Oregon recessions by comparrison

Oregon Unemployment Aug. 2012
By Josh Lehner
Oregon Office of Economic Analysis Blog

Just a few updates on Oregon (un)employment following the Employment Department’s release of August 2012 data this morning. With the strong gains seen in recent months in the payroll data (survey of businesses), employment is now tracking just a hair above our latest forecast. One item to note is that with the most recent forecast, which included a downgrade to the economic outlook, the projected recovery path now effectively matches the return to peak time frame following the early 1980s recession in Oregon. As the Employment Department noted in their press conference, this data remains preliminary and will be revised in the future based on more and better data from employers, as discussed on this blog previously.

With that being said, the strong gains in the official data in recent months appear to be closing the gap that emerged due to revision/estimate discrepancies in late 2011 and early 2012. While the eyeball test says the sample is self-correcting, it must be pointed out that this is not necessarily the case and the gains in recent months may be a direct reflection of the labor market or they may be random. We will not know until more QCEW data becomes available in a few months and/or the official benchmark revisions are released in March 2013. What is encouraging is that employment continues to grow, at least as strong as the national figures indicate, if not a bit quicker, however these month to month fluctuations can be a bit noisy, even if the underlying trend is solid.

On the flip side, the unemployment rate increased for the third month in a row to 8.9% in August. Not only is the change is in the wrong direction, but the underlying figures are also not encouraging. The one thing it does do is put the Oregon unemployment rate more in line with it’s relative value to the U.S. In August Oregon’s rate is 0.8 percentage points above the U.S. rate of 8.1%. From 1950-2012, Oregon has averaged 0.9 percentage points higher and if you just look at the 1990-2012 period, it is 0.7 percentage points higher. So from that perspective the overall difference is not unexpected, but the direction the rate is moving is.

In August, and in recent months, both the overall labor force and employment has decreased, based on the household survey. Both of these signals are not good and the unemployment rate increased partially because the number of employed declined more than the labor force, thus pushing the unemployment rate higher. This is in direct contrast with the payroll survey in the past couple of months.

So, how can there be such discrepancies between the payroll employment data and the unemployment rate? The simple answer is that each measure comes from a different survey, so differences do arise. The two surveys are highly correlated over time, however any individual month’s worth of data can vary widely. The graph below compares the month to month employment change for both the household survey and the payroll survey. There is a clear, positive relationship, however the past three months appear to be outliers, with August being the furthest out. It should also be noted that there are quite a few data points for which one survey is positive and one survey is negative, even if the majority of the time the two surveys do have the same sign.

For the most recent months, this leads to two possible outcomes – either these months are truly historical outliers, or once revisions are taken into account early next year, the data points will fit closer to the historical relationship.