Tight labor market barely relaxes as recession looms

Vermont Business Magazine, Nov 01, 2001 by Kelley, Kevin

Unemployment in Vermont is sure to increase in the coming months, economists and state officials generally agree. What's uncertain, they say., is the severity of the job loss: Will the current unemployment rate of 3.3 percent rise to more than five percent, and how soon will Vermont businesses start hiring again?

The state's long economic expansion had come to an end even prior to the calamities of September 11, said Art Woolf, editor of the Vermont Economy Newsletter. According to the yardstick he uses, a recession began in Vermont sometime this summer. In the past, Woolf explains, recessions have always occurred whenever the state's employment total was lower for three successive months than in the corresponding period six months earlier.

In other words, the number of jobs in Vermont was smaller in June 2001 than in December 2000, smaller in July than in January, and smaller again in August than in February.

"This one major indicator has never proven false in signaling a recession," Woolf said.

Thomas Kavet, the state Legislature's in-house economist, agrees that bad times have begun in Vermont. Shock waves from the attacks on the World Trade Center and Pentagon shook "a very vulnerable economy and certainly pushed it over the edge," Kavet told the Legislature's Joint Fiscal Committee at a hearing in October.

Mike Griffin, by contrast, has more of a show-me attitude.

"I never assume we're having a recession until I see it," said the chief analyst for the Vermont Department of Employment and Training, "and I don't see it right now."

An unemployment rate in the mid-3-percent range does not a recession make, Griffin said. And while he acknowledges that a downturn may well occur, statistics published by his department indicate that Vermont's current job picture is much brighter than that for the nation as a whole.

The US unemployment rate was just shy of 5 percent in August - more than one-and-a-half percentage points higher than Vermont's rate. Moreover, if Vermont did indeed slip into recession this summer, it has so far barely affected the job market.

In August, the latest month for which numbers are available, 333,000 Vermonters had jobs and 11,500 who wanted to work were not doing so. The resulting seasonally adjusted 3.3 percent unemployment rate was only one-tenth of a percentage point higher than the previous month's. And the year-to-year contrast wasn't particularly sharp, either. In August 2000, the state's unemployment rate stood at 2.9 percent - less than half a point lower than the latest figure.

Vermont's economy is also better positioned today to weather a national recession than it was during the last slump, notes Woolf.

The contraction that gripped Vermont from 1989 to 1991 was the worst the state had experienced since the 1930s Depression, Woolf said. And it persisted long after the national economy had begun to recover.

New England was harder hit than other regions due to a surplus of newly constructed housing and a drop-off in an industry - financial services - on which Massachusetts and Connecticut heavily depend, Woolf said.

In addition, New England's high-tech manufacturing sector was hurt by its failure to gear up for the emerging consumer demand for personal computers, Woolf adds. He recalls that Digital shed about 1,000 jobs at its South Burlington plant in the late '80s and early '90s. None of those factors are operative now, in Woolf's view.

Housing construction remains strong in Chittenden County and some other parts of the state because demand continues to exceed supply. IBM's job growth and profit margins demonstrate that Big Blue, has succeeded in recent years in deciphering market trends.

And while the financial services industry is still important in New England, the greatest losses in this sector may already have occurred, Woolf observes, pointing to last year's sharp decline in the Nasdaq and Dow.

For these reasons, Woolf thinks the current recession - if one is in fact underway - will prove relatively mild and brief. Vermont's unemployment rate will rise to around 5 percent, he predicts, signifying a loss of some 4,000 jobs. And he foresees the downturn's duration as being consistent with the historical average of about nine months. That means the economy would start to rebound sometime next spring, assuming that a recession began in June 2001. All bets are off, Woolf hastens to add, if the US is rocked by more terrorist attacks or if the global political scene descends into chaos.

Mike Griffin meanwhile worries what will happen to Vermont should the state's few major manufacturers encounter serious difficulties. Manufacturing drives the economy, Griffin notes, and that sector had already begun to exhibit weaknesses prior to September 11.

The squeeze is most painful in southern Vermont where several large manufacturers have shut down or cut back significantly in recent months. Hundreds of high-paying jobs have been lost as a result. Bennington and Springfield both reported August unemployment rates in the vicinity of 5 percent, compared to less than 3 percent in the Burlington area, where IBM is still thriving.