Population Shifts and Those Employed, A Business Climate Ranking Misses GDP Growth
and the Climate out West

Categories: Commentary, Uncategorized |

June 30, 2014

Last week saw the release of revised (yet again) first quarter GDP numbers and, in case you missed it, the numbers were revised downward (again) to (2.9%).  Don’t fret, according to official commentary, the weather was, once again, to blame.  In addition to the weather being a primary culprit of this dismal result, the government also reported that health care expenditures didn’t reach levels anticipated and, as such, was a drag on GDP.  Staying apolitical, two points to consider: first, wasn’t the ACA supposed to drive down costs and, second, has anyone else seen the medical insurance cost increases being passed on by the insurers?  Our firm is lucky to be part of a group that has serious bargaining power (over 100,000 lives) and our average increase is just under 10%.  I guess the good news is that we can anticipate some level of growth in GDP next year!

Two other items that caught my attention.  First, it was reported that inflation was the highest it has been in 18 months.  This caught my attention because this should not be a surprise – I am not sure how inflation is calculated but the cost of just about everything has been rising but, until now, we were told inflation was benign.  The other item was a comment that, despite rising wages, the Federal Reserve reported weak consumer spending (not surprised at the Fed Report).  As pointed out in last week’s commentary, wage growth is uneven at best with 18 States above and 33 States below the US average.  I also noted that for 2012 to 2013, the average increase across the US was zero.  Not sure where the “rising wages” comes from.

Before delving into the main part of this week’s commentary, I want to remind our readers that, effective July 5, new MSRB rules come into effect with regard to time of trade disclosure to retail and non-SMMP investors (MSRB Rule G-47) and an amended rule around suitability (MSRB Rule G-19).  If you would like more information on these new rules, please CLICK HERE for a replay of a recent webinar on the subject.

This week, I start with a look at population change and the labor force.  Mike Craft then takes a look at the CNBC Business Climate Survey and its connection to GDP growth.  Mike concludes with a look at Drought conditions in California.

Population Growth – Who Will Pay the Bills?

Our May 5 commentary focused on, what I described as an “uneven recovery” and highlighted, amongst other things, concerns around the number of people employed as a share of the population.  Last week, the US Census Bureau released data regarding population breakdown at the county level.  As you ponder the results, consider the reality of, in many places, flat wages and the resulting impact on where the “dependent” population is and isn’t growing.  For purpose of this review, consider the 18-64 age group as wage earners and the others, more or less, as dependent.  Who will pay for services?  The dynamics of wage growth and demographic change have national implications, but for municipal bond investors, it pays to examine these developments at a local level.

The county level data shows significant dispersion.  Out of the 3,233 counties nationwide, only 874 are experiencing growth in the 18-64 wage-earning cohort and also an increasing share of population employed.  The chart on the left provides a view of the number of counties with increased population by age group and the number counties with an increase in the number of employed people as a percent of the population.  The chart on the right highlights the percentage of counties with population growth as a percentage of all counties and the percentage of those counties with an increase in the number of people employed as a percent of the population.  Below, I also provide the underlying data.  For Analytics users, the Filter or Data Access modules can take you much deeper.


DIVER Analytics, Filter Module; USCB

The Underlying Data

  • 18-64 population increased in 1,144 counties from 2012 to 2013 while Employed as % of Pop was up in 874 of those counties (using April 2013-14)
  • <18 population increased in 943 counties from 2012 to 2013 while Employed as % of Pop was up in 679 of those counties (using April 2013-14)
  • >64 population increased in 2,991 counties from 2012 to 2013 while Employed as % of Pop was up in 1,977 of those counties (using April 2013-14)

CNBC Business Climate Ranking Not a Good Predictor of GDP Growth

We are always on the hunt for new and interesting State and local economic indicators.  This week, CNBC released a ranking of the 50 States by their attractiveness to business.  I was intrigued by the possibility that this could be a forward-looking indicator for the health of States’ economies and worth ensuring our readers were in the know.  To test the predictive power of the scores, we compared CNBC’s 2009 State rankings to State GDP growth in the subsequent five years.  Unfortunately, the business climate rank was not the predictor that we had hoped.  The trend line on the chart shows a mildly positive relationship, but not strong enough to be of much value (in my view).


Source:  CNBC, BEA, DIVER Data Services

The table below highlights the over and under achievers:

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Source:  CNBC, BEA, DIVER Data Services

While one can appreciate the need and value for States to create a good climate for businesses to thrive, CNBC’s indicator does not seem to help predict the relative strength of States’ economies.

From Business Climate to the “Climate”…

Last week, the National Drought Mitigation Center released its most recent Drought Intensity scores.  I hate to rain on the California upgrade parade (pun intended), but drought conditions in California continue to worsen. While a drought in California is not news, the scores highlight that the counties near San Francisco are suffering more than usual this year.  Alameda, Contra Costa, San Francisco, San Mateo, Santa Clara, and Santa Cruz counties have the highest current Drought Intensity scores in the State.  Last year at this time, they were barely in the top third of California counties suffering drought conditions.  The map below displays the Drought Intensity scores across the nation by county and highlights the constituents of the Barclays Managed Muni (Black) and S&P Muni AMT-Free Indices (white).

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DIVER Analytics, Map Module, National Drought Mitigation Center

DIVER Analytics subscribers can use the Map Module to perform this analysis against their portfolios.

Gregg and Tim will be in NYC Tuesday and Pete and Tim will be visiting New Jersey Wednesday.  Wishing our readers a happy and safe 4th!

Have a great week,


Gregg L. Bienstock, Esq. & Michael Craft, CFA


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