This Friday (November 21), LEAD will release its monthly estimates of payroll employment in North Carolina for the month of October. Immediately, the question many economists, policymakers, reporters, and the general public will be asking is: “Is this a ‘good’ number?” There are several ways to assess this:
- Is the number positive or negative? (Job losses are almost never “good.”)
- How does it compare to North Carolina’s previous performance — over the month and over the year?
- How does it compare to the other states (particularly our neighboring states)
when measured by percent change? - How does it compare to the U.S. average for (percent) job growth?
- But ultimately, the most important question is: Is North Carolina’s economy meeting our own individual expectations for lowering unemployment?
So how can individuals set reasonable expectations for job creation? The Federal Reserve Bank of Atlanta’s Center for Human Capital Studies has a Web-based “Job Calculator” that can help us to set a job creation goal. This user-friendly tool estimates the average monthly job growth required to produce a given unemployment rate within a certain amount of time, using some fairly straightforward methodology — as well as some very strong assumptions.
For example, let’s say that our ambition is to reach the pre-Recession unemployment rate low of 4.6 percent by September of next year. This application predicts that North Carolina will need to generate 11,652 net new jobs every month in order to reach an unemployment rate of 4.6 percent by September of next year. Such a rate of job creation would be much faster than we’ve seen in recent years. However, this prediction is sensitive to assumptions that, while reasonable, might not be entirely accurate. Thankfully, the tool allows us to tweak some of these assumptions:
- North Carolina’s labor force participation rate has seen steady declines over the past 13 years. However, the Jobs Calculator assumes a constant participation rate in the future. If we, instead, assume that participation rates will decline at the same rate as the past year (yielding an annual average of 50.7%), then we’ll only need 8,143 jobs per month to attain our goal.
- Payroll employment and the unemployment rate are developed using two different methodologies and concepts. (One of the most important distinctions is that payroll employment measures how many jobs exist and where they are located; whereas, the unemployment rate captures employed and unemployed persons and where they live.) These two series can diverge over time for many reasons. If we assume that the ratio of employed persons from one methodology to another in North Carolina increases in the next year at the same rate as the past year (yielding an annual average of 0.953), we’ll need 11,751 jobs per month to reach our goal.
- We also need to scrutinize assumptions about population growth. The past few years have seen accelerating population increases in North Carolina. If population growth rates accelerate over the next year as fast as they have over the past three years (yielding a monthly growth rate of 0.12%), we’ll need 12,698 jobs per month to reach our goal.
- Finally, readers should be aware that jobs numbers and the unemployment rate are revised on a monthly and annual basis. These revisions can be substantial, and predictions based on preliminary data could potentially create a misleading picture of our state’s economic prospects.
Despite these caveats, the Atlanta Fed’s Jobs Calculator does give us a general sense of what amount of job growth it will take to move the needle on the unemployment rate. There is no “crystal ball” that will allow us to perfectly predict the future course of North Carolina’s economy. However, the simplicity and versatility of this application makes it a useful addition to the “toolkit” of economic policymakers and labor market watchers in the state.