Regional nonfarm wages and salaries: three years of expansion.

Friedenberg, Howard L. ; DePass, Rudolph E.

Regional Nonfarm Wages and Salaries: Three Years of Expansion

FROM the fourth quarter of 1982 to the fourth quarter of 1985, nonfarm wage and salary disbursements (payrolls) increased 25 percent in the Nation; regional increases ranged from 32 percent to 19 percent.1 Thus far in the current expansion, nonfarm payrolls increased at rates more than or near the national average in the New England, Far West, Southeast, and Mideast regions and less than the national average in the Great Lakes, Southwest, Plains, and Rocky Mountain regions. For three of the eight regions, the relationship of the increase to the national average was similar to that in the preceding sustained expansion (from the first quarter of 1975 to the first quarter of 1980): The increase in nonfarm payrolls in the preceding expansion was more than the national average in the Far West and Southeast regions and less than the average in the Great Lakes region. For the other five regions, the relationship was different: The increase in nonfarm payrolls in the preceding expansion was more than the national average in the Southwest, Plains, and Rocky Mountain regions and substantially less than the average in New England and the Mideast.

1. The fourth quarter of 1982, according to the National Bureau of Economic Research, is the trough quarter of the most recent national recession, and the fourth quarter of 1985 is the most recent quarter for which estimates of regional personal income are available. Nonfarm wages and salaries, which are the largest component of personal income, are used because quarterly estimates of nonfarm wages and salaries for regions and States are more reliable and more sensitive to the national business cycle than quarterly estimates of most other components of personal income.

The first row of table 1 shows, for the Nation, the percent change in nonfarm payrolls by industry in the current expansion. Durables manufacturing, construction, trade, the finance group (finance, insurance, and real estate), and services had the largest increases. The increase in durables manufacturing payrolls in part reflected steady growth in the production of computers, electronic components, scientific instruments, defense equipment, motor vehicles, and household appliances. The increase in construction payrolls reflected a rebound in the building market, due, among other factors, to a decline in interest rates and to tax incentives. The increase in trade payrolls mainly reflected a surge in purchases of durable goods. The increase in the finance group in part reflected strong demand for banking and brokerage services. The increase in services payrolls mainly reflected strong demand for health, amusement, and recreation services and for computer, data processing, management, consulting, and personnel supply services. The smallest increases in payrolls were in mining; nondurables manufacturing; transportation, communication, and utilities; and Federal Government. Weakness in mining payrolls mainly reflected a large decline in oil exploration and other oil field services and a slowdown in oil production, as oil prices declined from the levels of the early 1980's. Weakness in nondurables manufacturing payrolls in part reflected reduced demand for domestic apparel, textile, and leather products in the face of import competition. Weakness in Federal Government payrolls mainly reflected concerted efforts to limit the growth of nondefense expenditures.

Table 1 shows, for each of the eight BEA regions, the percent change in nonfarm payrolls by industry. The paragraphs that follow discuss the regional percent changes in descending order.

In New England, the above-average increase in nonfarm payrolls was mainly accounted for by durables manufacturing, services, and construction. In durables manufacturing, production of computers, electronic components, and defense equipment was strong, particularly in Massachusetts. Industries that provided computer, data processing, and research and development services had large payroll increases. The increase in construction payrolls in New England, which was larger than in any other region, reflected strength in residential construction.

In the Far West, the above-average increase in nonfarm payrolls was mainly accounted for by durables manufacturing, the finance group, and services. In durables manufacturing, steady growth in defense spending underlay payroll increases in the aircraft and aerospace industries and in the electronic and computing equipment industries. Industries that provided financial, computer, and data processing services had large payroll increases.

In the Southeast, the above-average increase in nonfarm payrolls was mainly accounted for by durables manufacturing, construction, and services. In construction and services, Georgia and Virginia ranked among the top six States, as measured by payroll increases. The region's increase in durables manufacturing payrolls, which was larger than is any other region, in part reflected strength in the production of transportation equipment, machinery, and instruments as a result of the national defense buildup. Increased demand for lodging and convention facilities by business travelers and tourists stimulated the growth of payrolls in construction and in hotel, amusement, and recreation services. Continuing rapid population growth, particularly in Florida, led to large increases in payrolls in health services.

In the Mideast, the near-average increase in nonfarm payrolls was mainly accounted for by construction, the finance group, and services. Large payroll increases in these industries tended to offset small payroll increases in manufacturing, particularly in steel and apparel. Continuing development of urban commercial centers, particularly in New York and New Jersey, in part underlay the increase in construction payrolls; the increase was larger than in any other region except New England. The payroll increases in the finance group and services reflected the region's renewed strength in providing banking, brokerage, advertising, consulting, and management services to national and international markets.

In the Great Lakes region, the below-average increase in nonfarm payrolls was mainly accounted for by weakness in nonmanufacturing industries, which more than offset a rebound in durables manufacturing. Payroll increases in construction and trade were small; lack of growth in population dampened the demand for housing and durable goods. Payroll increases in the finance group, in Federal Government, and in State and local government were smaller than in any other region. Lagging demand for domestically produced nonelectrical machinery somewhat dampened the rebound in durables manufacturing.

In the Southwest, the below-average increase in nonfarm payrolls was mainly accounted for by mining, durables and nondurables manufacturing, and construction. Mining payrolls were nearly unchanged, as declines in oil and copper prices discouraged exploration and production. Weakness in oil mining dampened the growth of payrolls in related manufacturing industries --in durables industries that produce oil field equipment and oil refining and pipeline equipment and in nondurables industries that produce refined petroleum and petrochemical products. Weakness in construction payrolls in part reflected an oversupply of commercial and industrial structures, most of which had been built before the decline in oil prices.

In the Plains, the below-average increase in nonfarm payrolls was mainly accounted for by construction, trade, the finance group, and services. Small payroll increases in these industries mainly reflected a large decline in farm income. Reduced demand by farm-related businesses for buildings and durable goods adversely affected payrolls in construction and trade, and reduced demand for financial services contributed to weakness in payrolls in the finance group. The increase in services payrolls was smaller than in any other region.

In the Rocky Mountain region, the below-average increase in nonfarm payrolls was mainly accounted for by mining, construction, and durables manufacturing. Mining payrolls declined, as falling prices discouraged production of oil, shale oil, coal, and copper. The increase in construction payrolls was smaller than in any other region; weakness was pronounced in mining-related construction. Slack demand for mining equipment and for lumber products adversely affected durables manufacturing payrolls.

Table: 1.--Percent Change in Nonfarm Payrolls, by Industry, 1982:IV-1985:IV, United States and BEA Regions