Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The District Economic Outlook: Responding to Labor Shortages and Overseas Problems

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The District Economic Outlook: Responding to Labor Shortages and Overseas Problems

Article excerpt

The Tenth District economy slowed down in 1998, with employment growing marginally below the national average. Despite very tight labor markets, employment growth remained healthy in many sectors. Construction; trade; transportation, communications, and public utilities; and finance, insurance, and real estate; all posted healthy gains. The manufacturing and service sectors, however, turned in weak growth, a result of the Asian financial turmoil and a shortage of skilled workers throughout the district.' District agriculture had a difficult year, as commodity prices plunged in the face of rising supplies and weakening demand. A large aid package from Congress late in the year, however, prevented farm incomes from being considerably less than in 1997.

Colorado led the district in employment growth in 1998 with another strong year, followed by Oklahoma and Kansas. Faced with one of the tightest labor markets in the country, Nebraska job rolls grew at less than two-thirds of their 1997 pace. Job growth in New Mexico was relatively stable, only slightly below the rate registered the previous year. Wyoming and Oklahoma were the only district states to experience higher employment growth in 1998 than in 1997, although job gains in Wyoming were still below the district average. Missouri ranked last among district states in employment growth, with the weak economic performance caused mainly by job losses in manufacturing and marginal growth in the service sector.

The district economy is likely to slow further in 1999, growing only modestly compared with the recent past. The expected slowdown of the national economy, continued economic weakness in the rest of the world, and very tight labor markets throughout the district are all likely to play major roles in the district economic slowdown. Some sectors of the district economy, such as manufacturing and mining, are likely to be hurt more than others in the near future. The service sector is likely to repeat its weak 1998 performance, while a reduction in consumer spending will slow growth in retail and wholesale trade in 1999. Construction activity may weaken a bit in 1999, and the district farm economy is likely to face a difficult year unless the government acts to further boost subsidies.

ASIAN TURMOIL AND TIGHT LABOR MARKETS SLOW GROWTH IN 1998

The district economy grew modestly in 1998, slowing from the previous year.2 The strong pace of 1997 carried over into the first quarter of 1998, but the district economy lost some steam as the year progressed. As a result, the district economy lost ground vis-a-vis the nation, where the slowdown was not as sharp.

Employment growth, one broad measure of economic activity at the state level, confirmed that the district economy weakened slightly relative to the nation in 1998, after many years of outperforming the country as a whole. Nonfarm employment in the district grew 2.2 percent in 1998, following 2.8 percent growth in 1997 (Chart 1).3 At the national level, employment grew 2.3 percent, also slightly down from the previous year.

The slowdown in district employment growth in 1998 reflects slower growth in foreign demand for goods, especially for manufactured goods produced in the district. But the slowdown also captures the increasing constraints that district employers face in hiring additional workers. The unemployment rate in the district continues to be below the rate for the nation as a whole. The district experienced average unemployment of 3.8 percent for the year, remaining at least a half percentage point below the national average throughout the year.'

All district states except Oklahoma and Wyoming experienced slower employment growth in 1998 than the year before (Chart 2). Missouri added jobs in 1998 at just over half the pace of 1997, as did Nebraska. Extremely tight labor markets in each state, and especially in Nebraska, were likely reasons for the slower growth. …

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