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The pain of slow times in job creation

Occupy Wall Street demonstrators in New York City Credit: Stephen H. Dunphy

Washington ended a year-long string of job-producing months in September. A sharp drop of 18,400 positions in the state for the month all but wiped out gains this summer and is another indication of the fragile nature of the economy two years after the official end of the Great Recession.

Those are the facts, but putting them into some context for the economy here presents some challenges. For example, new numbers this week show that the state unemployment rate dropped to 9.1 percent in September from 9.3 percent in August. The contradiction of job loss and a lower unemployment rate usually means the labor force itself has declined, i.e., more people gave up looking for a job and left the work force. That may indeed be the case, since there are more than 50,000 fewer people in the work force this September compared with September a year ago. And the unemployment rate, which counts unemployed workers, discouraged workers, and workers who have simply given up, remains at more than 18 percent for the state.

Nevertheless, no one really knows what is creating the contradition now. “It’s baffling,” said David Wallace, acting chief economist for the Employment Security Department, admitting that there are no definitive answers for why job numbers and unemployment rates continue diverge. Wallace said the two have been off almost every month this year.

“It’s not unusual for the surveys to generate somewhat different results, but the gap between the two September surveys is much larger than we usually see,” said Greg Weeks, director of Employment Security’s labor market and economic analysis. He expects the numbers will be revised in coming weeks.

There are also questions about the state of the economy in the greater Seattle area. One of the few sectors to show employment growth in the month was manufacturing, mostly aerospace. Boeing increased production of the 737 model to 35 airplanes a month recently, adding to employment there. Delivery of the 787 Dreamliner earlier this month also signals at least stability in that production line. And Boeing has resolved problems around the freighter version of the 747-8, another bottleneck removed.

There is also a multiplier effect with Boeing jobs. Jobs at Boeing pay well, generating jobs in the service sector. Annualized average wage in aircraft manufacturing in Washington state was $89,600 in 2009, including all occupations in the industry, not just machinists. The multiplier for Boeing is about 2.8, meaning there are 1.8 indirect jobs (grocery stores for example) for each primary Boeing job.

“The Seattle area is doing a bit better than the rest of the state as a whole,” Wallace said, “particularly post-recession.”

That sense of the Seattle economy being somewhat better off is reflected in the unemployment rate for the area, which dropped to 8.6 percent from 8.9 percent in August. And a recent survey of business and the economy, done by the Seattle Metropolitan Chamber of Commerce, also showed a somewhat more upbeat view here than elsewhere. Among the findings of the 1,700 businesses surveyed:

  • Small business is the engine of the economy: Businesses with six to 100 employees are the most likely to hire.

  • Technology leads the way: Sectors expecting to add head count include energy, aerospace and manufacturing, life sciences, information technology, and interactive media. Sectors expecting to reduce head count include government, education, and transportation.

  • The great disconnect: Comments from individual employers suggest stability – and even growth – but employers’ perceptions of the overall economy are weak. Of the sectors expecting growth, only some say they will hire. Many others expect higher sales or new contracts but won’t hire proportionately. This is especially true for sectors hurt badly by the decline in consumer spending in 2008 and 2009.

  • A quest for talent: One in four employers say they have to recruit outside the county to attract top talent.

  • A complex web: There is universal appreciation for the high quality of life in the four-county region, but less so than in 2010. Tangible items such as proximity to universities, networking, and transportation infrastructure have risen in importance since last year.

  • Who you know and what you know: As the economy remains unpredictable, companies grow more by peer networking and recruiting top talent.

The size of the job loss in September was surprising to the experts, but they also said that September is often befuddling because they cannot get accurate information quickly on the situation with teachers. Most of the government jobs lost in the month were in state and local education and could be the result of teacher cutbacks being reported as school begins.

The more worrisome figure was the decline of 7,600 positions in private sector employment, especially in construction and the “leisure and hospitality” sector. The latter, with a sharp reduction of nearly 4,000 jobs, could indicate that more people are in financial stress and are cutting back on spending for such things as restaurant meals.

The Federal Reserve’s Beige Book, a look at the economy in the 12 districts that make up the central bank, reported this week that the overall national economy was growing slower than earlier in the year, but there was no sign of an outright recession yet. Three regions  — Philadelphia, Richmond and Chicago — said things were so uncertain that retailers were reluctant to stock up for holiday sales. Yet the 12th District, which includes Washington state, was fairly upbeat. Here’s what it said:

Economic activity in the Twelfth District grew at a moderate pace during the reporting period of September through early October. Upward price pressures were mixed but remained modest overall, and upward wage pressures were limited to a narrow set of skilled occupations. Sales of retail items rose, as did demand for business and consumer services. District manufacturing activity improved modestly. Agricultural producers reported further sales gains, and demand rose a bit for providers of energy resources. Home sales and construction remained lackluster, and demand for commercial real estate stayed weak in most markets. District banking contacts indicated that overall loan demand was largely unchanged.

Alison Peters, of Alison Peters Consulting, who did the business and economic survey for the Chamber, said this about the small business sector, which much of any real job growth is expected to come from:

High taxes and local and federal regulatory mandates remain a key challenge for small businesses to survive and grow. What’s more, employers in this category have voiced frustration that the trend is getting worse (pending the implementation of paid sick leave in Seattle). These challenges can reduce profitability and drain the time of top executives who must manage growing amounts of paperwork tied to these regulations.

What’s ahead? More of the same, it seems. The economy seems stuck in place except for a few key areas such as aerospace, on-line retail, health care, and international trade. Luckily the region is strong in those areas. But the overall economy continues to struggle.

Last month, the national labor report showed an increase of about 100,000 jobs. Better than previous months, but keep in mind this statistic: Nationally, the economy needs to produce 400,000 jobs a month for two years to get us back to where we were when the recession hit.

I was in New York last week and stopped by the Occupy Wall Street encampment at Zuccotti Park. It was a warm day, several men were playing bongo drums, and a few people were dancing to the beat. There were literally hundreds of signs in the park, many on the basic theme of income disparity and the free ride financial institutions seem to be getting.

But one sign stuck out as being both accurate and perhaps prescient: “We’re here We’re unemployed Get used to it.”

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