Balanced Growth Driving Factor in Idaho’s Recovery

Idaho’s recovery from the recession has been among the strongest of any U.S. state. Over the past five years, Idaho has consistently ranked near or at the top in the rate of growth for employment. Idaho, significantly, does not suffer from imbalanced or lopsided growth, where one or two industries are growing while the rest of the economy struggles. Idaho has enjoyed job growth across a wide variety of sectors. The balance of this job growth can be measured using a variant called the Diffusion Index.

When evaluating job growth, it is preferable to see growth in all sectors of the economy. Some states, like North Dakota for example, experienced rapid job growth associated with a boom in oil drilling. While the oil industry is a strong employer that brings many economic benefits, it is a more stable scenario to have a diversified economy.

The Diffusion Index measures the ratio of industries that are adding or losing jobs. The index can range from 0 to 100 percent, and it represents the ratio of industries that increased their total employment by more than 1 percent over the calendar year when compared with all industries that saw a 1 percent net change in either direction. For example, a Diffusion Index of 50 percent in July 2011 would mean that half of the industries in Idaho saw their employment grow by 1 percent or more from July 2010 to July 2011.

Industries are defined using a classification system called the North American Industry Classification System, or NAICS. NAICS categorizes every employer in the economy as one of 263 different industries. The Diffusion Index looks at employment in each one of these, so an index of 60 percent, for example, would indicate that 157 industries grew over the year.

In a very simple sense, a Diffusion Index of 50 percent means that, in the leading calendar year, the same number of industries increased their employment as decreased. An index of more than 50 percent means there were more industries gaining jobs than losing them. It is possible for the economy to gain jobs while having an index under 50 percent, and vice versa. If a few industries are expanding quickly and adding lots of positions, they can outweigh dozens of other industries that are shrinking. In Idaho though, the trend in job creation has largely matched the diffusion index. The following graph illustrates Idaho’s diffusion index from January 2007 to July 2015.

diffusion index direct copyIn early 2007, the index was over 80 percent, and the majority of Idaho’s industries were growing. The index toppled, however, with the recession. It bottomed out near 20 percent – barely one in five industries were growing – but with the turnaround in 2010, the index began to climb rapidly. Idaho has had an index above 50 percent since late 2011, indicating that more than half our industries have been adding jobs.

This balanced recovery is likely a reason why Idaho’s job growth has been so sustained and successful. Rather than relying on a few key industries for employment growth, Idaho’s economy has enjoyed growth over the last few years in a diverse array of industries.

The Diffusion Index for the nation is calculated in a slightly different manner, but represents the same concept. America’s total Diffusion Index over the past year has been between 55 percent and 65 percent, notably lower than Idaho’s, which has averaged 72 percent. The latest index for the country was 62 percent, compared to Idaho at 75 percent. The balance of Idaho’s job growth is a promising sign, and it suggests that Idaho’s strong employment growth has been no fluke., regional economist
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