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Connecticut Economic Digest: December 2004 issue
Changes in Labor Market Areas | Improvements Coming to Labor Force Estimates | Housing Update

Changes in Labor Market Areas
By Salvatore A. DiPillo, Associate Research Analyst, DOL

The United States Office of Management and Budget (OMB) is responsible for maintaining and updating statistical area classifications, a task it has done every decade since the 1950 Census. This classification is intended to provide nationally consistent definitions for collecting, tabulating, and publishing federal statistics for a set of geographic areas. In June 2003, OMB announced an update to statistical area definitions based on new standards and the results of the 2000 Census, thus defining new metropolitan statistical areas. The general concept of a metropolitan statistical area (MSA) is that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core. That integration is identified by commuting data drawn from the decennial Census. Each MSA must have at least one urbanized area of 50,000 or more inhabitants. The statistical areas in the six New England states are identified using cities and towns because of their importance in the region, while the rest of the nation's statistical areas are composed of counties.

How Connecticut Labor Market Areas are Changing

The new OMB statistical area determinations have considerable impact on Connecticut. There are changes to all of the areas previously recognized as metropolitan statistical areas. The most significant change is the combining of the Bridgeport and Stamford areas and their exchange of some towns with the adjoining Danbury, Waterbury and New Haven areas (map on page 3). Five towns formerly in the Hartford area-Enfield, East Windsor, Somers, Suffield and Windsor Locks-have been aligned with the Springfield, Massachusetts MSA. Also, two additional towns, Putnam and Woodstock, join Thompson as part of the Worcester, Massachusetts MSA. The Norwich-New London area, encompassing the southeastern part of the State, will include just one Rhode Island town, Westerly, where the current New London area includes both Westerly and Hopkinton.

To provide data that exhausts the geography of Connecticut, the State Labor Department will publish estimates for areas that encompass all cities and towns in the State, including those officially part of the predominantly Massachusetts MSAs. The towns in the northeastern part of the State will be aggregated as the Willimantic-Danielson area, while the five towns belonging to the Springfield MSA will be called the Enfield area, and towns in the northwest part of the State will comprise the Torrington area. For ease of understanding and consistency with past practice, all of the State's areas will be referred to as Labor Market Areas.

Impact on Data for Connecticut

Nonfarm employment for the six OMB-designated areas (Bridgeport-Stamford, Danbury, Hartford, New Haven, Norwich-New London and Waterbury) is being reconstructed back to 1990 and will be available at the time of the January 2005 data release. We are also looking into providing historical nonfarm data for the three smaller labor market areas. Resident labor force data will also be adjusted to the new areas and reproduced back to 1990. These revisions will also reflect changes to the labor force estimation methodology being implemented next year.

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Improvements Coming to Labor Force Estimates

Among the important economic data developed by state workforce agencies and the Bureau of Labor Statistics (BLS), labor force data (including unemployment estimates) for states and local areas are viewed as key indicators of local economic conditions. Currently, monthly estimates of resident employment, unemployment, and the unemployment rate are prepared for around 7,000 areas-regions, divisions, all states and the District of Columbia, metropolitan and small labor market areas, counties and many cities and towns. Among the many users of these data, state and local governments use the estimates for planning and budgetary purposes and as determinants of need for local services and programs. The state labor force estimates are one of the timeliest subnational economic measures, as figures are released by BLS and the states within five weeks after the reference week, and just two weeks after the national estimates' release.

BLS is responsible for the concepts and definitions, technical procedures, and review, analysis and publication of labor force estimates. State agencies (in Connecticut, the Labor Department's Office of Research) are responsible for the production of the estimates and analysis and dissemination of the data to their data users. A key element of the Bureau's approach to subnational labor force estimation is to ensure that these estimates are comparable to the official concepts and measures of the labor force as reflected in the Current Population Survey (CPS). The CPS is the monthly survey of households that is designed to provide reliable monthly labor force estimates for the nation. To support reliability of subnational estimates, the CPS employs a state-based sample design.

A hierarchy of estimation methods is used to produce state and local labor force data based in large part on the availability and quality of data from the CPS. The strongest estimating method--signal-plus-noise models for current estimation and annual average CPS benchmarks--is employed at the state level. While not reliable enough to use directly, the monthly CPS values are integral to the signal-plus-noise estimation. In order to ensure comparability across states, the annual average employment and unemployment levels from the CPS are used as the benchmarks for the modeled estimates.

Current Modeling and Benchmarking Procedure

A number of methodological and analytical issues have surfaced in the current estimation/benchmark procedures. These include reintroduction of sampling error to monthly estimates, discontinuities between December benchmarked and January model estimates, impaired comparability of data over the year, and inability to address, on a timely basis, "shocks" to the model such as the September 11 terrorist attacks and the onset of an economic recession.

In the current methodology, the state model estimates are developed independent of the national CPS. Although the monthly state CPS input data sum to the national measures, the sum of the state model output estimates generally do not equal the national CPS estimates. In general, the current method of model estimation results in an overestimate of employment and an underestimate of unemployment and the unemployment rate in states as compared to the national CPS estimates.

A Fiscal Year 2001 federal budget initiative provided BLS with resources to improve the methods used to develop state and area labor force estimates, including upgrading and enhancing the modeling approach, extending it to more areas, and incorporating decennial updates to procedures, data inputs, and geography. As part of this major redesign, BLS developed an innovative alternative to model benchmarking that will be part of improved monthly model-based estimation. This alternative addresses longstanding issues related to accuracy and end-of-year revision, and also enhances the analytical capability of the estimates. The redesigned method of estimation ensures that state estimates add up to the national estimates of employment and unemployment each month. In doing so, the benchmark will change from annual average state-level estimates of employment and unemployment to monthly national estimates of these measures, and will be part of current monthly estimation. In this way, economic changes will be reflected in the state estimates on a real-time basis (real-time benchmarking), and end-of-year revisions will be significantly smaller.

The BLS and states are now in a one-year dual estimation period that allows for the evaluation of the proposed methods and systems, and the impact on estimation.

General Methodological Approach

Under real-time benchmarking, a tiered approach to estimation is used. Model-based estimates are developed for the nine Census divisions that geographically exhaust the nation. Connecticut belongs to the New England division. The division estimates are benchmarked to the national levels of employment and unemployment on a monthly basis. The benchmarked division estimates are then used as the benchmarks for the states within each division. That is, state model-based estimates are controlled to add to the division's employment and unemployment. The distribution of the monthly benchmark adjustment to the states is based on each state's monthly model estimate. In this manner, the monthly state employment and unemployment estimates add to the national levels, precluding differences between the sum of states and the national estimates. Annual historical benchmarking will still continue for state estimates with the updating of model inputs, model re-estimation, and incorporation of updated population controls performed each year. However, the impact on the historical series of these benchmark activities is expected to be fairly small, especially in comparison with annual revisions using the current methodology.

Estimation Period and Implementation Plan

As part of implementation, a dual estimation period began with January 2004 data so that the proposed methodology and operational systems could be reviewed in a real-time environment and the impact on estimation could be evaluated. An analysis of the numbers produced by states so far indicates consistency with the redesign objectives of addressing issues in current estimation. In general, the new models with real-time benchmarking result in higher estimates of unemployment and the unemployment rate, and lower estimates of employment, and thus remedy the consistent under- and over-estimation mentioned earlier. (A comparison of Connecticut's redesign estimates to those made using the present methodology, also shows higher unemployment and unemployment rates and a mix of higher and lower employment estimates in the redesign figures for the months estimated so far in 2004.) The new estimates of both employment and unemployment of State residents are expected to be more accurate using the new methodology than with the current procedures.

The redesigned estimation methodology is planned to be implemented with labor force, employment and unemployment estimates for January 2005 to be published in March 2005. Historical series from January 1976 forward will be replaced with estimates based on the redesigned models. Additionally, revised data from 2000 forward will reflect Census population estimates updated to account for changes in births, deaths and migration that have occurred since the decennial Census.

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Housing Update
Permit Activity Slows in October

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development (DECD) announced that Connecticut communities authorized 862 new housing units in October 2004, a 23.1 percent decrease compared to October of 2003 when 1,121 units were authorized.

The Department further indicated that the 862 units permitted in October 2004 represent a 23.1 percent decrease from the 1,121 units permitted in September 2004. The year-to-date permits are up 15.1 percent, from 8,390 through October 2003, to 9,659 through October 2004.

Eight of the ten Labor Market Areas showed losses compared to a year ago. Bridgeport led all municipalities with 46 units, followed by Danbury with 40 and Hartford with 28. From a county perspective, only Hartford and Tolland counties showed year-to-date losses.

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Published by the Connecticut Department of Labor, Office of Research
Last Updated: December 2, 2004