|
arnings by Industry has
rarely been the focus of E
attention by commentators and
analysts of Personal Income. This
is not to be confused with the
industry earnings of individual,
publicly traded corporations
reported by the financial press,
tracked by rating and financial
analysis companies, such as
Standard & Poor, and whose
quarterly performance is eagerly
anticipated by investors. Earnings
by industry is another perspec-tive
on the com-position
of the
Personal Income
series published
by the Bureau of
Economic Analy-sis
(BEA), which
is the income received by persons from all
sources, where persons are defined
as individuals, nonprofit institu-tions
that serve individuals, private
noninsured welfare funds, and
private trust funds. The usual
sources of Personal Income (PI)
that are followed are Wages and
Salaries (W&S); Dividends, Inter-est,
and Rent (DIR); and Transfer
Payments. This article, however,
takes the perspective that many
insights into the expected growth
and volatility in Connecticut's
income performance may be
overlooked due to the lack of
awareness of the affect of industry-related
earnings on Total PI.
The basis for the presentation
of earnings by industry is Earnings by Place of Work. Earnings by
Place of Work is the core compo-nent
of PI before adjustments are
made for Personal Contributions to
Social Insurance and for Resi-dence,
and before adding in DIR
and Transfer Payments, to obtain
the residence-based Total PI.
Earnings by Place of Work is
income earned by persons em-ployed
(or self-employed) in Con-necticut,
irrespective of their state
of residence and is composed of Wage and Salary Disbursements,
Other Labor Income, and Propri-etors'
Income (both farm and
nonfarm). In the aggregate, Earn-ings
by Place of Work and Earn-ings
by Industry are the same; the
terms may be used interchange-ably
depending on the components
of earnings being observed.
The discussion below concen-trates
on the growth of Earnings
by Industry from the fourth quar-ter
of 1990 (1990:Q4) to the fourth
quarter of 1996 (1996:Q4), the
period covered by the estimates
and revisions published in the
April 1997 BEA release of State
Quarterly Personal Income. All
values are in current dollars. The
analysis is focused on the Standard Industrial Classification (SIC)
division level, since quarterly data
only provides earnings at the
industry division level. In Septem-ber
1997, BEA released newly
updated and revised annual
Personal Income data through
1996, which will include earnings
down to the two-digit SIC level. A
follow-up article including this new
information, and extending this
analysis to the detailed, two-digit
industry level may be the subject
of a future issue of the Digest.
All absolute and relative
changes in the following discus-sion
are from the fourth quarter of
one year to the next, reflecting
Year-to-Year (YTY) changes, unless
otherwise stated. Also, since the
quarterly PI series is published in
quarterly, annualized form, the
changes discussed in this analysis
will be on the same basis.
For the 1990:Q4-1996:Q4 comparison
period, growth in Wages and
Salaries lagged behind Proprietors'
Income and Other Labor Income,
which both grew faster than Wages
and Salaries and overall Earnings
by Place of Work. This trend has,
of course, been well documented
over the last couple of years.
However, Wages and Salaries seem
to have broken out of their dol-drums
over the last year or so.
Thus, the stagnation in growth
may have been broken.
To put the trends discussed
here in perspective, recall that in
1990:Q4, Connecticut was well
into the Great Recession and had
already shed 75,200 jobs from the
average quarterly, seasonally
adjusted nonfarm employment
level of 1.672 million for 1988:Q4.
As of 1996:Q4, all of the nonfarm
employment lost during the reces-sion
still had not been recovered,
although job growth in 1996
turned in the best performance of
the decade so far.
Performance of the Private Nonfarm Industry Divisions
Table 2 on page 3 presents the
nine industry divisions that make
up total Private Nonfarm Earnings,
or simply Private Earnings. Divi-sions
in boldface grew faster than
overall Private Earnings. Though small industry division in Con-necticut,
earnings in the Agricul-tural,
Forestry, and Fishing divi-sion
grew the fastest at nearly 46%
between 1990 and 1996. The
second largest growth rate was
that of the Services division at
almost 42%. Services also had the
largest share of Private Earnings both 1990:Q4 and 1996:Q4.
Mining, another small industry Connecticut, turned in the third
best performance at just under
34%. The Nondurable Goods
subsector under the Manufactur-ing
division and the Transporta-tion
and Public Utilities (TPU)
division, with growth rates of
around 31%, also grew faster than
overall Private Earnings over the
1990-96 comparison period. The
remaining divisions, including
Durable Goods under Manufactur-ing,
all grew more slowly than
overall Private Earnings, although
the Finance, Insurance, and Real
Estate (FIRE) division, for all
practical purposes, grew at about
the same rate as overall Private
Earnings.
Connecticut Private Earnings: 1990 to 1996
The seven SIC divisions that
accounted for 99% of Connecticut
Private Earnings in 1996:Q4 are
depicted in Table 3. The fourth-quarter,
Year-to-Year (YTY) percent
change beginning with 1990-91
and ending with 1995-96 are
presented for each of the seven
divisions and Total Private Earn-ings.
The bottom row of Table 3
gives the range of the percent
changes over the six-year period.
The range is the difference be-tween
the highest and lowest
values. It will serve as a quick and
simple indicator of the variation in
growth rates of over the 1990-96 period. The higher the value of the
range, the larger the variation in
the YTY fourth-quarter growth
rates and the more volatile the
growth performance. Conversely, a small range value
indicates a more consis-tent
and steadier growth
rate over the 1990-1996
period. The range of 8.2
percentage points for
Private Earnings will be
compared against the
range values for the
industry divisions to
determine whether or
not a given division
experienced more or less
volatile growth over the
period, relative to overall
Connecticut Private
Earnings.
Volatility in Private Earnings
As is evident from Table 3 on
page 4, with a range of 39.3
percentage points, the Finance,
Insurance, and Real Estate industry division has had the most
volatile growth in earnings over the
1990-96 period. This industry
division experienced growth as
high as 28.3% over the 1991-1992 period, exceeding that of any other
division, and losses as large as
11.0% for the 1993-1994 period;
again, no other division suffered big a decline in earnings from one
period to the next. The swings in the growth rates of annualized
earnings for FIRE were large
enough to significantly affect total
Private Earnings for Connecticut
in at least three instances. For the 1991-1992 period,
the annualized increase in
private earnings was $4.5
billion. Eighty percent, or
$3.6 billion of that in-crease,
was accounted for
by two industry divisions:
FIRE and Services. Fur-thermore,
more than one-half
of the increase ac-counted
for by these two
divisions was that of FIRE.
Though the FIRE division
accounted for 12.5% of
Connecticut Private Non-farm
Earnings for 1991:Q4
(compared to Services which accounted for 30.1% of total
private earnings), it contributed
41.4% of the annualized growth in
private earnings over the 1991-
1992 period. For the 1992-1993
period, more than one-half of all the annualized gain in private
earnings for Connecticut was
accounted for by FIRE. On the
other hand, large losses in the
FIRE division could also signifi-cantly
dampen overall private
earnings for Connecticut. For
instance, healthy gains in private
earnings for Construction, Retail
Trade, Services, and TPU were off-set
by a $1.03 billion, or 11.0%
annualized decline in earnings for
FIRE over the 1993-1994 compari-son
period.
The next most volatile track
record in earnings is that of the
TPU division with a range value 17.9 percentage points. TPU's
earnings grew by 14.3% over the
1994-1995 period, and then
suffered its only decline in earnings (-3.6%)
over the 1995-
1996 period. Up until
1994, the annual
growth in earnings
for TPU was relatively
stable with a range
value of 3.9 over the
1990-91 to 1993-94
period, much lower
than the 8.2 range
value for total Private
Earnings.
Wholesale Trade, the division
with the next most variation in its
earnings growth, has a range value
of 13.9. This division experienced
ups and downs in earnings be-tween
the 1990-91 and 1993-94
periods, then had a 10.6% spurt in
growth over the 1994-95 period,
followed by a modest 4.7% growth
in earnings for 1995-96. Though
displaying some variation over the
entire period of analysis, the
Wholesale Trade division certainly
has not displayed the extreme
volatility characterized by the FIRE
Division.
Construction's variation in
earnings growth has a range of
13.0. The 5.7% decline in earnings
from 1990-91 clearly reflects the
collapse of the real estate bubble
in Connecticut and New England.
The remainder of the comparison
periods show an up-and-down pattern for earnings growth.
Earnings increased 7.3% in 1993-
94 followed by a 4.5% decline in
1994-95, then a 6.5% spurt in
growth for 1995-96. Nevertheless
these swings in growth do not
approach the magnitudes of those
for FIRE, Wholesale, and Services.
Both the Retail Trade and
Services range values are fairly
close to that for all Private Earn-ings.
If the 3.2% decline in earn-ings
for Retail between 1990 and
1991 (coinciding with the period in
which Connecticut experienced its
largest contraction of employment
during the 1989-92 Recession) is
removed, the range value for Retail
Trade drops to 4.8 percentage
points. Earnings in Services grew at 4.0% or more from the 1991-92
to 1995-96 comparison periods. It
grew 2.0% over the 1990-91
period.
The most stable growth record
is that of Manufacturing with the
lowest range value of all the
divisions, at 4.6 percentage points.
Manufacturing suffered a 1.0%
loss in earnings over the 1992-
1993 period. Its earnings-growth
was positive, but flat, for the
remainder of the analysis periods,
exceeding 3% only once (1994-
1995). Manufacturing continued to
shed employment over the 1990-91
to 1994-95 periods of analysis.
Then, over the 1995-96 period, the
Manufacturing division gained
one-quarter of a percent in em-ployment,
the first increase (re-gardless
of how small), in 13 years.
Finally, just to ensure that
growth phenomena specific to the 1990-96 year-to-year analysis not skewing the results, the range
based on the quarter-to-quarter
percent changes for all 27 quarters
of the data-series were calculated.
There is a slight realignment of rankings when going from the
fourth quarter, year-to-year
changes to the quarter-to-quarter
changes over all 27 quarters.
Notably, TPU drops from second fourth, and Manufacturing drops
from fifth to seventh. Even more
notable is the FIRE division's
maintaining its strong number ranking in earnings volatility.
Implications for Connecticut
A significant insight gained by
this perspective on Personal
Income is the volatile behavior of earnings in
the FIRE division. It is
this focus on industry
earnings that has
revealed the dispro-portionate
influence
that FIRE has had on
the performance of
private earnings in
Connecticut during the
nineties. Furthermore,
in 1996:Q4, FIRE
accounted for 9.1% of U.S. Private Earnings and 11.1%
of private earnings for New England,
but it accounted for 13.1%
of private earnings for Connecti-cut.
Thus, this volatile division has
a greater impact on Connecticut's
private earnings performance than
it does on that of the U.S. or New
England. Obviously, this would be
of interest to those who depend
upon the forecast of expected
Personal Income for projecting
expected income tax revenues and,
since Disposable Income is derived
from PI, for forcasting sales tax
revenues, as well. Others, too, like
marketers and corporate planners
have a need to know, not only the
level and growth in income of an
area for forecasting revenues,
targeting sales, or for contem-plated
expansion, but equally as
important, they must consider the
stability of that income growth.
This report marks a slight
revision in the Connecticut T
leading employment index. The
Connecticut Department of Labor
stopped seasonally adjusting the
average workweek of manufactur-ing
production workers in 1997
because the seasonal factors were
not too large. Nevertheless, we
replaced this series with the
seasonally adjusted series pro-duced
at the Federal Reserve
Bank of Boston. This substitution
of data introduces small adjust-ments
in the series prior to 1997,
since the two seasonally adjusted
series have small differences due
to differing methods of seasonal
adjustment. Nevertheless, this
substitution does not alter the
basic movement of the leading
index. That is, the leading index
displays the same general pattern
of movement over time.
The Connecticut coincident
employment index, a barometer
of current employment activity,
reached another new peak in the
current expansion with the
release of the (preliminary) July
data. In addition, the recent upward movement in the coinci-dent
index (see chart) continues
to accelerate when compared to
its negligible growth early in the
current recovery. The coincident
index shows no sign of slowing turning in the near future. The
coincident index, by its very
nature, however, does not provide
a signal in advance about the
turning of the economy. This is
the task of the leading index.
Connecticut's leading employment
index, a barometer of future
employment activity, continues
its see-saw upward movement,
reaching its peak in the current
expansion this month. The
leading index possesses less
upward momentum than the
coincident index. It is a down-ward
movement in the leading
index, however, that signals the
next downturn in the Connecti-cut
economy. To date, that signal
has not surfaced, even though
the leading index exhibits less
strength than the coincident
index. A careful monitoring of future movements of the leading
index merits our attention.
In summary, the coincident
employment index rose from 85.4
in July 1996 to 92.6 in July
1997. All four index components
continue to point in a positive
direction on a year-over-year
basis with higher nonfarm em-ployment,
higher total employ-ment,
a lower insured unemploy-ment
rate, and a lower total
unemployment rate.
The leading employment index
rose from 88.2 in July 1996 to
90.0 in July 1997. Four index
components sent positive signals
on a year-over-year basis with a
lower short-duration (less than
15 weeks) unemployment rate,
higher total housing permits,
lower initial claims for unemploy-ment
insurance, and higher
Hartford help-wanted advertising.
Finally, the average work week manufacturing production work-ers
remained unchanged on a
year-over-year basis.
Newly-appointed Commissioner
James F. Abromaitis of the Connecticut Department of
Economic and Community Development announced
that Connecticut communities
authorized 792 new housing
units in August 1997, an 11.5%
increase compared to August of
1996 when 710 were authorized.
The Department further
indicated that the 792 units
permitted in August 1997
represent a decrease of 9.1%
from the 871 units permitted July 1997. The year-to-date permits are up 26.7%, however,
from 4,955 through August 1996,
to 6279 through August 1997.
" The significant increase the year-to-date numbers is encouraging sign that the hous-ing
sector is catching up with rest of Connecticut’s economic
recovery," Commissioner
Abromaitis said. "Of all the
recent indicators of a growing
economy, the increase in permits
is one of the strongest."
Reports from municipal
officials throughout the state
indicate that Litchfield County with 69% showed the greatest
percentage increase in August
compared to the same month a
year ago. Hartford County
followed with a 28% increase.
Hartford County documented
the largest number of
new, authorized units in Au-gust
with 183. Fairfield County
followed with 166 units and
New Haven County had 131
units. Litchfield led all Con-necticut
communities with 68
units, followed by Danbury with 54, and Southington with 22.
Return to Top
|