Stimulus or not, Vermont jobless rate not bad

Employment in Vermont isn’t exactly booming, but the state does have the lowest rate of joblessness in New England – 6.7 percent in September, which is far below the current national average of 9.8 percent. The July and August rates were 6.8 percent. The proportion of unemployed Vermonters has also been dropping from this recession’s peak, so far, of 7.4 percent, which was reached in May.

How can this trajectory be explained? Is it merely a statistical anomaly?

Tom Kavet, the Vermont legislature’s economist, doesn’t think the decline reflects some quirk in measurement. He notes that the state’s unemployment rate has been falling for a few months.

The reasons for this trend are not easy to identify, Kavet adds, but he suggests that a key factor may be that Vermont has been receiving a “disproportionate share” of federal stimulus money. In so small a state, he notes, even a few extra million dollars in job-creation and -retention funds can have a big impact.

Vermont’s two US senators may be responsible, to a significant degree, for the apparent windfall the state is enjoying, Kavet says. He describes Patrick Leahy as a “really seasoned” bringer of bacon to Vermont, while in Kavet’s view Bernie Sanders qualifies as a “real fighter” on behalf of the state’s interests.

Other economists, however, say it’s too soon to come to the conclusion that Kavet has tentatively reached.

Jeffrey Carr, who analyzes economic data for the Douglas administration, isn’t ready to discount statistical flukes as the primary reason for the ebbing unemployment rate. Because Vermont’s labor market represents a small sampling in comparison to most states’, “it doesn’t take much for the numbers here to move around,” Carr observes.

Stimulus money from Washington may be playing some part in the roughly half-a-percentage point fall-off in joblessness since May, he acknowledges, but quickly points out that “a lot of stimulus spending so far hasn’t necessarily been labor-intensive.” A major portion has gone to the state’s Medicaid budget, for example.

Tom Evslin, the state’s chief recovery officer, agrees that the effects of the Obama administration’s stimulus initiative cannot fully account for the brightening of Vermont’s employment picture. Evslin adds that he hasn’t computed the amount of stimulus money received and spent by the other New England states, so, “I can’t say that Vermont’s share has been disproportionate.”

As of the end of September, Vermont’s state government had procured $178 million in stimulus funds, Evslin reports, with much of that sum having been spent expeditiously on highway repairs. “We may have gotten those jobs out faster than other states,” he remarks.

And there’s no question that a sizable number of young Vermonters did find jobs during the summer as a result of federal spending on an anti-recessionary youth employment program, adds state Labor Commissioner Patricia Moulton Powden. She notes that 1,000 state residents, ages 14-24, were put to work through that initiative. While declaring that this job bonanza did contribute to the summertime drop in the unemployment rate, Moulton Powden cautions that “it’s still too early to judge” the stimulus’ overall impact on the state’s labor market.

But economists do agree that a “multiplier effect” is ensuring that federal funds indirectly create or preserve an additional number of jobs in Vermont. Hundreds of workers employed as a result of the stimulus program are today spending money in shops and restaurants that they would otherwise have been unable to patronize. In a preliminary report issued in mid-October, Evslin suggested that the multiplier produced or saved a substantial number of jobs beyond the total of nearly 2000 directly attributable, so far, to infusions of stimulus money.

Dick Heaps, publisher of the Vermont Economy Newsletter, estimates that as many as 1,000 jobs may have been saved or generated in the state in addition to the 2,000 identified as directly stimulus-related. But that’s not why the unemployment rate has been shrinking, Heaps adds. He says it’s mainly due to contraction of the Vermont labor force.

The US Census Bureau has projected that the number of Vermonters available for work will begin to decline early in the next decade. In reality, however, that decline has already begun, Heaps postulates.

With a median age that’s risen steadily to 41, Vermont now ranks as the second-oldest state in the nation, behind Maine. Retirees account for a growing share of the state’s population, thus leading to a reduction in the percentage of working-age Vermonters. An expanding economy doesn’t account for the decline in the state's unemployment rate, Heaps says – it’s the compression of the labor force that explains it.

Available statistics do not appear to confirm that thesis, however. The state’s labor force did decline from 361,100 in April and May to 358,500 in August, according to Moulton Powden’s department. But the labor force numbered 357,100 in January of this year – 1,400 less than in August.

State economist Carr takes the same agnostic position on Heaps’ claim as he does in regard to Kavet’s contention that the stimulus is making a big difference.

“There’s not enough information yet to declare a shrinking of Vermont’s labor force,” Carr says.

Moulton Powden notes, however, that even in the midst of what everyone regards as a severe recession, she’s beginning to hear renewed complaints from Vermont employers about a labor shortage. The apparent dearth is said to be limited mainly to lower-skilled, lower-paid workers, she notes.

Renewed concern about a shortfall in the ranks of potential employees shows that “the demographic issue is still out there,” Moulton Powden says.

The state is striving to make more state residents available for work through a variety of training programs and recruitment initiatives, the labor commissioner adds. She cites the Douglas administration’s “Next Generation” career-development ventures as well as the “Pursue Vermont” drive that’s intended to lure highly skilled workers to return to the state or to relocate here. The Community College system is also offering certificates of employment readiness to Vermonters who complete courses designed to prepare them for life in the workplace, Moulton Powden adds. And state agencies are simultaneously encouraging private employers to adopt more flexible work schedules that could entice retirees to rejoin the labor force.

Regardless of the impact of the stimulus and the effectiveness of all these other employment initiatives, the recent improvement in Vermont’s unemployment rate is generally expected to be temporary.

Kavet and Carr both predict that the figure will climb back above 8 percent by the middle of next year before starting a slow descent. Employment ranks as a “lagging economic indicator,” economists say – meaning that the joblessness rate remains stubbornly high even as the overall economy picks up momentum. And that dynamic could be particularly pronounced in coming years if analysts prove correct in their forecasts of a “jobless recovery.”

A perhaps even rosier picture was painted by a prominent national economist in late October. At the Vermont Economic Development Corporation annual meeting, Hugh Johnson said the Vermont economic recovery will lag behind the US economy by about one quarter and bottom out here in the first quarter of 2010, with the unemployment rate only falling to a low of 7.3 percent.

Johnson, of Johnson Illington Advisors and formerly of First Albany (New York), said the stock market should continue to expand at a healthy rate and, typical of what he called a “saucer-like” recovery, jobs will recover more slowly. The total US economy will grow at a modest 2-3 percent. One of the risks facing policy makers next year, however, could be inflation, which could put the governors of the Federal Reserve Bank in the awkward position of considering raising interest rates while the economy is still only growing slowly.

Johnson also anticipated that consumer spending could be better than expected because homeowner net worth has actually expanded since Q2 of this year. Along with inflation, he said another thing that could hold back the economy is the still “abysmal” rate of lending by big banks.

“I’m not sure we’ve hit the bottom,” Moulton Powden says. “Maybe from the standpoint of general economic activity we have, but not in terms of unemployment.”

She reports she’s already seeing “anecdotal evidence” that a pickup in orders for some Vermont businesses is not being matched by a surge in hiring. Employers starting to enjoy positive results are trying to meet demand by instituting overtime hours for current employees rather than by establishing new positions, which might have to be eliminated should sales tail off, Moulton Powden indicates. “Everyone wants to avoid another round of layoffs,” she says.

At the same time, additional jobs are sure to be created in Vermont as the stimulus package gets fully unwrapped. Evslin calculates that over the next several months Vermont will receive close to $400 million in recovery funds from Washington on top of the $178 million already provided. Many of these jobs will be short-lived, however, because the stimulus program is due to come to an end by 2011.

“A lot of ground is going to have to be made up by the economy once the stimulus does run its course,” Evslin cautions.

The state is preparing for that day by trying to spur further expansion of sectors of the economy that have performed well throughout the recession or that hold the potential to be significant sources of new employment. Moulton Powden cites efforts to train jobless Vermonters for positions in the health care industry, which has continued to grow in recent months. “We’re getting people ready for jobs in administration, medical coding, IT and finance, not just for sticking patients with needles,” she says.

There’s also the promise of green manufacturing. Some Vermonters are being prepped for jobs with renewable energy firms, for example, but it remains to be seen whether a significant number of such slots will actually become available, Moulton Powden notes. She also observes that Vermont is one of 50 states competing for opportunities in green manufacturing.

The decline in production jobs in Vermont in recent years has been especially alarming, the commissioner adds.

“Manufacturing has always been our foundation in terms of capital input for the state,” she says. “For us to be losing those kinds of jobs is scary.”

The Labor Department’s own moves to counteract the recession and to nurture future job growth could meanwhile encounter obstacles in the form of state budget cuts. Moulton Powden notes that the state supplies only about $2 million of her department’s $29 million annual budget. As a result of the large proportion of funds it receives from Washington, the Vermont Labor Department has so far avoided the layoffs that have weakened other state agencies. But Moulton Powden has been told to find 8 percent in savings for fiscal 2011, and the search “is going to be difficult,” she says.

Kevin Kelley is a freelance writer from Burlington.