2014 2015 Forecast for Muskegon County 2013 was a great year! George A. Erickcek Brian Pittelko W.E. Upjohn Institute for Employment Research January 31, 2014
A special thanks to: 1
Outline Most think that the economy is stronger than it looks only 74,000 new jobs in December The state economy continues to be driven by the car industry Muskegon County had a great year Forecast: more employment growth 2
GDP grew by 3.2 percent in the fourth quarter (surprising me) and the forecast is positive 6 4 2 0-2 -4-6 -8-10 Percent change in GDP (average annual rate) The consumer returned and our exports rocked. Residential construction was off. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3
Capacity utilization has not yet fully recovered but business confidence is up 70 Purchasing Managers Index for Manufacturing and Industrial Capacity Utilization 85.0 PMI (>50 = expansion; <50 = contraction) 65 60 55 50 45 40 35 30 2006 2007 2008 2009 2010 2011 2012 2013 Manufacturing PMI Capacity utilization 80.0 75.0 70.0 65.0 60.0 55.0 50.0 Percent utilization (%) 4
Employment conditions have improved; however, the number of job seekers per opening is still double what it was in 2008 5
Employment has been slow to recover 110 108 106 104 102 100 98 96 94 Employment Index (100 = Trough) Current -24-18 -12-6 0 6 12 18 24 30 36 42 48 54 Months from the trough 6
Yes, we are coming off a bad one Recession Employment Loss in Recession Employment Gains in Expansion Net Change Current -7,464 6,299-1,165 2001-1,593 4,933 3,340 1991-1,242 9,287 8,045 54 months since the trough and we are still off more than a million jobs in the nation. 7
Unemployment is falling, but there are still too many long-term unemployed workers Unemployment rate 12 10 8 6 4 2 U.S. Unemployment Rate and Long-Term Unemployment In December, the unemployment rate dropped because 347,000 individuals left the workforce. 0 2008 2009 2010 2011 2012 2013 Unemployment rate Percentage unemployed 27 weeks or more 50 45 40 35 30 25 20 15 10 5 0 Percentage unemployed 27 weeks or more 8
Consumers appear to be holding more debt and not feeling that good about it 50.0 40.0 30.0 Consumer Confidence and Change in Consumer Debt 120 100 Billions ($) 20.0 10.0 0.0-10.0-20.0-30.0-40.0 80 60 40 20 Index: 1995 = 100-50.0 2006 2007 2008 2009 2010 2011 2012 2013 Consumer debt Consumer confidence 0 Source: Conference Board and the Federal Reserve. 9
Interest rates and inflation are moving upward but are still at historically low levels 7.0 Interest Rates and Inflation 6.0 Annual percentage rate 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 30-year mortgages 10-year Treasury bill 3-month Treasury bill 12-month change in CPI-U -3.0 2008 2009 2010 2011 2012 2013 10
There isn t a lot of demand for loans Net percentage of respondents Federal Reserve Senior Loan Officers Survey: Demand and Lending Standards for Commercial and Industrial Loans by Medium-to-Large Firms 100 80 Reporting tightening standards 60 40 20 0-20 -40-60 -80 Reporting stronger loan demand -100 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 11
So let s sum up The economy is expected to grow faster in 2014 than last year, but will still be below what we want The major problem is the lack of demand as seen in our capacity utilization rates and loan demand This means the number of job seekers per job will remain too high Don t expect anything from Congress and the Fed will slowly and I mean slowly tighten the money supply But there is something else as well 12
Starting in 1981 and continuing until today, most of the nation s income growth has been earned by the top 5 percent Household income ($000s) 200 180 160 140 120 100 80 60 40 20 0 Income Level Quintiles, 2012 Dollars 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Lowest Second Third Fourth Lower limit of top 5 percent Source: Census Historic Income. 13
Why does it matter? Inequality limits consumer spending and, hence, slows the economy Research suggests that historical trends in upward mobility are declining Consumer confidence surveys indicate that households future expectations are at record lows 14
What should be done? That is the question Very little political will to make the tax code more progressive Increasing educational opportunities is a standard response but it is a long-term solution Current efforts are to increase the minimum wage 15
The state s minimum wage of $7.40 has not changed since 2008 10 Minimum Wage, 1980 2013, Nominal 9 8 7 Wage ($) 6 5 4 3 2 1 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Michigan US 16
In real terms, the minimum wage has not kept its value 10 Minimum Wage, 1980 2013, Real Oct 2013 $ 9 8 7 Wage ($) 6 5 4 3 2 1 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Michigan 1997 1998 1999 2000 US 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 17
Impacts: So should we increase the minimum wage? Modest impact on employment Recent research indicates that this will be the case It will increase wages for those who are making slightly more than the minimum wage Thus, have a bigger impact on wages than expected Could raise prices for goods and services purchased by low-wage workers Could cause difficulties for industries that compete solely on price 18
So should we increase the minimum wage? My preferred solution is to increase the Earned Income Tax Credit Strong incentive to work Is directed at the low-income individuals Will have little impact on prices except an increase in demand for consumer goods Either the minimum wage or the EITC will directly impact the structure issue of income inequality Bottom line: this issue will not go away 19
Turning to Michigan 2013 Employment Growth Estimates: 52,600 total jobs created, up 1.3% 17,800 manufacturing jobs, up 3.3% U of M s Forecast is positive 66,730 additional jobs in 2014 65,050 additional jobs in 2015 Source: University of Michigan. 20
In 2013 the state s employment increased by 52,600 Employment Change, Jan Nov 2012 to Jan Nov 2013 Total Construction Manufacturing Wholesale Retail Transportation & utilities Information Financial Business & professional Education & health Leisure & hospitality Other services Government Implied manufacturing multiplier is 3 which could be about right. -10 0 10 20 30 40 50 60 Employment (in 000s) Source: Michigan Labor Market Information, CES. 21
Auto sales continue to pick up and are forecast to drive past 16 million units in 2014 24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 15.5 million units in 2013 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: BEA. 22
The auto outlook is promising The current fleet on the road is old, very old 11.4 years Incentives are back New selections there will be 40 new launches in 2014 Financing is available 23
Construction activity has a long way to go 60,000 Number of Building Permits Issued* 50,000 40,000 30,000 20,000 10,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total units Single family *2013 is an estimate Source: U.S. Census. 24
Muskegon-Norton Shores MSA Simply a great year 1,700 more jobs, 2.8 percent increase Unemployment falling for the right reasons The peer group of MSAs cannot touch you However, talent remains an issue and according to research, a serious issue The forecast calls for further growth 25
Total employment increased by 1,700 workers but can that 700-job increase in leisure and hospitality be believed? Employment Change 2012 to 2013 Total Construction Manufacturing Wholesale, Trans, Util. Retail Information Financial Prof. & Business Education health Leisure & hospitality Other Services Government 11.3% increase -500 0 500 1000 1500 2000 26
If we alternatively assume that leisure and hospitality increased by 3 percent, the county would still grow by 1.9 percent during the year Total Construction Manufacturing Wholesale, Trans, Util. Retail Information Financial Prof. & Business Education health Leisure & hospitality Other Services Government Employment Change 2012 to 2013-400 -200 0 200 400 600 800 1000 1200 1400 27
The county s employment growth was powered by a large jump in leisure & hospitality 1,000 800 600 400 200 0-200 -400 Employment Change 2012 to 2013 Leisure & hospitality Manufacturing Retail Education & health Prof. & business Information Financial Mining, logging, const. Other services Wholesale, transport., util. Government Source: BLS CES. 28
Unemployment is still stubbornly high but falling for the right reason Unemployment Rate for Muskegon MSA 18 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: BLS LAUS and Upjohn Institute. 29
Individuals are finding jobs and their success is pulling other individuals back into the labor market Year November-to-November Change Labor Force Change Employment Change Unemployment Change 2011-66 2,302-2,368 2012-55 832-887 2013 2,088 1,602 486 Source: MI Labor Market Indicators, Local Area Unemployment Statistics. 30
Total employment is just 3 percent below pre-recession highs 110 Total Employment Index (2000=100) 105 100 95 90 85 Recession loss: 6,800 jobs Recovery gain: 4,700 jobs Net loss 2,100 jobs 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States Michigan Muskegon Source: BLS LAUS and Upjohn Institute. 31
120 115 110 105 100 Services employment is also coming back 95 90 85 and is only 3 percent below 2008 levels Private Services Employment Index (2000=100) 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States Michigan Muskegon Source: BLS LAUS and Upjohn Institute. 32
Manufacturing has fully recovered from the recession. It is almost V shaped. 105 Manufacturing Employment Index (2000=100) 95 85 75 65 55 45 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States Michigan Muskegon Source: BLS LAUS and Upjohn Institute. 33
The county s manufacturing sector is NOT being powered solely by autos Food Textile Wood Printing Chemical Plastic & rubber Nonmetallic mineral Primary metal Fabricated metal Machinery Computer Elec. equip. Transport. Furniture Misc. Employment Change, Q1 2012 to Q1 2013-100 -50 0 50 100 150 200 250 Source: BLS QCEW. 34
Except for primary metals, most of the county s major manufacturers are reporting growth 300 250 200 150 Employment Change, Q1 2012 to Q1 2013 Chemical Electrical equip. Machinery 100 50 0-50 -100 Food Textile Wood Plastics & rubber Chemical Nonmetallic mineral Computer Elec. equip. Furniture Transport. Misc -150 Primary metal Source: BLS QCEW. 35
Wage pressures are starting to build reflecting the strength of the county s manufacturing base Annual income ($000s) 80 70 60 50 40 30 20 10 0 Full-Time Production Wages in Muskegon 10th Percentile 25th Percentile Median 75th Percentile 90th Percentile 2007 2008 2009 2010 2011 2012 Source: IPUMS USA. 36
Don t see it statewide Annual Income ($000s) 90 80 70 60 50 40 30 20 10 0 Full-Time Production Wages in Michigan 10th Percentile 25th Percentile Median 75th Percentile 90th Percentile 2007 2008 2009 2010 2011 2012 Source: IPUMS USA. 37
Not much to report 900 800 700 600 500 400 300 200 100 0 Construction Permits Issued, Muskegon 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total, All Structure Types Single Family Houses Source: U.S. Census. 38
Slowly rising but still pretty flat 180 160 140 120 100 80 60 40 20 0 FHFA Housing Price Index (1995=100) Source: FHFA Housing Index. 39
Comparison Analysis Comparison Areas Elkhart-Goshen, IN Jackson, MI Janesville, WI Monroe, MI Niles Benton Harbor, MI Oshkosh-Neenah, WI Pueblo, CO Racine, WI Saginaw Saginaw Township North, MI 40
Comparison Criteria All one-county metropolitan areas Within Midwest region Not college town or state capitol All within 16% population of Muskegon County 41
But should we care given since it is a troubled statistic? Average Unemployment Rate, Jan Nov 2012 Muskegon Average Oshkosh, WI Monroe, MI Janesville, WI Elkhart, IN Jackson, MI Racine, WI Saginaw, MI Benton Harbor, MI Pueblo, CO 6.3 8.7 8.4 8.1 8.2 8.4 8.7 8.7 8.9 8.9 9.7 0 2 4 6 8 10 12 Source: BLS. 42
Muskegon leaves the others in the dust Percent Change in Total Employment, Jan Nov 2011 to Jan Nov 2012 Muskegon Average Elkhart, IN Pueblo, CO Janesville, WI Oshkosh, WI Benton Harbor, MI Jackson, MI Monroe, MI Racine, WI -0.6% -0.2% 0.4% 1.8% 1.2% 1.1% 1.1% 0.1% 0.1% 2.8% -3% -1% 1% 3% 5% Source: BLS. 43
Same story Percent Change in Service Employment, Jan Nov 2011 to Jan Nov 2012 Muskegon Average Janesville, WI Elkhart, IN Pueblo, CO Oshkosh, WI Benton Harbor, MI Jackson, MI Monroe, MI Saginaw, MI -1.0% -0.2% -0.3% 0.4% 0.3% 1.9% 1.8% 1.3% 1.0% 2.4% -2% -1% 0% 1% 2% 3% Source: BLS. 44
At least, Monroe made it interesting Percent Change in Manufacturing Employment, Jan Nov 2011 to Jan Nov 2012 Muskegon Average Monroe, MI Jackson, MI Elkhart, IN Oshkosh, WI Racine, WI Benton Harbor, MI Pueblo, CO Saginaw, MI -2.1% -0.9% 0.3% 1.8% 1.6% 1.1% 0.8% 0.8% 3.1% 2.9% -3% -2% -1% 0% 1% 2% 3% 4% Source: BLS. 45
This remains the challenge for the area. How to attract and retain knowledge-based workers. It is both job offers and amenities. Muskegon, MI Average Oshkosh, WI Racine, WI Benton Harbor, MI Monroe, MI Metro Janesville, WI Saginaw, MI Jackson, MI Elkhart, IN Pueblo, CO Percent of 25- to 34-Year-Olds with Bachelor's Degree or Higher 16.7% 22.2% 27.7% 25.7% 23.1% 22.9% 21.4% 18.5% 14.4% 13.3% 32.5% 0% 10% 20% 30% 40% Source: ACS 2012. 46
Numerous studies clearly show that talent is key to future growth 35 Bachelor s Degree or Higher 30 25 20 15 10 5 0 Muskegon Michigan United States 25 to 34 35 to 44 44 to 64 65 and Over Source: Census ACS 2012. 47
Just a reminder: education does matter for the individual as well Unemployment rate 40 35 30 25 20 15 10 5 0 Unemployment Rate by Educational Attainment 2012 Less than HS High school 29 percent of the county s employed workforce has some college. Some college Associate's Bachelor's Graduate Source: IPUMS USA. 48
Education pays even as its cost increases Annual income (in $000s) 80 70 60 50 40 30 20 10 0 Total Income by Educational Attainment 2012 Less than HS High school Some college Associate's Bachelor's Graduate Source: IPUMS USA. 49
Employers are looking for talent Caution: only 48% of job postings provide the education requirements of the position Education Requirements of Postings 2013 Educational Attainment of Employed 2012 11% 5% 8% 17% 29% 47% 9% 32% 13% 29% Dropout High school Post. Sec. Source: IPUMS USA 2012 & BurningGlass 2013. Assoc. Bach. Grad. Note: Job postings contain an unknown mix of certifications and Associate s degrees. 50
Job postings have increased in Utilities Construction Manufacturing Wholesale trade Retail trade Transport. & warehouse Information Finance & insurance Real estate Prof., sci., tech Management Admin, support, waste Educational services Health care & social asst. Arts, ent., & rec. Accommodation & food Other services Public admin. tourism-related activities Job Posting Index, 2012 to 2013 All Industries The number of job postings increased by 47 percent from 2012 to 2013. -2.0-1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Ratio to total growth Source: Burning Glass Labor Insight. 51
The growth in postings for knowledgebased positions is not so strong... Grand Rapids Kalamazoo Monroe Battle Creek Jackson Muskegon Ann Arbor Holland Lansing Detroit Flint Saginaw Benton Harbor Bay City Job Posting Index, 2012 to 2013 Architecture and Engineering Occupations -6.0-5.0-4.0-3.0-2.0-1.0 0.0 1.0 2.0 Ratio to Total Growth Source: Burning Glass Labor Insight. 52
Nor for geeks Kalamazoo Monroe Grand Rapids Jackson Detroit Ann Arbor Lansing Muskegon Saginaw Battle Creek Flint Holland Bay City Benton Harbor Job Posting Index, 2012 to 2013 Computer and Mathematical Occupations -2.5-2.0-1.5-1.0-0.5 0.0 0.5 1.0 1.5 Ratio to total growth Source: Burning Glass Labor Insight. 53
Turning to next year Special thanks to the economic forecast focus group members although you blew it again last year We reviewed business reports for Muskegon during the past year 54
So, how did we do last year? Too hot to handle or about right Muskegon MSA Estimated and Forecasted Employment Growth for 2012 Percent change 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% Total Goods-producing Service-providing Government 4.0% 4.0% 3.3% 2.8% 1.9% 1.9% 1.5% 1.1% 1.2% 0.2% -2.0% -2.0% Forecast Estimate Alternative The alternative estimate assumes leisure and hospitality grew by 3.0 percent during the year. Source: Upjohn Institute. 55
2014 and 2015 Employment Forecast for Muskegon-Norton Shores MSA 5.0% Total Goods producing Private services Government Percent change 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% 2.8% 1.6% 1.9% 4.0% 1.4% 3.3% 2.2% 2.1% 1.9% -0.3% 0.0% -2.0% -2.0% -3.0% 2013 2014 2015 56
2014 2015 Forecast for Muskegon County 2013 was a great year! George A. Erickcek Brian Pittelko W.E. Upjohn Institute for Employment Research January 31, 2014