Choose Your Target States by Better Understanding the US Economy (UG)



By Rajkamal Rao  

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When considering college, one of the most important decisions to make is its location.  Traditional location questions revolve around how far your college will be from your home (this will dictate how often you could visit your family, for example); the size of the city (rural, urban, suburban or a college town environment), proximity to other family members or friends whom you may want to visit in lieu of visiting your home and so on.

Each of these considerations is vital because your college’s location will be your address for at least 4 years, perhaps more.  And when you are going away from home for the first time, you must feel comfortable about the choices you make or else adjusting to a new environment will make it harder.

Our outcome based approach adds a few objective filters to your location decision so that you are choosing from a shorter list.  Our premise is that you should select only those states (and regions within a state) that are economically strong, growing and able to absorb you into the workforce.  Because when a region in which you study has a robust economy, companies are willing to invest and create opportunities for internships and jobs, professors are better able to bring research projects to campus, you will have more opportunities to network with local leaders and get mentored, and the overall mood is better for all involved. 

The United States is a powerful, wealthy economy.  From the outside, people looking in think that all 50 states in the country are equally well off.  But we know that nothing could be further from the truth.

A small civics lesson here is probably appropriate.  The United States is structured as a republic with the federal government responsible for things only a central government can do, such as print money and defend the nation.  But the real political/economic power lies in the 50 states.  The 10th amendment of the US Constitution simply states that any power not granted to the Federal Government in the Constitution is, by default, given to the individual states in the Union.

What this means is that the 50 states have their own laws and policies for just about everything - from criminal justice to zoning to funding public education.  Some states have very strict laws regulating guns; others have loose laws.  Some states tax their residents' income heavily; but others have no state income tax.   Some states tax sales, others don’t.  Some states have laws friendly to employee unions; others may pass laws to be friendlier to businesses.

The states are therefore 50 different laboratories fine-tuning their laws not only to reflect the will of their residents but also to stay competitive in the global marketplace of ideas.  The effect is that the 50 states are not much different from 50 students in a class - each with his or her methods to prepare for and do well on a test.  Consequently, students - and states - perform differently when the results are announced.

States that are doing economically better are naturally better bets for students.  It is easier to find internships in such states than others.  And we know that internship experience is vital in getting jobs after graduation.  We look at three important macro-economic indicators.

Unemployment Rate 
The unemployment rate is calculated by dividing the number of unemployed by the total number of people in the labor force. Unemployment (or joblessness) occurs when people actively seeking work can't find work. 

As a practical matter, if the unemployment rate is 3% or lower, the region is considered to be at full employment.  For each one percent uptick in unemployment, the job situation is considered to get worse.  People who are out of work can't pay taxes to support the government.  Worse, they draw more benefits from the government in subsidized housing, food assistance and cash unemployment payments.  If this situation persists, the economy really suffers.

Since 2009, US unemployment has been the highest since the Great Depression of 1929.  For nearly 42 months straight, the overall unemployment rate in the country was higher than 8% - a level unseen in modern history.  Only since October 2012 has the unemployment rate dropped below 8% and by May 2015, had significantly improved to 5.5%.

Thinking about the unemployment rate alone is not enough, though.   When people drop out of the workforce altogether, unable to find work, the unemployment rate will appear to improve because the government only counts those that are “actively seeking work”.  

In Dec 2010, 64.3% of those who wanted to work were still in the labor force, actively seeking work.  A year later this percentage had dropped to 64.0%, as more people retired or went on disability, and stopped seeking work altogether.  A year later, this dropped again to 63.7% and as of August 2015, this stood at just 62.6%.

If all those retired and disabled people returned to the workforce looking for work, the unemployment rate would rise as there is more competition for the same number of jobs.  Don’t forget also that the US continuously adds people into the workforce - students who graduate from high schools and colleges, and immigrants who come in to the country to work.  Economists say that the country needs to keep creating about 150,000 new jobs each month to simply accommodate all the new entrants to the labor market.

Despite all these foot notes, the unemployment rate is a powerful number which gives us a pulse on how the economy is doing.  Is the unemployment rate the same in all 50 states?  No, hardly.  The rate in each state is different as reflected by each state's policies and fortunes.  

If a state’s unemployment numbers are dropping, it means that there are more jobs available to those seeking work.  In Jan 2014, Nebraska’s unemployment rate was 3.0% and a full 20 months later, it dropped to 2.7%.  Remember that a state at 3% rate is already at full unemployment, so all other things being equal Nebraska is a great state to look for work - and by extension, study.

If one state’s unemployment numbers are lower than another state’s, it means that your likelihood of getting jobs in the first state is better than in the second - so in general Iowa is better than Oregon.

GDP Growth 
The Gross Domestic Product (GDP) is simply the dollar value of all goods and services produced over a specific time period.  For example, the US, the world’s largest economy produced $17.32 trillion of products and services in 2014.  The previous year, this number was $16.67 trillion.  So, the GDP grew by (17.32-16.67)/16.67 = 0.039, about 3.9% in one year.

The US government not only calculates GDP and GDP growth for the nation but for each of the states.  GDP growth is an excellent indicator of how well a state's economy is doing.  Second ranked Texas grew its economy 5.2% in 2014 compared to 2013.

GDP Size 
While GDP growth is a snapshot of how an economy is doing year over year, you will also want to know how big the core GDP of a state is to get a feel for the wealth of a state.

Our rules for selecting the best target states 
We list exceptions later but in general, our outcome based state selection method is simple:  Consider colleges in states that are in the

1.    Top 25 in unemployment rankings
2.    Top 25 in GDP growth
3.    Top 25 in terms of GDP size.


Selecting a target region within a desired state 
We just listed several states as potential target states to consider going to for college.  But is every region in the state is equally worthy of consideration?  Should every college in the target state be in our short list?

Not quite.  Just as there are differences in economic performance across states, there are substantial differences within a state too.  Fortunes of some states depend upon economic activity in just a few regions - for example, the greater Seattle area (Seattle–Tacoma–Bellevue) contributed over 70% of the GDP in the entire state of Washington.  One reason for this is that the population density of this region is much higher than the rest of the state.  More people living and working means more economic activity.  But a more important reason is that this region is also home to numerous companies and businesses, including some of the best known in the world - such as Amazon, Microsoft, Starbucks, Alaska Airlines, Expedia, Nintendo of America, T-Mobile USA, Weyerhaeuser and Boeing.  Olympia, which is a relatively short drive away from this region, is the state’s capital, offering additional opportunities for a student.

In general, our outcome-based approach is tilted towards the large metro areas of the country because career and networking opportunities tend to be better there.  The Bureau of Economic Analysis of the US Department of Commerce publishes GDP numbers for 381 metro areas of the country.  In 2013, real GDP increased in 292 of these metro areas - we would therefore focus on only those metro areas that are doing relatively well.

In a global economy this is to be expected, however.  Millions of non-contact jobs (computer programming, telemarketing, legal research, production) where direct person-to-customer relationships are less important have been outsourced to other nations for years.  Thousands of low-level contact professions (bank tellers, travel agents, check-in clerks at airports) have been replaced by machines and the internet.  

Immigration is a big issue too.  In the so-called Science, Technology, Engineering and Mathematics (STEM) fields, a steady and increasing stream of foreign guest workers on temporary visas keeps the supply of labor high and wages depressed.  Many of these are eligible to immigrate and actually, do. 

Labor economists predict that Americans must be prepared to change jobs and even professions multiple times in a career.  There are few defenses against such a rapidly changing environment.  Our outcome based approach improves the chances that future workers are more ready to adapt than others.

We have described how to perform basic macro analysis to choose your target states and regions.  If states and regions are doing well economically, then colleges in those regions will also, on balance, be doing well.  Healthy economies create an environment for college students to find jobs outside of campus, explore internships, meet business leaders for networking and ultimately find good full time jobs after graduation - all improving ROI.


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