New Generation Creating 20/20 Vision what can a near-sighted economist contribute?

Transcription

1 New Generation Creating 20/20 Vision what can a near-sighted economist contribute? George A. Erickcek W.E. Upjohn Institute for Employment Research July 17, 2014

2 Outline Short-term situation: The economy truly stalled during the first quarter and no one cares The employment situation is improving Consumer and business confidence is improving Michigan s employment trends are very strange, but its love affair with autos continues Long-term thoughts Demographics, innovation and support 1

3 GDP fell by nearly 3 percent in the first quarter what happened? 6.0 Gross Domestic Product and Nonfarm Employment 1,500 Percentage change in GDP Why is this being ignored? Forecast 1, ,000-1,500-2,000 Employment change (000s) Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1-2,500 GDP Nonfarm employment Source: BLS, BEA, U of M RSQE June 17,

4 Everyone stayed inside and turned up the heat and businesses raided their warehouses 2.0 Major Activity Contribution to GDP Change in Current Quarter Percentage GDP Durable Nondurable Services Nonresidential Residential Inventory Personal consumption Investment Net export Government 3

5 We have finally gotten all the jobs back nationwide 110 Total Employment Index (100 = 2000 average) However, the nation s labor force has grown by 1.8 million workers, and the labor participation rate dropped from 66 percent to 62.8 percent U.S. Source: BLS and Upjohn Institute. 4

6 The first quarter s output numbers are being ignored because of the improving job figures Thousands (000s) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 U.S. Job Openings and New Hires Job openings at end of month 1, Job seekers per opening Unemployed / job openings Source: BLS Job Opening and Labor Turnover. 5

7 People are finding jobs and the number of longterm unemployed persons is dropping slowly Unemployment rate U.S. Unemployment Rate and Long-Term Unemployment Unemployment rate Percentage unemployed 27 weeks or more Source: BLS Job Opening and Labor Turnover Percentage unemployed 27 weeks or more 6

8 Consumer confidence is rising as is household debt, however Billions ($) Consumer Confidence and Change in Consumer Debt Consumer debt Consumer confidence Source: New York Federal Reserve and Conference Board Index: 1995 = 100 7

9 The Fed is slowing its bond purchases but interest rates are holding steady 6.0 Interest Rates and Inflation Annual percentage rate year Treasury bill 12-month change in CPI-U 30-year mortgages 3-month Treasury bill Source: New York Federal Reserve and BLS CPI. 8

10 Net percentage of respondents The financial situation is stable but clearly not robust Federal Reserve Senior Loan Officers Survey: Demand and Lending Standards for Commercial and Industrial Loans by Medium-to-Large Firms Reporting tightening standards Reporting stronger loan demand 2009 Q Q Q Q Q Q1 9

11 Corporate profits are still high and the employment gap is closing Employment rate 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% Employment Rate and Corporate Profits 14% 12% 10% 8% 6% 4% 2% 0% Corp. profits pct. of GDP Employment rate Corporate profits 10

12 The dollar is holding its value and our trade balance remains negative but is stable 0-10,000-20,000-30,000-40,000-50,000-60,000 U.S. Trade Balance and Nominal Index of the Value of the Dollar against Seven Major Currencies Trade balance Major currencies' dollar index ,

13 So let s sum up The economy stumbled in the first quarter but no one seems to care Employment has finally recovered however the labor force has increased by 1.8 million workers and labor participation rates are still low Confidence is growing but loan demand remains flat The Fed will continue to slowly ease its purchasing of bonds but will likely keep interest rates low 12

14 Looking toward 2020 It is possible that this slow-growth environment may continue for the next five years: Washington, DC, will likely remain deeply divided which will allow only modest policy proposals to be passed The Federal Reserve will keep its focus on employment as long as inflation remains quiet, suggesting that interest rates will remain low The income inequality situation will likely remain unchanged and will be a drag on the economy because of a lack of a strong middle class 13

15 Michigan employment trends Employment increased by 54,000 jobs in 2013 Manufacturers added 17,800 jobs during the year If you are willing to assume an employment multiplier for manufacturing of three, all of the state s employment growth in 2013 was due directly and indirectly to its manufacturers Source: University of Michigan. 14

16 Michigan employment trends University of Michigan is forecasting an increase of 66,700 jobs in 2014 and another 65,000 in 2015 During the first five months of 2014 employment slipped by 1,100 Source: University of Michigan. 15

17 Employment in the state increased by 54,000 jobs in Manufacturing Employment Change, 2012 to 2013 Job change (000s) Prof., tech. Health care Hospitality Retail trade Transport., util. Admin. and support Construction Finance Arts, ent., rec. Other serv. Wholesale Management Information Real estate Educ. services Government Source: BLS CES. 16

18 The state s unemployment rate has improved and now stands at 7.5 percent 16 Unemployment Rate 14 Percent of labor force Source: BLS LAUS. 17

19 However, the state has not yet recovered from the recession Statewide, employment lost 408,200 jobs during the Great Recession, and has gained 288,300 back during the recovery so far In other words, the state is still short 120,000 jobs In manufacturing the loss is 41,200 jobs 18

20 Auto sales continue to pick up and are forecast to drive past 16 million units in 2014 Units (millions) million units in Source: BEA. 19

21 A deeper fall but following Great Lakes trends 115 Total Employment Index (Dec base period) U.S. Michigan GLS Source: BLS and Upjohn Institute. 20

22 Lagging in services to the other Great Lakes states 105 Private Service-providing Employment Index (Dec base period) U.S. Michigan GLS Source: BLS and Upjohn Institute. 21

23 A boost in employment due to autos 160 Index of Manufacturing Employment (Dec base period) U.S. Michigan GLS Source: BLS and Upjohn Institute. 22

24 A very slow comeback Change in employment levels during and after the recession, and pre-recession to current level change (Employment in 1,000s) GLS Michigan U.S. Total Recessionary loss -1,091.3 (-7.4%) (-11.3%) -7,606 (-6.6%) Post-recession gain (5.5%) (9.3%) 8,242 (7.1%) Employment gap (-1.9%) (-2%) 636 (0.5%) Services Recessionary loss (-3.5%) (-5.9%) -3,852 (-3.3%) Post-recession gain 562 (4%) (4.5%) 6,953 (6%) Employment gap 65.1 (0.5%) (-1.5%) 3101 (2.7%) Manufacturing Recessionary loss (-17.7%) (-27.3%) -2,020 (-14.7%) Post-recession gain (7.1%) (19.8%) 379 (2.8%) Employment gap (-10.6%) (-7.4%) -1,641 (-11.9%) Source: BLS and Upjohn Institute. 23

25 So what does this mean for 2020? Economically, Michigan will be a smaller state less employment and a smaller share of the nation s population It is reasonable to be believe that car sales could plateau at 16+ million units and stay there for the next 5 years providing a solid floor for the state economy The state s population will be older 24

26 Projected demographic change in the state 3,500 Population Profile 3,000 Population (000) 2,500 2,000 1,500 1, Source: W.E. Upjohn Institute REMI Model. 25

27 Demographic change in the state dependency population 3,500 Population Profile 3,000 Population (000) 2,500 2,000 1,500 1, Source: W.E. Upjohn Institute REMI Model. 26

28 Demographic change in the state working-age adult 2,500 Population Profile 2,000 Population (000) 1,500 1, Source: W.E. Upjohn Institute REMI Model. 27

29 So what? The number of kids will slowly rise The number of 20- to 35-year-olds is growing in the state Back to the city movement and place making activities Future demand on the schools Retraining needs A growing elderly population active and older Changing consumer patterns Financially conservative 28

30 So what? Working age adults experienced workers are leaving the stage and it is unclear if younger workers will take their place Construction and manufacturing will face shortages if they can t attract younger workers A growing elderly population active and older Changing consumption patterns Budget minded 29

31 To boldly go where data do not exist Targeting industry strategies are very risky; this includes the Blue Economy movement Only exception is targeted strategies based on expected demographic change Our current short-term thinking environment is not conducive to innovation There needs to be an organization that will be in the state for the long-run and is interested in creating an innovative environment It cannot be government It cannot be an economic development organization or foundations 30

32 Innovation and the production cycle Concentrated on expansion and not attraction Not industry specific focuses on the health of the firm and its products Based on the belief that regions must constantly change from what they have been producing to What the Changing World Needs 31

33 Stages in a firm s products life cycle Stage 1: Birth An environment of entrepreneurship Stage 2: Product development and wealth creation An environment for success Stage 3: Product standardization Low-cost, competitive environment Stage 4: Death An environment of abandonment 32

34 Stages in a firm s products life cycle: old firms can become young again Stage 2: Product development and wealth creation An environment for success Stage 3: Product standardization Low cost, competitive environment Is there a role for Consumers Energy in helping firms to make this leap back in time? 33

35 New Generation Creating 20/20 Vision what can a near-sighted economist contribute? George A. Erickcek W.E. Upjohn Institute for Employment Research July 17, 2014