hotels and health care providers, found that they are expanding at their fastest pace in a decade.

Yesterday, in anticipation of today’s release, economist Bill McBride wrote at the Calculated Risk blog,  

On Friday at 8:30 AM ET, the BLS will release the employment report for September. The consensus is for an increase of 180,000 non-farm payroll jobs in September (with a range of estimates between 150,000 to 195,000), and for the unemployment rate to decline to 3.8%.

Close. See the CR blog post for links to several jobs and consumer sentiment reports bolstering the estimate.

The New York Times reports,

The 134,000 jobs that employers added in September reflected the slowest pace of growth in a year, and the growth in wages cooled slightly from August.

But there is little evidence that those mildly disappointing figures suggest a broader slowdown.

The NYT also cites reasons for optimism.

By nearly any measure, today’s labor market is the strongest since the dot-com boom of the late 1990s and early 2000s. Job growth has repeatedly defied economists’ predictions of a slowdown. African-Americans, Latinos and members of other groups that often face discrimination are experiencing some of their lowest rates of joblessness on record.

“I view this as the strongest labor market in a generation,” said Andrew Chamberlain, chief economist at the career site Glassdoor. “These really are the good times.”

The current economic expansion is already one of the longest on record, and there is no sign that it is losing steam.

Last week, the Economic and Revenue Forecast Council increased expectations for Washington’s revenue growth over the next few years. As we wrote then – and as all the accounts of today’s jobs report also state – there are risks, including notably trade and rising interest rates. But the outlook continues to look very good for the nation and state. 

Regulatory reforms considered to improve housing affordability

There’s abundant evidence that Washington’s regulatory policies have played a role in the housing affordability challenges in metropolitan Seattle. We discussed them in posts on research into the Growth Management Act at 25, national research on urban containment regulations, and Canada’s restrictive land use policies. On one level, it’s textbook supply and demand: constrain supply as demand increases and prices go up. 

The Lens has a good story on a recent state House hearing examining ways to ease the housing affordability crisis. Measures to increase supply received a lot of attention.

Solutions to improve affordability was the topic of a recent state House committee work sessionthat included new types of co-housing that may require legislation to make it easier to obtain project financing. At the same time, regional building industry associations continue to tout accessory dwelling units (ADUs) as an effective way to increase the rental supply without taking up new land.

The GMA also comes in for another look.

In many ways we’re seeing a second step to the state’s historic Growth Management Act,” [Marco Lowe, political director for the Master Builders Association for King and Snohomish Counties (MBAKS)] said. “The urban growth boundaries are holding, but now that the growth has continued in terms of job growth, the housing growth hasn’t kept up. More jobs, slow housing growth has created the prices we see today.”

But that’s not all.

Impact fees and other requirements can also make construction financially unworkable, he said.  “There’s no certainty.”

His testimony matched similar observations made by Senior Policy Advisor Emily Grossman for the Department of Commerce’s Community Services and Housing. She told panel members that local land use policy and additional regulations have contributed to the shortage by limiting the amount and type of housing constructed.

It’s an important conversation. Where regulation exacerbates problems and drives up costs, regulatory reform are inevitably going to be part of the solution. And the metro region desperately needs a solution, despite the recent market cooling.

 

Shining the spotlight on manufacturing: AWB Manufacturing Week; Partnership for Learning highlights career opportunities

The Association of Washington Business launches Manufacturing Week in early October, again this year reprising the successful week-long bus tour (click link for video) that was the highlight of last year’s celebration. 

Manufacturers help drive Washington’s economy, employing more than 284,000 people in good-paying careers and contributing more than $60 billion in goods annually. To help raise awareness of how important — and vibrant — manufacturing is in Washington, AWB hits the road in early October for our annual Manufacturing Bus Tour. AWB staffers spend more than a week in a custom-wrapped tour bus, visiting shop floors in every corner of the state and in every sort of industry, from boat-building and agriculture to metal fabrication and window manufacturing.

Complementing the focus on manufacturing, the Partnership for Learning has a sponsored story in the Seattle Times and video (embedded at the top of this post) emphasizing the great career opportunities available in our state’s manufacturing industries.

Nearly 3.5 million manufacturing jobs will be needed in the U.S. by 2025, and 2 million are expected to go unfilled due to a lack of skilled workers, according to a recent study by Deloitte. More applicants with credentials are needed to fill these promising jobs here in Washington.

Manufacturers account for 12.4 percent of Washington’s total output, employing 8.8 percent of the nonfarm workforce. Total output from manufacturing was $58.43 billion in 2016, with 286,300 manufacturing employees. According to the Center for Manufacturing Research, the average annual compensation for manufacturing employees was $87,818 in 2016. In King County, you can make between $50,000 and $60,000 die-cutting and soldering.

To avail themselves of these opportunities, P4L emphasizes, employees will require postsecondary training and education. Or, in their words, “the credential is essential.”

Jenée Myers Twitchell, impact director at the nonprofit Washington STEM, created the Labor Market and Credential Data Dashboard, an online tool that shows the regional wage and required credentials for family-sustaining STEM jobs. Search by credential, years of experience (including none), occupation group or title, wage range and Washington county or state…

Most of the 740,000 job openings estimated by 2021 will be filled by workers with postsecondary credentials, such as a bachelor’s degree, an associate’s degree, an industry certificate or an apprenticeship. Manufacturing credentials in this region include paid Seattle Machinist Apprenticeships, a 9-month South Seattle College (Georgetown Campus) Manufacturing/Machinist Technology Certificate, and a 2-year Associate of Applied Arts & Sciences degree from Shoreline College, which can be earned online.

The article has excellent information on how to tap into the abundant resources in the state.

Community colleges can offer a direct pipeline to a career. Lake Washington Tech and Renton Tech have deep relationships with employers. “[Students] are placed right away because employers really trust that program,” Twitchell says. “In 18 months or less, a student can get placed on the line at a Boeing plant.”

Innovative programs, such as Core Plus, that are available in Washington high schools and skills centers also can give students a head start. Core Plus is a two-year, standardized manufacturing curriculum that is recognized by industry and prepares high school students through hands-on learning.

In partnership with AWB, WorkSource Washington provides a wealth of information on manufacturing careers.

Economists and small business owners express cautious optimism; new trade deal helps

The September revenue forecast cited improved consumer confidence and growing national and state economies. Employment is up. And, as the chart below shows, revenue collections are way up.

Trade concerns continue to cause business owners and economists to hedge their bets. The Associated Press reports,

The economy should grow at a healthy pace this year and next, though the Trump administration’s trade policy will likely act as a drag, a group of business economists said.

Growth should reach 2.9 percent this year, according to a survey of 51 economists by the National Association for Business Economics, released Monday. That would be up from just 2.3 percent in 2017. And growth is forecast to be 2.7 percent in 2019, the survey found.

And yet,

Still, worries over trade policy have darkened the outlook for many. Nearly 80 percent of the economists surveyed cut their growth forecasts for next year by up to one-half a percentage point, the NABE said, because of trade concerns.

The AP also reports that small business owners are cautious.

Although the economy is strong and consumers are optimistic, many small business owners are holding fast to their cautious approach to expansion…

Despite an economy that’s generally doing well, small business owners are staying conservative, the stance they’ve held since the Great Recession. That’s the finding of a third-quarter survey of companies by researchers at Pepperdine University’s Graziadio School of Business and Management and Dun & Bradstreet Corp.

Again, trade.

Some owners have said they’re concerned about the impact of the Trump administration’s trade tariffs on goods imported from China and Europe, and the retaliatory tariffs countries have imposed on U.S. goods. The drop in exports economists expect would be due in part to the fact that companies and farmers rushed to ship their products before U.S. tariffs took effect, and exports will now fall back to more normal levels.

Meanwhile, U.S. importers, manufacturers and retailers are concerned that their profits will be hurt by tariffs on raw materials and finished products from other countries.

The new United States-Mexico-Canada Agreement (we agree with those who say the name won’t stick; it’ll be NAFTA 2.0) is likely a step forward, but China and Europe remain major concerns. 

The Lens also reports on forecasters’ projections and concerns, including comments made at the recent AWB Policy Summit.

In Washington, new post-Wayfair sales tax requirements on remote sales take effect today.

The U.S. Supreme Court’s Wayfair decision changed the landscape for taxing remote sales. Today, the Washington Department of Revenue’s new reporting and collecting requirement go into effect, as detailed on the DOR’s Marketplace Fairness web page. The department also explains how Wayfair affected existing state law.

On June 21, 2018, the U.S. Supreme Court decided South Dakota v. Wayfair, Dkt. No. 17-494, 06/21/2018. In Wayfair, the U.S. Supreme Court upheld a South Dakota law that imposed a sales tax collection obligation on sellers with more than $100,000 in sales or 200 transactions annually in South Dakota. Prior to that decision, states could only impose a sales tax collection obligation on sellers with a physical presence in the state under federal law.

The Wayfair decision represents a change in federal law that permits states to impose greater sales and use tax collection obligations on sellers than was previously allowed. Pursuant to RCW 82.32.733, the Department has determined this change in federal law creates a conflict with the “collect or report” election provisions of RCW 82.08.053. Specifically, under federal law as applied in Wayfair, Washington can require remote sellers and marketplace facilitators that have $100,000 in sales or 200 transactions in the state to collect sales and use tax on those sales. To the extent the “collect or report” election provided in RCW 82.08.053 would limit this authority to require sales and use tax collection, the election provision conflicts with the change in federal law and will have no further force and effect.

The Spokesman-Review reports,

The state Revenue Department has received a few phone calls from businesses requesting information about the sales tax requirement, but not a lot, department spokeswoman Anna Gill said.

Gill advises businesses to review their retail sales in other states and determine that state’s monetary limit – or threshold – and start date for tax collection. If selling on a third-party website or marketplace, businesses should determine if sales tax is collected on their behalf, she said in an email.

Under the new sales tax-collection requirement, businesses could face increased administrative compliance costs, which could mean lower profits, or they will have to pass the costs along to consumers, said John Buhl, spokesman for the Tax Foundation, an independent tax policy research organization based in Washington D.C.

Larger businesses may be able to absorb the costs, while smaller online businesses could be hit the hardest, he said.

“We found compliance costs get bigger, the smaller the business is,” Buhl said.

In our state, officials expect modest but positive revenue gains as a result of the decision.

Report: Washington’s space industry contributes $1.8 billion to state economy, supports 6,200 jobs. And it’s poised for growth.

Washington’s commercial space industry makes significant contributions to the state economy, according to a new report from the Puget Sound Regional Council. (Full report and highlights.) The PSRC summarizes on its website,

Washington state is well positioned to compete in a growing commercial space industry, according to a new study led by the Puget Sound Regional Council.

The Washington State Space Economy report was developed to help industry leaders, elected officials, policy makers, and local economic development professionals strengthen and support the commercial space sector.

The report shows that the space industry has a strong economic impact throughout the central Puget Sound region and Washington state. Business activities tied to direct, indirect and induced impacts of the space industry will contribute an estimated $1.8 billion in economic activity to Washington communities in 2018. The estimated 6,200 jobs in the state supported by the space industry will provide an estimated $610 million in payroll. In addition, the space sector contributes about $62 million annually in state and local tax revenues.

Geek Wire puts the economic impacts into perspective relative to the state’s overall aerospace industry.,

The report considers the economic contributions from Boeing Defense, Space and Security, which has employees in Kent, Tukwila and Everett — but not from Boeing Commercial Airplanes, which has a much larger presence in Washington state. Past studies have estimated the wider aerospace industry’s overall contribution to Washington state’s economy at nearly $70 billion annually, with Boeing accounting for much of that activity.

In addition to Blue Origin and Boeing, today’s report highlights home-grown space ventures such as Spaceflight Industries and Planetary Resources, as well as companies that are based elsewhere but have a significant presence in the state, such as SpaceX and Aerojet Rocketdyne. Stratolaunch Systems, the space venture created by Microsoft co-founder Paul Allen, also comes in for a mention even though most of its development work is done at California’s Mojave Air and Space Port.

As the study, prepared by BERK Consulting, makes clear, the industry has potential for substantial growth in Washington.

“This study shows that the space industry today supports thousands of good paying jobs throughout our region and state and has the potential for significant growth in the future,” said Terry Ryan, Snohomish County Councilmember and Economic Development Board President.

“The central Puget Sound region is already a worldwide leader in aerospace and information technology, and we plan on being a world leader in the space industry as well,” Ryan said.

The PSRC points to existing strengths and recommendations to support the sector further.

Washington has strengths that have helped establish the state in the industry, including long-term investments in space and aerospace supply chains, a large, skilled labor pool, support from universities and strong representation of private firms.

The analysis identifies areas for future work to grow the industry.

These include supporting space related startups through expanded access to venture capital, business incubators, and other services; expanding the state’s robust aerospace supply chain to meet the needs of the burgeoning space industry; growing the local talent pipeline for the high skill jobs in demand for the industry; and targeting tax credits for space craft and satellite manufacturing.

Some of these recommendations will be familiar. We specifically call your attention to the workforce development section of the report, which concludes:

From the analysis of the regional workforce, we can provide conclusions related to future efforts with the space sector:

  •  The presence of a large aerospace workforce supports the development of the regional space economy. As with the presence of a mature supply chain, the ability for space-related startups to tap into an extensive talent pool in aerospace can be a significant advantage…

  • High current demand and gaps in the workforce can make it difficult for space-related companies to retain staff, however. The ability for regional businesses in the space economy to succeed will depend on the availability of this workforce…

  • Future gaps from the “silver tsunami” will have a greater impact on the ability to access skilled labor. In the longer term, the retirement of the Baby Boomer generation will have a significant effect on the supply of labor in the market. General improvements in efficiency and automation in aerospace manufacturing may address some of these shortfalls, but there are significant concerns that constraints in labor supply will restrict the ability for businesses across the aerospace cluster to grow.

  • Supporting training and education programs will have the greatest impact on startups and suppliers that are more likely to recruit locally. Although larger companies such as SpaceX and Blue Origin may have the ability to draw on a national labor pool, many startups and suppliers often rely on local labor to meet their needs. Providing for a greater availability of skilled labor locally can be an effective strategy in supporting startups and suppliers to encourage growth and capture additional economic benefits from space-related activities.

The recommendations reinforce many of the overall recommendations for manufacturing workforce development and the call for significant improvements in postsecondary creational attainment we’ve cited previously. 

Washington revenue forecast increases nearly $800 million through 2019-2021 budget cycle

The Economic and Revenue Forecast Council today increased its official forecast for the current and next biennium by a total of $791 million. 

The Near General Fund-State (Near GF-S) revenue forecast for the 2017-19 biennium has increased by $348 million, and revenue for the 2019-21 biennium has increased by $443 million. The Near GF-S includes the General Fund-State, Education Legacy Trust Account and Washington Opportunity Pathways Account and provides the fullest picture of resources available for budget purposes.

After a series of monthly revenue collections reports showing the money coming in above the June forecast, the increase was widely expected. Today’s full ERFC report, which includes a lot of good economic information, in available here. The key takeaway is that the national and state economy remain on a solid growth path.

From the press release:

Nationally, consumer confidence continues to strengthen with respondents reporting favorable perceptions of job prospects and economic growth. Major threats to the U.S. and Washington economies remain, including international trade concerns, geopolitical risks and a maturing economic expansion.

We expect Washington employment to grow 2.9% this year compared to 2.5% in the June forecast. We expect employment growth to average 1.2% per year in 2019 through 2023, which is slightly stronger than the 1.1% per year expected in the June forecast. Our forecast for nominal personal income growth this year is 6.6%, up from 5.8% in the June forecast.

The state’s top budget writer says in a press release:

“It’s encouraging to see our state economy growing steadily,” said David Schumacher, Office of Financial Management director. “But, as I noted when we saw a similar uptick in the last revenue forecast, we will face significant challenges in meeting all our obligations in the next biennial budget.”

No forecast is without risk, and we share in the concern over international trade. 

Still: Good news.

Washington ranks No. 20 on 2019 Tax Foundation State Business Tax Climate Index

Washington ranks 20th among the 50 states in the 2019 State Business Tax Climate Index (SBTCI) published by the Tax Foundation. The annual report is a frequently cited and useful benchmark on state tax policies as they affect business. Here’s how TF describes the index:

The Tax Foundation’s State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems and provides a road map for improvement.

Washington’s ranking, down from No. 17 in 2018 and 2017, is also cited as being at risk. In a suggested Tweet on the Washington page in the Index, the authors note:

Washington ranks #20 on business tax climate per the @taxfoundation, but that rank could be in jeopardy as state policymakers contemplate a bevy of new and higher taxes

Among the strengths of the state tax structure in the TF calculations is the absence of a personal income tax. The Tax Foundation, however, also notes that the Washington B&O tax has elements of an income tax for certain business types.

As a zero rate is the lowest possible rate and the most neutral base, since it creates the most favorable tax climate for economic growth, those states with a zero rate on individual income,corporate income, or sales gain an immense competitive advantage. Therefore, states without a given tax generally receive a 10, and the Index measures all the other states against each other.

Three notable exceptions to this rule exist. The first is in Washington and Texas, which do not have taxes on wage income but do apply their gross receipts taxes to limited liability corporations (LLCs) and S corporations. Because these entities are generally taxed through the individual code,these two states do not score perfectly in the individual income tax component.

We have commented previously on the Tax Foundation SBTCI, providing our standard caveat.

As usual, we’ll provide the caution that opinions will vary regarding the weightings, measures, etc., of any index. But we’ll add that the Tax Foundation does good, objective analysis and that the information provided here will be useful to policymakers and others interested in understanding state tax systems and their effects on business.

The top 5 states, in order: Wyoming, Alaska, South Dakota, Florida, and Montana.

The bottom 5: Arkansas, Connecticut, New York, California, and New Jersey.

Discuss.