ETSU Bureau of Business and Economic Research

Tri-Cities Labor Market Report

East Tennessee State University + Fourth Quarter 2006 + College of Business and Technology

THE METROPOLITAN AREA (CSA)

The regional labor market set another record for job creation in the fourth quarter. Metro area employment rose by 3.5% to 233,775, a gain of over 7,800 jobs compared to the same period in 2005. This marks the seventh quarter in a row of employment growth, and the best performance since the 2001 recession. Reflecting the surge in employment, the number of unemployed workers saw a large decrease of 9.2%, falling to 10,190. The jobless rate for the Tri-Cities metro area during the October to December period was 4.2%, compared to 4.7% a year ago.

Driven by the strength of job creation throughout the year, 2006 also stacks up as a record setting time for the Tri-Cities region. Employment was up 2.4% to 228,889 while unemployment fell 8.1% to 11,366 and the jobless rate plunged to 4.7%. This is easily the strongest labor market performance we have seen in several years.

Looking at the fourteen NAICS industrial sectors during the fourth quarter, employment levels were higher in six, while falling in seven. Job gains occurred in education & health services, other services, retail trade, government, information services, and wholesale trade. Job losses were reported in construction, leisure & hospitality, durable manufacturing, nondurable manufacturing, professional & business services, finance, and transport & utilities. Employment was unchanged in the mining sector.

 Labor Force Employment Unemployment
 Period  Level  Y-Y%Ch  Level  Y-Y%Ch  Level  Y-Y%Ch  Rate_
 2001 232,340 0.25 221,186 -0.47 11,155  17.23 4.80
 2002 233,603 0.54 220,479 -0.32 13,124 17.66 5.62
 2003 236,736 1.34 223,088 1.18 13,648 3.99 5.77
 2004 235,582 -0.49 222,523 -0.25 13,060 -4.31 5.54
 2005 235,798 0.09 223,428 0.41 12,370 -5.28 5.25
 2006 240,255 1.89 228,889 2.44 11,366 -8.12 4.73
 04:1 235,399 0.06 221,379 0.00 14,020 1.13 5.96
 04:2 234,694 -0.42 222,096 0.03 12,598 -7.68 5.37
 04:3 235,984 -0.28 222,871 0.09 13,113 -6.18 5.56
 04:4 236,252 -1.30 223,745 -1.11 12,507 -4.57 5.29
 05:1 233,884 -0.64 219,897 -0.67 13,987 -0.23 5.98
 05:2 236,405 0.73 223,874 0.80 12,531 -0.53 5.30
 05:3 235,731 -0.11 223,989 0.50 11,742 -10.46 4.98
 05:4 237,171 0.39 225,952 0.99 11,219 -10.30 4.73
 06:1 235,386 0.64 223,427 1.61 11,959 -14.50 5.08
 06:2 239,737 1.41 228,018 1.85 11,719 -6.48 4.89
 06:3 241,931 2.63 230,336 2.83 11,595 -1.26 4.79
 06:4 243,965 2.86 233,775 3.46 10,190 -9.17 4.18

THE TRI-CITIES

The strong regional labor market performance was reflected is the statistics for the three cities. During the fourth quarter, job levels were up 5.0% in Johnson City, 3.2% in Kingsport, and 2.4% in Bristol. The surge in employment was reflected in the large declines in unemployment levels. The jobless rate dropped to 4.0% in Johnson City, and 4.1% in both Bristol and Kingsport. On an annual basis, all three cities enjoyed their best labor market performance since the 2001 .recession.

Bristol TN-VA Urbanized Area Labor Market

 Labor Force Employment  Unemployment
 Period  Level  Y-Y%Ch  Level  Y-Y%Ch  Level  Y-Y%Ch  Rate_
 2001 27,153 0.37 25,981 -0.37 1,172 20.28 4.31
 2002 27,218 0.24 25,803 -0.68 1,414 20.72 5.20
 2003 27,638 1.55 26,024 0.85 1,615 14.17 5.84
 2004 27,100 -1.95 25,540 -1.86 1,560 -3.36 5.76
 2005 26,986 -0.42 25,568 0.11 1,419 -9.09 5.26
 2006 27,279 1.08 25,998 1.68 1,281 -9.73 4.69
 04:1 27,177 -1.52 25,458 -2.26 1,719 10.85 6.33
 04:2 27,076 -1.87 25,523 -1.75 1,553 -3.87 5.74
 04:3 27,144 -1.91 25,634 -1.26 1,510 -11.66 5.56
 04:4 27,004 -2.49 25,545 -2.16 1,460 -7.80 5.40
 05:1 26,771 –1.49 25,190 -1.05 1,581 -8.03 5.91
 05:2 27,121 0.17 25,670 0.58 1,451 -6.60 5.35
 05:3 27,063 –0.30 25,697 0.24 1,366  -9.53 5.05
 05:4 26,990 -0.05 25,714 0.66 1,277 -12.54 4.73
 06:1 26,922 0.56 25,552 1.44 1,370 -13.34 5.09
 06:2 27,315 0.72 25,969 1.16 1,346 -7.20 4.93
 06:3 27,435 1.38 26,151 1.77 1,284 -6.01 4.68
 06:4 27,443 1.68 26,321 2.36 1,122 -12.10 4.09

Johnson City Urbanized Area Labor Market

 Labor Force Employment Unemployment
 Period  Level  Y-Y%Ch  Level  Y-Y%Ch  Level  Y-Y%Ch  Rate_
 2001 51,885 -0.23 49,322 -0.84 2,563 13.36 4.94
 2002 52,223 0.65 49,206 -0.24 3,017 17.71 5.78
 2003 53,098 1.68 50,143 1.90 2,955  -2.06 5.57
 2004 53,948 1.60 51,058 1.83 2,889 -2.24 5.36
 2005 54,291 0.64 51,509 0.88 2,781 -3.73 5.12
 2006 55,860 2.89 53,328 3.53 2,533 -8.94 4.53
 04:1 53,715 2.79 50,661 3.09 3,054 -1.95 5.69
 04:2 53,575 1.71 50,857 2.38 2,718 -9.42 5.07
 04:3 53,912 1.71 50,978 1.79 2,934 0.41 5.44
 04:4 54,589 0.24 51,738 0.12 2,851  2.40 5.22
 05:1 53,782 0.13 50,621 -0.08 3,161 3.50 5.88
 05:2 54,293 1.34 51,464 1.19 2,829 4.10 5.21
 05:3 54,047 0.25 51,449 0.92 2,599 -11.44 4.81
 05:4 55,040 0.83 52,502 1.48 2,538 -10.99 4.61
 06:1 54,240 0.85 51,576 1.89 2,664 -15.72 4.91
 06:2 55,571 2.35 52,925 2.84 2,647 -6.45 4.76
 06:3 56,229 4.04 53,690 4.36 2,539 -2.27 4.52
 06:4 57,401 4.29 55,120 4.99 2,281 -10.11 3.97

Kingsport Urbanized Area Labor Market

 Labor Force Employment Unemployment
 Period  Level  Y-Y%Ch  Level  Y-Y%Ch  Level  Y-Y%Ch  Rate_
 2001 45,468 0.25 43,413 -0.42 2,056 16.99 4.52
 2002 45,457 -0.02 43,040 -0.86 2,417 17.61 5.32
 2003 45,824 0.81 43,150 0.26 2,675 10.65 5.84
 2004 44,986 -1.83 42,407 -1.72 2,579 -3.57 5.73
 2005 44,762 -0.50 42,349 -0.14 2,413 -6.46 5.39
 2006 45,407 1.44 43,233 2.09 2,174 -9.91 4.79
 04:1 44,919 -1.32 42,178 -1.71 2,741 5.11 6.10
 04:2 44,979 -1.80 42,428 -1.62 2,551 -4.78 5.67
 04:3 45,162 -1.69 42,552 -1.31 2,609 -7.41 5.78
 04:4 44,884 -2.50 42,469 -2.24 2,415 -6.86 5.38
 05:1 44,419 -1.11 41,680 -1.18 2,739 -0.10 6.17
 05:2 45,007 0.06 42,473 0.11 2,534 -0.68 5.63
 05:3 44,861 –0.67 42,528 -0.06 2,333 -10.59 5.20
 05:4 44,759 -0.28 42,714 0.58 2,045 -15.33 4.57
 06:1 44,413 -0.01 42,180 1.20 2,232 -18.49 5.03
 06:2 45,404 0.88 43,126 1.54 2,278 -10.11 5.02
 06:3 45,857 2.22 43,552 2.41 2,304 -1.25 5.02
 06:4 45,955 2.67 44,075 3.19 1,881 -8.05 4.09

THE UNITED STATES

The national labor market also saw the highest pace of job creation since the 2001 recession. Employment levels increased for the 18th quarter in a row, and reached 146.1 million for a year-to-year growth rate of 2.1%. Unemployment declined by 8.7% to 6.4 million, dropping the jobless rate to 4.2% (compared to 4.7% in the same period in 2005). Looking at the annual data, the national economy enjoyed the best labor market performance since the 2001 recession; each year is better than the last.

During the October to December quarter, eleven of the fourteen NAICS industrial sectors continued to enjoy higher employment levels. Job gains were led by education & health services, professional & business services, leisure & hospitality services, government, finance, and wholesale trade. Smaller employment increases were reported by transport & utilities, mining, other services, construction, and durable goods manufacturing. Job declines were limited to nondurable goods manufacturing, retail trade, and information services.

 Labor Force Employment Unemployment
 Period  Level  Y-Y%Ch  Level  Y-Y%Ch  Level  Y-Y%Ch  Rate_
 2001 143,734 0.81 136,933 0.03 6,801 19.48 4.73
 2002 144,863 0.79 136,485 -0.33 8,378 23.19 5.78
 2003 146,510 1.14 137,736 0.92 8,774 4.73 5.99
 2004 147,401 0.61 139,252 1.10 8,149 -7.12 5.53
 2005 149,320 1.30 141,730 1.78 7,591 -6.86 5.08
 2006 151,428 1.41 144,427 1.90 7,001 -7.77 4.62
  04:1 146,249 0.45 137,333 0.70 8,916 -3.34 6.10
 04:2 147,132 0.29 139,050 0.89 8,082 -9.02 5.49
 04:3 148,190 0.82 140,189 1.50 8,001 -9.71 5.40
 04:4 148,034 0.87 140,435 1.31 7,598 -6.51 5.13
 05:1 147,507 0.86 139,180 1.35 8,326 -6.61 5.64
 05:2 149,159 1.38 141,662 1.88 7,497 -7.23 5.03
 05:3 150,476 1.54 143,001 2.01 7,475 -6.57 4.97
 05:4 150,139 1.42 143,075 1.88 7,064 -7.04 4.70
 06:1 149,601 1.42 142,082 2.09 7,518 -9.70 5.03
 06:2 151,154 1.34 144,221 1.81 6,933 -7.52 4.59
 06:3 152,436 1.30 145,332 1.63 7,104 -4.96 4.66
 06:4 152,520 1.59 146,073 2.10 6,446 -8.74 4.23
 Note: Data are in thousands.

ANALYSIS

Labor market performance in the fourth quarter continued the positive momentum seen throughout the year. Over the October to December period there was record setting job creation at the national, regional, and local levels. And the surge in employment made another large dent in the number of jobless workers. The unemployment rates are now at levels we have not seen since the late 1990’s. By any of these measures, the times are very good. But there are some potential problems.

The U.S. economy is well into the business expansion phase of the business cycle, and the question is how much longer will the good times last? Job creation at the national level has been around two percent for the past two years. As we noted in the last report, this rate of job expansion is not sustainable since it exceeds the natural rate of growth of the labor markets (one percent), and could lead to inflationary pressures driven by tight labor markets. The strong growth in employment and output in the fourth quarter is a danger signal of potential overheating of the national economy.

The Federal Reserve System is very sensitive to labor market conditions and any possible emergence of “cost-push” inflationary pressures. Based on the fourth quarter results, the Fed is more likely now to return to a policy of incremental rises in interest rates. Business conditions in early 2007 will determine which way interest rates will go.

The regional labor market continues to improve. In the third quarter, employment jumped by 6,000 new jobs. In the fourth quarter, employment was higher by more than 7,800 jobs. This is simply the best economic growth we have seen in five years. In 2005 and 2006, the Tri-Cities area more than recovered the jobs that had been lost in the 2001 recession.

How much longer can this outstanding performance continue in the region? The answer is probably not too much longer. We are surely bumping up against the demographic limits imposed by the population base of our area. In Johnson City, for example, the unemployment rate is below four percent, and the job market is wound up as tight as a drum. Businesses and economic developers have all noted that it is getting very hard to find qualified workers. These types of complaints have been voiced across the region.

There is also another factor at work in the regional labor market. In the fourth quarter, a majority of the fourteen NAICS sectors saw job declines. Both construction and manufacturing suffered significant job losses.. The record setting job creation is increasingly concentrated in a few services sectors. This can be a very precarious situation. And the continuing shift of jobs away from goods production and into services production reintroduces the old question about the quality of the new jobs being created in the region.

Technical Note. This report was prepared in February 2007, and is based upon the 2005 Benchmark of the Current Population Survey, U.S. Department of Labor. The labor markets for Bristol, Johnson City, and Kingsport are presented in terms of the U.S. Census Bureau concept of the "urbanized area" which includes the core city and the contiguous urban fringe. The urbanized area for each city is based upon demographic patterns from the 2000 Census of Population. The data in this report are not adjusted for seasonality, so comparisons should be made on a year-to-year basis.

More information. This report was prepared by Dr. F. Steb Hipple, Professor of Economics, and Research Associate, BBER. For more information, please contact Dr. Hipple c/o Department of Economics, Finance, Geography, and Urban Studies, Box 70686, East Tennessee State University, Johnson City, Tennessee 37614. Phone/Voicemail: 423-439-5304. Fax: 423-439-8583. E-Mail: Hipples@etsu.edu. Internet: http://faculty.etsu.edu/hipples.