Is the Buffalo Niagara job market really as strong as September’s 5.7 percent unemployment rate might suggest?
The drop in jobless levels locally during September certainly was impressive. The local unemployment rate tumbled by 1.3 percentage points from September 2013, when the jobless rate was 7 percent.
It was just the second month since October 2008 that the jobless rate fell below 6 percent (April’s 5.8 percent rate was the other), and it left unemployment in the Buffalo Niagara region on par with the nation and only a tad worse than the statewide rate of 5.6 percent.
Pretty good, right?
The thing that’s concerning with the unemployment report is how the big drop occurred.
It wasn’t from a stunning surge in hiring. It came mostly from a labor pool that evaporated faster than a puddle on a driveway in the middle of summer.
If the numbers from the state Labor Department are taken as gospel, then local workers didn’t just walk away from the local job market, they ran away from it like Bills fans hope Geno Smith will be running away from Marcell Dareus this afternoon.
According to the report, a total of 17,100 people dropped out of the labor pool over the past year. That’s the equivalent of 3 of every 100 local workers deciding to put their lunch boxes in the closet and put their feet up on the coffee table.
Not once in the last 24 years have so many workers dropped out of the labor force. And it’s not even close. The decline in the local labor pool last month was 39 percent bigger than any monthly change since 1990.
“Stunning is the word I’d use,” said Gary Keith, M&T Bank’s regional economist in Buffalo. “Even in the Great Recession, we didn’t see anything like that.”
Other parts of the unemployment equation were equally head-scratching. The jobless rate dropped even though 8,600 fewer people in the Buffalo Niagara region were employed during September, compared with a year ago. That essentially means that, for every 200 workers in the Buffalo Niagara region, there were three fewer people from that group who had jobs last month than in September 2013.
And the number of people who were unemployed last month absolutely fell off a cliff, plunging by 21 percent. That meant 8,500 fewer people were unemployed last month than in September 2013.
Unemployment numbers are notorious for being tremendously volatile. The jobless rate in New York is calculated from a monthly survey of 3,100 people. Because the sample size is so small, the U.S. Bureau of Labor Statistics warns that state unemployment rates can have a margin of error of about 0.2 percentage points.
The numbers get even more wobbly when they’re used to measure unemployment for metropolitan areas, like Buffalo, because it requires a calculation that involves even more extrapolation from a tiny sample. That could put the margin of error at around 0.5 percentage points. And the volatility is magnified during months like September, June and January, when large numbers of students move in and out of the work force.
John Slenker, the labor department’s regional economist in Buffalo, cautions against reading too much into the unemployment number itself.
It’s better, he said, to look at the longer term trends in jobless levels and see how they stack up with other data that measures the health of the employment market, including the separate and much broader monthly survey of 18,000 New Yorkers that is used to calculate the number of jobs in the region.
That survey, released a little more than a week ago, showed modest job growth across the Buffalo Niagara region, with 2,600 new jobs being created over the past 12 months. That’s a 0.5 percent job growth rate, which is only about a quarter of the pace of hiring nationally. It shows a slowly improving job market, not one that’s in the midst of a hiring frenzy.
Still, Slenker said the trends show that the local job market is getting stronger.
Over the last two years, the unemployment rate has been dropping, even when you consider how volatile the numbers can be. And the job market has been growing steadily for more than four years, even if the expansion hasn’t been keeping up with the rest of the country.
So why is the labor pool shrinking? One factor likely is our relatively older population, which means that many veteran workers are retiring and dropping out of the work force at a time when our population is stagnant.
The pace of retirements also may be accelerating because of the rebound in the stock market and the gradually improving economy over the last few years, which now may be convincing workers who postponed their plans to retire when the Great Recession slashed their 401(k) balances that they now can afford to stop working.
Another factor, which is hard to measure at the local level, is how many workers are discouraged and have stopped looking for jobs. Those workers aren’t counted in the labor pool, and nationally, the labor participation rate has dropped to a more than 40-year low.
“Why would people become discouraged and drop out of the labor force?” Slenker asked. “That’s what bothers me.”
So don’t view the jobless rate as a precise measurement. It’s more of a trend detector.