THE ECONOMIC OUTLOOK FOR WASHTENAW COUNTY

Transcription

1 THE ECONOMIC OUTLOOK FOR WASHTENAW COUNTY IN Prepared by George A. Fulton Donald R. Grimes Institute for Research on Labor, Employment, and the Economy Prepared for March 2014 This report was prepared in connection with the March 19, 2014, Ann Arbor News edition featuring the outlook for the Washtenaw County economy. The full report is available on the Web (updated each year) at and also at

2 Introduction The Economic Outlook for Washtenaw County in By GEORGE A. FULTON, research professor, and DONALD R. GRIMES, senior research area specialist, Institute for Research on Labor, Employment, and the Economy, University of Michigan It s been another good year for the Washtenaw County economy. From the perspective of big-picture, performance-based measures, its story remains encouraging and optimistic. Washtenaw recorded another solid year of job growth in 2013, adding almost 3,800 jobs and building on its healthy job growth of the prior three years. Job gains last year, and throughout the current recovery, have been well above those achieved on average over the prior growth period of the 1990s. County job growth has also outpaced the nation during the current recovery period. The recovery is now diffusing throughout the economy, becoming more broad-based across sectors, and one of the county s weakest major sectors in recent years, housing, has turned around. And all of this is taking place in a low-inflation environment. That is a macroeconomic story. On the microeconomic side, there are residents who clearly are not vested in the county s macroeconomic successes. The county unemployment rate, coming in at 5.8 percent for 2013, is still too high, well above the rates we saw prior to and the Great Recession. In this report, we explore the distribution of Washtenaw s current economic recovery, looking at economic performance both geographically within the county and among population groups with different levels of educational attainment. Only time will tell how the microeconomic picture will evolve, but Washtenaw does appear to be positioned for a longer run of macroeconomic resurgence. In this report, our primary focus is on addressing the forward-looking questions about the economic recovery, such as whether it will be sustained over the next three years, at what pace, which sectors will lead the way, and how much the unemployment rate will fall.

3 2 In addition, we also investigate how Washtenaw s industry foundation has shifted compared with a few decades ago, before a heavy dose of economic transformation. The local forecast is generated from a regional model constructed specifically for this study at the University of Michigan s Institute for Research on Labor, Employment, and the Economy. The regional model uses as inputs national economic indicators from the University s Research Seminar in Quantitative Economics in the Department of Economics. Before considering our perspective on how the Washtenaw County economy will evolve over the next three years, we first take a look at 2013, to learn more about what kind of year it was and to gauge how well we anticipated developments as that year began. Review of the Forecast for 2013: A Report Card A year ago (March 27, 2013), we presented our twenty-eighth annual economic outlook for Washtenaw County (coterminous with the Ann Arbor metropolitan area). Last year s forecast of employment, unemployment, and inflation for 2013 can now be compared with estimates of the outcome for that year, to see how accurate our forecast was. Last March, we forecast that 2013 would see continuing healthy job growth for the county, but expanding at a slightly slower pace than was posted for It now turns out that by our current estimate, our forecast for 2013 was dead-on, with the projected job growth of 1.9 percent matching the actual outcome. This is the fourth year over the past twenty-eight that we have achieved a perfect score on our report card, as recorded in table 1. Our average error over the past twenty-eight years is 0.6 percent, or six workers per 1,000. So, last year we proved correct both on anticipating solid improvement in the county s employment situation, and on the magnitude of that improvement.

4 3 Table 1 Report Card: Track Record over the Years Percentage forecast error Year of forecast for total jobs n.a (estimate) (Positive numbers indicate that the forecast was too high; negative, too low.) Average absolute forecast error : 0.6% Forecast 2013 Actual 2013 Unemployment rate 5.0% 5.8% Consumer inflation rate 1.6% 1.6% Forecast date: March 2013

5 4 That is not to say, of course, that we nailed our forecast for every major industry. In particular, we were too low in our projection of job performance for the motor vehicle manufacturing industry, and too high in our prediction for the health care industry. By current estimate, in 2013 the motor vehicle industry recorded its sixth, and strongest, year of job growth since 1992, whereas we anticipated a year of little job change. On the other hand, contrary to our expectation, the health care industry registered its first year of job decline since The source of the decline was in the component industry consisting of private hospitals, emergency relief, and vocational rehabilitation services. For the rest of the major industries making up total employment in the county, the forecast errors were fairly modest. The observed and forecast numbers for the unemployment rate and the local consumer price inflation rate in 2013 are reported at the bottom of table 1. At the time of our forecast last year, the published county unemployment rate for 2012 was 5.4 percent, and we forecast a decline to 5.0 percent, or a drop of four-tenths of a percentage point. Since then, the rate for 2012 has been revised upward in the official statistics, from 5.4 percent to 5.7 percent, and the current estimate for the rate in 2013 is 5.8 percent, thus amounting to an increase of one-tenth of a percentage point. So, our forecast of a drop of four-tenths of a percentage point for 2013 can be compared with the current estimate of an increase of one-tenth of a percentage point. With solid job growth in 2013, the tick-up in the observed unemployment rate of one-tenth of a percentage point largely reflects much stronger growth in the labor force in 2013, as more workers formerly discouraged from seeking jobs entered the labor force, drawn in by increasing job opportunities. This caused the jobless rate essentially to hold its level, rather than to decline as we expected with the job growth that occurred. We did anticipate some increase in the labor force, but not the much stronger growth that was witnessed for 2013 following four years of decline and then two years of modest growth.

6 5 As with our projections of job growth, we hit the bull s eye in forecasting local inflation, which came in at 1.6 percent for 2013, precisely the rate we had forecast a year ago. This review gives us a glimpse of an economy continuing to strengthen in 2013, but still with historically high unemployment. We need to take a more detailed look at the current state of the economy, however, before we anticipate developments beyond The Current State of Washtenaw County s Economy Employment Path of the Washtenaw County Economy What we have learned from the report card for 2013, in addition to achieving a top grade for our forecast performance, is that the economy continued to expand in 2013, albeit in a relatively high unemployment environment. As shown in figure 1, in 2013 Washtenaw County registered its fourth calendar year of economic recovery, as measured by net annual job growth, following four calendar years of shrinkage. After very modest job gains in 2004 and 2005 (1,241 jobs over two years), the county suffered job losses at an accelerating pace from 2006 to 2009, hitting bottom in the dreadful year of 2009 with a loss that year of 5,712 jobs. This low point was a culmination of the national Great Recession, bankruptcy proceedings for both General Motors and Chrysler, and the repercussions locally of Pfizer s departure. But by the final quarter of 2009, Washtenaw turned the corner to return to positive job growth. And Washtenaw turned that corner sharply, creating 5,178 net new jobs in 2010, the second-largest annual job addition since at least 1991 and almost countering the loss of Since 2010, job growth has slowed to a more sustainable pace of 3,100 in 2011, 4,165 in 2012, and 3,757 in Even so, the gains of the past three years, amounting to 3,674 jobs per year, still exceed by a fair margin the average yearly additions of 2,720 jobs in the prior growth era from 1991 to 2002.

7 6 Job Growth Figure 1 Job Growth in Washtenaw County ,000 4,000 5,178 3,100 4,165 3,757 2, ,000 4,000 1,240 2,594 3,883 6,000 8, , * *Estimate The top job producers in the recovery since 2009 until now have been state government (public higher education), manufacturing, leisure and hospitality, professional and business services, and the private education and health services sector. The one major sector that has lost jobs over the period is construction. The rebound in the Washtenaw economy has been supported by an expanding U.S. economy that includes a resurgent auto sector, a recovering local housing sector, and the stabilizing influence of its two large universities. That certain industries continue to grow more rapidly than others raises the question of how different Washtenaw s industry distribution looks now than it did a few decades ago, before a heavy dose of economic transformation. We ll consider that angle on Washtenaw s economic history next.

8 7 Change in Employment Shares by Industry Division, 1990 and 2013 There has been a dramatic shift since 1990 in the distribution of employment across certain major industry divisions in Washtenaw County, and smaller shifts among other sectors. The largest decline has occurred in manufacturing, as shown in table 2, which had 19.7 percent of all of the jobs in the county in 1990 compared with a much smaller 7.6 percent in The largest increase in the slices of the employment pie has come from the government sector, which mushroomed from 30.4 percent in 1990 to 37.2 percent in Smaller increases are accounted for by professional and business services, whose share grew from 11.3 percent in 1990 to 12.6 percent in 2013; and from health services, which expanded from a share of 9.0 percent to 11.3 percent over the same time period. Additional industry detail on these four sectors is shown in table 2. Much of the source for the shrinking slice of the jobs pie for manufacturing comes, not surprisingly, from the motor vehicle manufacturing industry, which came in at 11.1 percent of the county economy s job count in 1990 compared with only 2.6 percent today. The loss of share for the local auto industry is the result of its severe retrenchment from 1990 to 2009 (particularly since 1999), when it shed 78 percent of its work force. From 2009 to 2013, it has recouped 5 percent of its 1990 employment level. The large pickup in share within the government sector took place in the state government category, which in Washtenaw is mostly made up of the two large public universities: the University of Michigan, including its campus and Health System, and Eastern Michigan University. The increase in share among the major categories of professional and business services is taking place in the professional, scientific, and technical industry grouping, which forms the core of the knowledge economy; and in business support activities. Within the health services sector,

9 8 most of the gains can be traced to ambulatory health care (e.g., offices of health practitioners, home health care services), and nursing and residential care facilities. Professional and business services, health care, and higher education are all sectors at the forefront of the New Economy. Table 2 Change in Employment Shares by Industry Division, 1990 and 2013 Share Share Difference 2013 (%) 1990 (%) (%) Manufacturing Motor vehicles Professional and business services Professional, scientific, and technical Administrative support Health services Ambulatory health care Nursing and residential care facilities Total government State government Unemployment Path of the Washtenaw County Economy The performance of the economy can also be evaluated with unemployment as the measure. The path of Washtenaw County s yearly unemployment rate since 2006 is shown in figure 2. (Note that the rate is for the county, and should not be confused with the rate for the city of Ann Arbor.) The rate for the United States is included for comparison. The unemployment rate for Washtenaw County worsened each year between 1999 (not shown in figure 2), when it hit bottom at 1.6 percent, and 2009, when it peaked at 8.4 percent. Over the following three years, the jobless rate shrank with the recovery in the local labor market, first slightly in 2010, to 8.1 percent, and then more sharply in 2011 and 2012, to 6.6 percent and 5.7 percent, respectively. The decline in the rate observed in 2010 was due in part to discouraged workers leaving the labor force, which officially removes them from the count of the unemployed. By 2011, movements in the local labor force turned positive again, first

10 9 minimally and then picking up steam. As mentioned earlier in the section on the forecast record, there was a significant bounce in labor force growth in 2013 as many more residents sought out expanding job opportunities. As a consequence, despite solid job growth in 2013, the unemployment rate ticked up for that year to 5.8 percent, a tenth of a percentage point higher than the rate recorded for Figure 2 Unemployment Rates for Washtenaw County and for the United States, % 10% Washtenaw County United States 8% 6% 4% 2% 0% These county unemployment numbers can be put into context in two ways. First, if we compare the outcomes over time for the county, we find that the current rate is still historically high, with the posting for 2013 more than two percentage points above the rate of 3.6 percent averaged between 1990 and 2007.

11 10 Second, if we compare rates geographically, we find that Washtenaw does compare favorably with the United States, as shown in figure 2. After running close to the national unemployment rate from 2006 to 2008, Washtenaw s jobless rate fell much more precipitously between 2009, when the county rate was nine-tenths of a percentage point below the U.S. rate, and 2012, when the gap was 2.4 percentage points in the county s favor. In 2013, the gap narrowed to 1.6 percentage points. Even though the county is in a more favorable position than the nation, and even though job growth has been solid recently, for many residents economic recovery has not yet arrived. Up next, we probe the distributional aspects of Washtenaw s current economic recovery a little more deeply. Distribution of Washtenaw s Economic Recovery by Geography and Educational Attainment The Washtenaw County economy has entered its fifth year of economic recovery following the Great Recession, with annual job gains in excess of the yearly additions in the prior growth era of the 1990s. The county s unemployment rate remains higher than during the 1990s and the first half of the 2000s, but it is once again substantially below the U.S. rate. In aggregate, the county s economy is performing reasonably well. But that begs the question, how has the economic recovery been distributed, both geographically within the county and among different population groups? To address the distribution questions we turn to data from the American Community Survey (ACS) published by the U.S. Census Bureau, a residence-based survey of American households that has been taken each year since For this study, we have combined the data for the years 2005 to 2007 to show how sub-areas of Washtenaw County were performing before the Great Recession, and for the years 2010 to 2012 to show how the areas are doing after the recession. Within Washtenaw County, data are available for these periods only for the city of

12 11 Ann Arbor, Pittsfield Township, the city of Ypsilanti, and Ypsilanti Township. Several metrics of economic performance for these areas, as well as the same measures for the United States, Michigan, Washtenaw County, and the balance of the county, are shown in table 3. Table 3 Economic Performance Indicators, Selected Areas within Washtenaw County Compared with City of Balance Washtenaw Ann Pittsfield City of Ypsilanti of U.S. Mich. County Arbor Township Ypsilanti Township County Employment/population 25 to to % 66.8% 73.1% 75.6% 74.8% 63.0% 68.2% 73.8% 2005 to % 70.0% 74.3% 75.2% 75.2% 69.9% 73.4% 74.3% Median family income 2012$ 2010 to ,105 59,251 82,937 89,292 97,512 35,417 55,567 91, to ,853 65,073 87,218 88,853 98,602 65,006 62,724 95,642 Share of population under 18 in poverty 2010 to % 24.4% 15.9% 14.1% 10.2% 53.8% 31.5% 7.8% 2005 to % 18.9% 12.3% 10.1% 9.4% N.A. 26.4% N.A. Percentage of population 25 to 64 with bachelor s or more 2010 to % 27.4% 52.5% 71.6% 58.9% 29.3% 29.0% 48.2% 2005 to % 26.5% 53.7% 74.7% 59.0% 43.6% 33.1% 45.7% Source: U.S. Census Bureau, American Community Survey. Income values converted from 2007 dollars to 2012 dollars using the U.S. and Detroit CPI. One of the better metrics of the labor market situation in any area is the employment-topopulation ratio. This is a measure of the share of the population that reports being employed. Unlike the unemployment rate, this metric shows the detrimental effect of people dropping out of the labor force. In order to minimize any distortion from people voluntarily retiring from the labor force or attending college full-time, we restrict our analysis to the prime working-age population, which we define as those aged 25 to 64. As shown in table 3, the employment-to-population ratio in the United States fell by 2.1 percentage points between the period and the period (from 73.2 percent to 71.1 percent). The ratio fell by even more in Michigan overall (3.2 percentage points), but by much less in Washtenaw County (1.2 percentage points). Perhaps as noteworthy is what

13 12 happened within the county. The employment-to-population ratio in the city of Ann Arbor actually increased between these two periods, from 75.2 percent to 75.6 percent, while in Pittsfield Township and in the balance of the county it declined slightly, by only 0.4 and 0.5 percentage points, respectively. The ratio in the city of Ypsilanti, on the other hand, collapsed by 6.9 percentage points, and by almost as much in Ypsilanti Township (5.2 percentage points). The median family income shown in table 3 measures the income of all families 1 within an area, the median being the point where half of the family incomes are above that point and half are below. 2 The data shown in table 3 for the period are expressed in 2012 dollars to make them comparable to the data for the later period. 3 In the United States overall, the inflation-adjusted (real) median family income declined by $3,748 (5.6 percent) between these two periods. In the state of Michigan, the decline was much worse at $5,822 (8.9 percent). For Washtenaw County, the decline was similar to that seen in the nation, a little worse in dollar terms ($4,281) and a little better in percentage terms (4.9 percent). Within the county, there was a very sharp divergence in what happened to the median family. In the city of Ann Arbor, the real median family income increased slightly ($439) and in Pittsfield Township it declined slightly ($1,090). In the balance of the county, the decline in dollar terms was similar to what happened in the United States overall. In Ypsilanti Township, the inflation-adjusted median family income declined by $7,157, or 11.4 percent. In the city of 1 A family includes two or more related individuals. A household can consist of a single individual. In Washtenaw County, and especially in the city of Ann Arbor, household income is distorted by the presence of large numbers of low-income college students (single-person households) living in off-campus housing. We judge that median family income is a much better measure of the relative affluence of the county and especially the city of Ann Arbor than median household income. 2 The composition of the typical family can vary widely by area. For example, in the city of Ann Arbor the median family is likely to include one or more individuals with a bachelor s degree or more education, whereas in other areas the median family may not include anyone with a bachelor s degree. The composition of the typical family undoubtedly explains a large part of the variance in the level of the median family income among communities. 3 For the U.S. data, the conversion to 2012 dollars used the U.S. Consumer Price Index. The data for the state of Michigan, Washtenaw County, and its smaller geographic areas were converted to 2012 dollars using the regional Detroit Consumer Price Index.

14 13 Ypsilanti, real median family income fell by almost half (45.5 percent), or $29,589. The scale of this decline is probably overstated by data sampling issues, but even so, it suggests a drastic change in the well-being of the typical family in the city of Ypsilanti. Clearly, the typical family on the eastern side of the county has suffered a severe decline in income (and employment), even as the median family in the city of Ann Arbor and its suburbs recovered completely, or almost completely, from the recession. One of the best metrics for how families at the bottom end of the income scale are faring is the poverty rate for children. The data show that the poverty rate among children (those aged 17 and younger) has gone up across the board geographically between and Even in the city of Ann Arbor, where both the employment-to-population ratio and the median family income has increased, the poverty rate among children rose from 10.1 percent in to 14.1 percent in In the city of Ypsilanti, the data were not available for , but with 53.8 percent of the city s children living in poverty in the most recent period, many children likely fell into poverty between these two periods. Clearly, a large number of children (and their parents), no matter where they were living, fell into poverty during the recession and have yet to make their way out of it. One reason why the median income family in Ann Arbor and elsewhere in the western part of the county apparently did much better in recovering from the recession can be seen in the bottom of table 3. In these areas, a very high proportion of their working-age population has a bachelor s degree or more education. In the city of Ann Arbor, 71.6 percent of the population aged 25 to 64 has at least a bachelor s degree, and in Pittsfield Township, 58.9 percent of the same population cohort has at least a bachelor s degree. In the city of Ypsilanti, the share of the population with at least a bachelor s degree is only 29.3 percent; in Ypsilanti Township, the

15 14 share is 29 percent. And, as can be seen in tables 4 and 5 and figure 3, people with higher levels of education fared much better economically. The data in table 4 show the employment-to-population ratio by level of educational attainment for all of Washtenaw County for each year between 2005 and The label All in the first column refers to the entire population aged 25 to 64. High School in the second column includes people with only a high school diploma or a GED, or less than one complete year of college. 4 The third column includes only those with one or more years of college or an associate s degree, but without a bachelor s degree, and the last column includes people with at least a bachelor s degree, or more. The bottom row of data shows the trend line coefficient over the entire 2005 to 2012 period, that is, the average change in the employment-to-population ratio per year. Table 4 Washtenaw County Employment to Population Ratio for Those Aged 25 to 64 By Educational Attainment, 2005 to 2012 Some College/ All Associate s Bachelor s Degree Education High School Degree or More % 66.5% 72.7% 78.8% % 62.8% 75.9% 80.6% % 67.5% 75.3% 81.5% % 60.0% 74.8% 80.5% % 60.6% 74.2% 80.7% % 59.3% 69.2% 80.5% % 61.1% 68.6% 80.9% % 60.5% 68.7% 82.7% Change per year 0.2% 0.9% 1.0% 0.3% The employment-to-population ratio for people who have only a high school diploma, or some college or an associate s degree, has been declining at a fairly substantial rate per year (0.9 4 People who have not completed high school are included in the data for the total population aged 25 to 64, but the data for this cohort were too erratic to be included separately in the analysis.

16 15 percent for people with a high school diploma and 1.0 percent for people with some college or an associate s degree). On the other hand, the employment-to-population ratio for those with a bachelor s degree or more is increasing by 0.3 percentage points per year, and in 2012 is at a record high of 82.7 percent. People in their prime working age with a bachelor s degree or more are increasingly working, while people with less education are increasingly likely to be unemployed, whether looking for work or not. The median wage across different levels of educational attainment is shown in table 5 and figure 3. The data are adjusted for inflation using the regional Consumer Price Index and are expressed in 2012 dollars. The measures are for the entire county and include all individuals aged 25 and older with earnings, both full-time and part-time. The data in the last two lines of table 5 show the average year-to-year change in the inflation-adjusted median wage, both in dollars and in percentage change, estimated using a time-trend regression over the period 2005 to Table 5 Washtenaw County Median Wage for Those Aged 25+, 2012$ By Educational Attainment, 2005 to 2012 Some College/ Graduate/ All High Associate s Bachelor s Professional Education School Degree Degree Degree 2005 $44,167 $33,939 $35,154 $47,496 $67, ,598 27,105 33,488 49,759 68, ,797 29,586 36,025 46,570 66, ,043 31,957 32,533 46,632 69, ,565 29,463 33,417 49,223 66, ,946 26,600 32,249 42,677 68, ,732 26,857 30,639 43,480 67, ,460 25,171 30,985 44,360 66,317 Real wage, 2012$, change per year: $ %

17 16 $70,000 $65,000 Figure 3 Washtenaw County Median Wage, 2012$ By Educational Attainment, 2005 to 2012 Graduate/Professional $60,000 $55,000 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 Bachelor s or more All education Some college/associate s High school As can be clearly seen in table 5, the typical worker in Washtenaw County is making substantially less today after adjusting for inflation than he or she was a few years ago. The real median wage for all workers declined by $599, or 1.4 percent, per year during this seven-year period. Not all workers fared equally. Those with less education saw their real wage fall much more than those with more education. The median worker with only a high school education saw a real wage decline of $882, or 3.1 percent, per year (those without a high school diploma fared even worse); while the real wage for a typical worker with a graduate degree declined by only $140, or 0.2 percent, per year. Bear in mind, too, that since higher-income workers tend to have more assets as well as income, they are better able to absorb an income loss. In 2005, the typical worker in Washtenaw County with a graduate degree earned about twice as much as

18 17 someone with only a high school diploma ($67,992 compared with $33,939), but by 2012 they were earning over two-and-a-half times as much ($66,317 compared with $25,171). The data in tables 4 and 5, along with figure 3, make it abundantly clear that people with more education are much more likely to be employed, and at a higher wage, than people with less education. Furthermore, the gap between the haves and the have-nots with respect to education has widened dramatically since 2005, and this has translated into a widening gap among the areas in the county where the better-educated live the city of Ann Arbor and its suburbs and the communities whose residents are less well-educated. Washtenaw operates within a broader economic environment that has ramifications for our outlook for the county. As we extend our analysis into the future, we start with a summary of the national outlook. National Outlook: The future course of the Washtenaw County economy depends in part on the overall health of the national economy. Forecasts of economic indicators for the U.S. economy in are from a forecast prepared in March 2014 by Daniil Manaenkov and Matthew G. Hall of the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan, who also provided internally generated extensions of the forecast for The national outlook is summarized in figures 4 6 by two economic indicators key to the Washtenaw economy. The best single measure of the U.S. economy is inflation-adjusted, or real, Gross Domestic Product (GDP): all of the goods, services, and structures produced in the economy. Economic growth of 2.8 percent in 2012 was the strongest for a calendar year since the current recovery began. In 2013, a sharp deceleration in business investment early in the year and severe fiscal austerity at the federal level contributed to significantly weaker growth, 1.9 percent for the calendar year. In the next three years, growth in real GDP is forecast to pick up the pace. As

19 18 shown in figure 4, real GDP growth averages 2.6 percent in State and local government spending finally contributes positively to growth in 2014, after dragging it down in the past four years, and business investment growth accelerates. Growth in real GDP then ramps up further, to average 3.3 percent in 2015 and 3.4 percent for 2016, the first annual readings of 3 percent or greater since Consumption growth ratchets up as income growth accelerates. Also, the housing sector is expected to be a solid contributor to growth in the next few years, reflecting a projected increase in household formation. 3.5% Figure 4 Growth in U.S. GDP % 2.5% % % 1% 0.5% 0% RSQE: March 2014 Another important input to the outlook for Washtenaw is the national vehicle sales forecast. From a longer-term perspective, sales of U.S. light vehicles cars, minivans, sport utility vehicles, crossovers, and pickup trucks were in the range of 16 to 17+ million units sold annually from 1999 to 2007, as shown in figure 5. Sales then retreated to 10.4 million units by 2009, and have increased in excess of one million units each year since then, reaching 15.5

20 19 million units in 2013 but still falling short of the 16 million mark. In the forecast, we reach 16 million units in Pent-up demand is a significant factor in the climb, especially considering that the average age of a vehicle on the road today is at a record level, vehicle sales remain historically low relative to the driving-age population, and the potential exists for higher participation of younger drivers in the market as the economy continues to improve. Millions 20 Figure 5 U.S. Light Vehicle Sales, RSQE: March 2014 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 From a shorter-term perspective, after moving up from 15.5 million units in 2013 to 16 million in 2014, U.S. light vehicle sales rise to 16.3 million in 2015 and increase further to 16.7 million by 2016, as shown in figure 6. We see the Detroit Three s share of the light vehicle market drifting up from 44.4 percent in 2013 to 45 percent by The projections for total sales and the Detroit Three s share of that market, taken together, yield our outlook for Detroit Three sales, which move up progressively from 6.9 million units in 2013 to 7.5 million by This path does reflect a slower rate of increase over the next three years compared with the last

21 20 two, however. Detroit Three sales rose by 500,000 units in each of the years 2012 and 2013, only a little less for a single year than the cumulative gain of 600,000 units we are forecasting over the next three years combined. Millions of Units Figure 6 U.S. Light Vehicle Sales Total vs. Detroit Three, Total Detroit Three Annual % Detroit Three market share RSQE: March 2014 We now turn to our view of the prospects for the county economy through Washtenaw County Outlook: The economic outlook for Washtenaw County through 2016 is measured using information on employment, unemployment, and inflation. First, we evaluate the county s prospects for job growth in total, putting that in context with recent job market developments. The Washtenaw County economy is now well into its fifth year of recovery since the previous recession s low point in the summer of To date, the recovery has been healthy,

22 21 adding 16,200 jobs over the past four calendar years (including 3,757 in 2013), a growth rate of 2.2 percent per year. Over that same period, the county s job growth outpaced the nation s. We see the continuation of a healthy recovery through 2016, extending its span to seven years, with job growth averaging 2.1 percent per year over the next three years, a touch slower than the rate of 2.2 percent recorded for the first four years of the recovery period. As shown in figure 7, we are forecasting that the county will add a total of 12,585 jobs over the next three calendar years, and at an accelerating pace: 3,474 in 2014, 4,247 in 2015, and 4,864 in Washtenaw s recovery is supported by a U.S. economy that continues to expand through 2016, as well as by the county s strong economic fundamentals. Job Growth 6,000 4,000 Figure 7 Job Growth in Washtenaw County ,178 4,165 3,757 3,100 3,474 4,247 4,864 2, ,000 4,000 1,240 2,594 3,883 6,000 8,000 5, * *Estimate For broader historical context: the job additions in each of the next three years will be well above the 2,720 jobs per year gained on average during the prior growth period between

23 and Indeed, there is no seven-year period since 1990 that can match the 28,785 jobs created from 2009 to 2016, if our forecast proves correct. So job growth continues its upward trajectory, but how much ground are we making up in the recovery through 2016 relative to what we lost in the preceding decline? We assess Washtenaw s progress from the previous economic peak rather than from the most recent trough and here the news gets even better. The quarterly path of total jobs from the start of 2002 to the end of 2016, adjusted for seasonal variations, is shown in figure 8, which summarizes in a nutshell Washtenaw s recent economic history and our view of its near-term future. From its peak employment quarter in the summer of 2002 to its trough in the summer of 2009, the county lost 16,124 jobs, over 60 percent of them occurring in the two-year period spanning the summer quarters of 2007 to Then the recovery follows: from the low point in the third quarter of 2009 to the first quarter of 2013, Washtenaw gained 16,215 jobs thus replenishing all of the jobs lost, in number, between the Figure 8 Total Jobs in Washtenaw County Seasonally Adjusted First Quarter of 2002 to Fourth Quarter of , , ,000 Forecast Gain: 09q3 16q4 = 31,147 16q4 * 200, , ,000 Peak 02q3 * Surpass peak 13q1 * 185, ,000 Loss: 02q3 09q3 = 16,124 * Trough 09q

24 23 summers of 2002 and From then to the end of 2016, we are forecasting that the county will create an additional 14,932 jobs, thus cumulating to 31,147 job additions from the bottom of the downturn through 2016 (16, ,932). This is a headline outcome for the county, considering that the state as a whole and many of its local economies still fall well short of returning to their previous peak employment levels attained in the early 2000s. The projected job movements shown in total in figure 7 are distributed among twentythree major industry divisions in table 6, and into 171 finer divisions in the appendix. The detail for the employment forecast presented in table 6 includes, for each industry, the level of employment in 2013 (including two quarters of preliminary data); the forecast change for 2014, 2015, and 2016; and the cumulative change from 2013 to The table also includes the average annual wage for each industry category in 2012, as does the appendix. 5 The first observation to emerge from this year s forecast is how similar it looks to the forecast we prepared last year. Washtenaw County is projected to add 3,474 jobs in 2014, amounting to a growth rate of 1.8 percent, a slightly slower pace than posted for Growth then accelerates over the next two years, resulting in the addition of 12,585 jobs over the period This would give the county seven straight years of job growth, a record not seen since the 1980s (besting the roaring 90s only in that the county lost jobs in the middle of that decade, in 1995). The goods-producing industries add jobs at a steady pace of about 2.1 percent per year, totaling 1,193 jobs over the next three years. The construction industry grows by 11.4 percent (365 jobs) over that period, largely due to a revival in residential construction. Local builders 5 The historical employment data are from the Bureau of Labor Statistics Quarterly Census of Employment and Wages. The average annual wage includes both full- and part-time workers, weighted equally. Consequently, the average wages for industries that employ a disproportionately large number of part-time workers, such as retail trade and leisure and hospitality, are much lower than they would be if the wages were calculated only for full-time workers.

25 Table 6 Forecast of Employment in Washtenaw County by Major Industry Division* Average Employment Change Annual Estimate Forecast Wage TOTAL JOBS (Number of persons) 197,371 3,474 4,247 4,865 12,585 $51,278 (Annual percentage change) (1.9) (1.8) (2.1) (2.4) TOTAL PRIVATE 123,965 2,564 3,253 3,678 9,495 48,904 GOODS-PRODUCING 18, ,193 59,351 Natural resources, mining, construction 3, ,195 Manufacturing 15, ,100 Motor vehicles 5, ,492 Other manufacturing 9, ,997 PRIVATE SERVICE-PROVIDING 105,517 2,172 2,850 3,280 8,302 47,157 Trade, transportation, and utilities 24, ,601 41,170 Wholesale trade 4, ,761 Retail trade 15, ,099 27,060 Transportation, warehousing, and utilities 3, ,679 Information 3, ,983 Financial activities 6, ,423 Professional and business services 24, ,535 68,109 Professional, scientific, and technical 14, ,624 84,917 Management of companies and enterprises ,859 Administrative support and waste management 9, ,485 Private education and health services 25, ,953 47,156 Leisure and hospitality 15, ,167 16,183 Other services 4, ,421 Unallocated private services ,889 GOVERNMENT 73, ,187 3,090 55,244 State government 58,019 1,089 1,017 1,001 3,107 55,917 *Some subtotals do not add to totals due to rounding of annual average computations.

26 25 have struggled through a long dry spell, but business appears to be looking up for them. Both home sales and home sale prices are climbing, and the inventory of good houses remains low. The Home Builders Association of Michigan reports that our housing recovery is solidly on track. The industry also benefits from the improving local economy overall. The agricultural and mining industries, which are very small, together add 8 jobs. The manufacturing sector adds 821 jobs over the forecast period, a much more subdued pace of job growth than seen in the first four years of the recovery ( ) when manufacturing added 2,448 jobs. Despite these cumulative job gains, by the end of the forecast period the manufacturing sector in the county employs about 2,100 fewer workers than it did as recently as Between 2009 and 2013, motor vehicle manufacturing employment grew by 1,011 jobs (24.3 percent). Job gains are expected to slow dramatically over the next few years, however, to 108 in 2014, 81 in 2015, and 80 in This deceleration in the pace of job growth reflects the more mature stages of the recovery overall and the smaller increase in Detroit Three light vehicle sales 600,000 units projected over the three-year period from 2013 to 2016, compared with 500,000 units in each of 2012 and Despite six years of job gain (and one year of loss) between 2009 and 2016, motor vehicle manufacturing employment is still projected to be below 2008 levels at the end of the forecast period. Most of the other manufacturing industries are forecast to see relatively small job gains between 2013 and Of these modest gains, the largest are in plastics products (113), machinery manufacturing (90), and fabricated metal products (86). Book printing continues to lose jobs.

27 26 Job growth in the private service-providing sector accelerates over the next three years, adding 2,172 jobs in 2014, 2,850 in 2015, and 3,280 in All of the major service-providing industries gain jobs over this period, reflecting the diffusion of the economic recovery. The wholesale trade industry adds 277 jobs between 2013 and These businesses sell merchandise to other businesses, not to the general public, and they tend to be some of the highest-paying establishments. The retail trade industry, which includes some of the lowestpaying businesses, adds 1,099 jobs over the same period. Within this industry, the largest job gains are in grocery stores (436), warehouse clubs and supercenters (144), and automobile dealers (126). Department stores are forecast to continue to lose jobs over the next three years. Transportation and warehousing adds 225 jobs over the next three years. These job gains occur mainly at trucking firms. Information adds the fewest jobs over the next three years among the major sectors, both in absolute numbers and in percentage terms. This reflects continued job losses in newspaper, book, and directory publishers, which counteract job gains in the other information industries. The financial activities sector adds 648 jobs over the period, most of them in finance and insurance. The expected rebound in residential construction and mortgage lending activity suggests that prospects are favorable for the local residential real estate industry, most of whose workers are self-employed and thus are not counted in the data presented in this report. Professional, scientific, and technical services expand by 1,624 jobs, or 11.2 percent, over the next three years. This relatively high-wage industry (with an average annual wage of $84,917 in 2012) is at the core of the knowledge economy. It includes industries such as legal services, accounting services, architecture and engineering services, computer systems design, management consulting, and research and development services, all of which add jobs over the next three years. The greatest gains are in computer systems design (596 jobs, or 25 percent),

28 27 management and technical consulting services (227 jobs, or 10.6 percent), and scientific research and development (224 jobs, or 7.5 percent). The local management and corporate headquarters industry has been on a downward spiral since 1999, when it employed 3,058 workers. By 2012, following the closure of Borders headquarters, this industry employed only 753 people locally, a decline of 75 percent exceeding even the 73 percent loss of jobs in motor vehicle manufacturing between 1999 and The local management and corporate headquarters industry added 61 jobs in 2013, suggesting that its long decline is coming to an end. Over the next three years, the industry is expected to add another 105 jobs (12.8 percent). Attracting a major corporate headquarters should be one of the goals of economic development agencies in the county, a challenging but not unrealistic mission. Administrative support and waste management adds 806 jobs between 2013 and 2016, including higher-wage industries such as office administrative services and business support, and lower-wage industries such as employment services (including temporary help services) and services to buildings. The private education and health services sector is dominated by the health care and social services component, comprising 88 percent of the jobs in the category. The sector as a whole declined by 127 jobs in 2013, after having added jobs in every year since The losses were concentrated in the health services component, with a drop of 221 jobs, whereas private education gained 94 jobs. The decline in health care jobs can be traced to private hospitals, emergency relief, and vocational rehabilitation services, which shrank by 766 jobs in We anticipate a rebound in the private education and health services sector, gaining 1,953 jobs over the next three years. Employment in the smaller private education services component,

29 28 which includes both private K-12 and private colleges and universities, but not pre-school, has more than tripled in size between 1998 and 2013, and we are projecting the addition of another 363 jobs (a 12 percent increase) over the next three years. Within the health and social services component, we see job gains of 1,590 over the next three years. The fastest job growth occurs in offices of physicians and other health practitioners, excluding dental offices, nursing and residential care facilities, and individual and family social services. Employment in private hospitals is projected to increase very modestly. Efforts to reduce the growth in health care spending, particularly Medicare payments, could eventually reduce the rate of growth in employment in health care services, but on the other hand, the aging of the baby boom generation ensures that the demand for health care services will inevitably increase and the latter effect will likely dominate in the long run. The leisure and hospitality sector is forecast to add 1,167 jobs (7.5 percent) over the next three years. This sector includes arts and recreation, eating and drinking places, and hotels. The arts and recreation industry includes businesses such as golf courses, fitness facilities, and the performing arts (much of which resides in the universities in Washtenaw County, and thus is not counted here). The Great Recession took a toll on this activity locally as people cut back on discretionary spending, but activity has rebounded sharply since 2010, and growth is expected to continue over the next three years. Employment in food services grows, but at a more subdued pace than during the previous three years. Employment at local hotels and other lodging places, however, continues to decline. The other services sector includes a grab bag of individual industries such as repair services, including motor vehicle repair shops; personal services, such as hair salons and dry cleaners; membership organizations; and private household services. Collectively these industries add 233 jobs (an increase of 4.7 percent) over the next three years, the fastest growth

30 29 coming in religious, business, and grant-making organizations, as well as in personal care services, while civic organizations suffer small employment losses. The government sector adds 3,090 jobs (4.2 percent) over the forecast period. Federal government employment increases slightly (14 jobs), as job additions at the Veterans Hospital in Ann Arbor more than offset job losses at the U.S. Postal Service and other federal government offices. Local government, which includes public K-12 education and Washtenaw Community College, loses jobs each year from 2010 to 2015 before finally starting to grow again in 2016, as the industry continues to adapt to its stringent financial challenges. Local government employment in 2016 is still 31 jobs lower than it was in 2013, and 2,491 (17.7 percent) smaller than it was in its peak employment year of State government, which includes Eastern Michigan University, the University of Michigan, and the University of Michigan Health System, has added jobs every year starting in Clearly, these institutions have been the foundation for the region s economic stability over the past decade. We are forecasting that state government will continue to grow (averaging 1.8 percent per year), albeit at a more subdued pace than in recent years, but federal government spending cuts on research and health care pose a significant risk to that growth. The University of Michigan, including its Health System, has been very successful in growing its slice of the federal research pie, but now that the pie itself is in danger of shrinking, the University will need to look increasingly to private-sector activity to sustain the growth in its academic research. As shown in figure 9, the solid job growth we are projecting for Washtenaw County is accompanied by an unemployment rate that ticks down from 5.8 percent in 2013 to 5.7 percent in 2014, and then declines more sharply over the rest of the forecast period, to 5.1 percent in 2015