economic conditions in 2018: a look at the nation, the ... · w.e. upjohn institute for employment...
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W.E.
UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Economic Conditions in 2018:A Look at the Nation, the State, and
the Grand Rapids Region
Jim Robey, Director, Regional Economic Planning ServicesW.E. Upjohn Institute for Employment Research
December 11, 2018
A Presentation at the Annual Meetingof The Right Place
W.E.
UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
W.E. Upjohn Institute for Employment Research
• The Institute is an activity of the W.E. Upjohn Unemployment Trustee Corporation, which was established in 1932 to administer a fund set aside by Dr. W.E. Upjohn, founder of the Upjohn Company.
• MISSION:– The W.E. Upjohn Institute for Employment Research is a private, nonprofit, nonpartisan,
independent research organization devoted to investigating the causes and effects of unemployment, to identifying feasible methods of insuring against unemployment, and to devising ways and means of alleviating the distress and hardship caused by unemployment.
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
NATIONAL ECONOMY
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
We are currently in the second-longest expansion since WWII
1960–1969
1981–1990
1990–2000
2001–2007
2007–present (132months)
90
95
100
105
110
115
120
125
130
135
Employment Index From Business Cycle Peak
Source: Bureau of Labor Statistics Current Employment Survey
Mon
th o
f Bus
ines
s Cyc
le P
eak
= 1
00
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
We’re in the longest business cycle (contraction + expansion) and the second-longest expansion, while experiencing the longest recession
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Length of:1945-1948
1949-1953
1954-1957
1958-1960
1961-1969
1970-1973
1975-1980
1980-1981
1982-1990
1991-2001
2002-2007 2009-?
Contraction 8 11 10 8 10 11 16 6 16 8 8 18
Expansion 37 45 39 24 106 36 76 12 92 120 73 114Business Cycle 45 56 49 32 116 47 92 18 108 128 81 132
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The stock market has reacted to various events this year, and the ride is getting bumpier
20,000
21,000
22,000
23,000
24,000
25,000
26,000
27,000
28,000
Inde
x at
Clo
se
Dow Jones Industrial Average
1/23 Announcement of withdrawal from TPP, solar panel and appliance tariffs 3/1 Steel
and aluminum tariffs
4/2 and 4/4 Announcements of Chinese tariffs on U.S. exports
10/2 USMCA agreement announced
6/15 Announcement second round of tariffs with China, additionally retaliatory tariffs from Canada, EU, and Mexico take effect in late June and early July
3/22 Announcement first round of tariffs with China
December 2018
Source: Yahoo Finance 6
11/23rd quarterearnings reports;Expected costsof tariffs
January 2018
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
GDP is projected to remain solid, with a slowing rate of employment growth
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
-10
-8
-6
-4
-2
0
2
4
6
2006 2008 2010 2012 2014 2016 2018
Empl
oym
ent C
hang
e (0
00s)
GDP
Chan
ge (%
chg
)
Gross Domestic Product and Employment Change
GDP Change (L) Employment Change (R)
Forecast
Source: Bureau of Labor Statistics Current Employment Survey, Bureau of Economic Analysis, Philadelphia Federal Reserve Consensus Forecast 7
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
National University of Michigan RSQE Forecast
2018 2018(Forecast)
2019(Forecast)
GDP(Percent) 2.9 2.7 1.9
Employment (Percent) 1.6 1.5 1.2
Light Vehicle Sales ($Millions) 17.1 16.6 16.9
Unemployment Rate(Percent) 3.9 3.5 3.4
Housing Starts (Millions) 1.3 1.3 1.3
CPI/Inflation(Percent) 2.3 2.2 2.3
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Strong fundamentals: Consumer confidence up, debt down
0
20
40
60
80
100
120
140
-20
-10
0
10
20
30
40
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Inde
x: 1
995
= 10
0
Billi
ons (
$)
Consumer Confidence and Change in Consumer Debt
Consumer Debt (L) Consumer Confidence (R)
Source: New York Federal Reserve and Conference Board 9
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
0
10
20
30
40
50
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Like
lihoo
d of
Rec
essio
n
Likelihood of Being in a Recession in the Next 6 Months
Moody’s predictions of recession are relatively low
10Source: Moody’s Analytics
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
2001
2002
20032004
2005
2006
2007
2008
2009
20102011
2012
20132014
2015
20162017
-4
-3
-2
-1
0
1
2
3
4
5
0 10 20 30 40 50 60 70
GDP
Grow
th R
ate
6 M
onth
s Aft
er
Risk of Recession
Moody’s recession risk probability appears strongly correlated with real GDP change during the next 6 months
Correlation Coefficient = -.812018
Note: Risk is measured in December of each year.
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Risk Factors
“Expansions don’t get tired; rather, they end due to policy mistakes.”
• Tax cuts and increases• Federal deficits and debt• Fed interest rate hikes• Tariffs• Elections
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
With tax cuts and 2009 fiscal stimulus overhang, federal debt continues to climb
0
20
40
60
80
100
120
-1.6-1.4-1.2
-1-0.8-0.6-0.4-0.2
00.20.4
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Fede
ral D
ebt P
erce
nt o
f GDP
Fede
ral D
efic
it ($
000,
000,
000,
000)
Federal Deficit and Debt
Deficit Deficit (projected) Debt Debt (projected)
13Source: Office of Management and Budget
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Inflation and interest rates have increased in the past 2 years
-3
-2
-1
0
1
2
3
4
5
6
7
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Perc
ent
Interest Rates and 12-Month Inflation Change
Federal Funds 10 year T-Bill CPI-U 12-month change
14Source: Bureau of Labor Statistics and New York Federal Reserve
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MOVING ON TO MICHIGAN
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Michigan continues to outperform expectations
Construct.Manufacturing
Wholesale
Retail
Transport. and util.
Info.
Finance
Prof. and business
Educational srv.
Health care
Leisure and hospitality
Other services
Government
-10
-5
0
5
10
15
20
Empl
oym
ent C
hang
e (0
00s)
Michigan Employment Change, Q3 2017 to Q3 2018
16Source: Bureau of Labor Statistics, Current Employment Statistics
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Light vehicle sales have been steady
02468
1012141618202224
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Annu
al R
ate
of S
ales
(in
000,
000s
)
Annualized Rate of U.S. Light Vehicle Sales (in millions)
18.1 (2000 to 2007 Peak)
16.8 (2000 to 2007 Average)
Source: Bureau of Economic Analysis 17
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Statewide University of Michigan RSQE Forecast
2018 2019(Forecast)
2020(Forecast)
Employment (Percent) 1.3 0.8 0.9
Manufacturing Employment (Workers) 6.0 3.3 2.2
Unemployment Rate(Percent) 4.4 3.9 3.8
CPI-Detroit/Inflation(Percent) 2.53 1.95 1.97
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Michigan exports in 2017: USMCA matters!Industry Total ($) China (%) Canada (%) Mexico (%) EU (%)
TOTAL 59,870,398,343
Transportation equipment 29,166,614,764 5.9 52.5 16.0 7.6
Chemicals 4,931,046,846 8.7 16.8 19.0 25.6
Machinery 4,867,193,313 6.3 26.6 36.4 15.7
Computer and electronic 3,300,542,901 7.4 19.1 30.4 13.4
Electrical equipment 2,770,293,745 5.7 23.3 43.1 11.1
Fabricated metals 2,680,555,726 6.4 23.9 36.7 10.4
Primary metals 2,569,171,206 2.8 40.9 14.1 9.7
19Source: Trade Stats Express
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Exposure on the agricultural side
Illinois Indiana Michigan Ohio Wisconsin
Soy bean farms 34,686 21,841 12,039 24,586 17,106
Soy bean sales $5,006,587 $2,956,767 $1,092,453 $2,703,658 $879,153
Agricultural products to China $1,448,762 $26,813 $190 $615,073 $21,698
Other animal products to Canada $1,406 $7,860 $9,030 $33,379 $73,606
Food manufacturing to Canada $1,270,290 $341,269 $418,464 $688,268 $998,595
20Source: U.S. Census of Agriculture
Dollars in ‘000s
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REGIONAL CONDITIONS: THE RIGHT PLACE
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The Grand Rapids-Wyoming Metropolitan Statistical Area
• Barry County• Kent County• Montcalm County• Ottawa County
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
The current unemployment rate is 2.7%, with 16,160 persons looking for work
0
2
4
6
8
10
12
14
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Perc
ent o
f Lab
or F
orce
Unemployment Rate for Grand Rapids MSA (seasonally adjusted)
Source: Bureau of Labor Statistics Local Area Unemployment Statistics 23
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
The national unemployment rate was 3.5% in August 2018. The unemployment rate for the region was 2.6%. These rates are not seasonally adjusted.
24Source: Bureau of Labor Statistics, Local Area Unemployment Statistics
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The national labor force participation rate was 62.9% in August 2018. The labor force participation rate for the region was 68.5%. These numbers are not seasonally adjusted.
25Source: Bureau of Labor Statistics, Local Area Unemployment Statistics and Census Population Estimates
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The national S&P CoreLogic Case-Shiller index change year/year for September 2018 was 5.1%
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Grand Rapids leads the state and nation in recovery
85
90
95
100
105
110
115
120
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Inde
x (2
007
= 10
0)
Nonfarm Employment Index (2008 = 100)
Grand Rapids MSA Michigan United States
Source: Bureau of Labor Statistics Current Employment Statistics and Upjohn Institute 27
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Grand Rapids has recovered, although the state and nation haven’t
60
70
80
90
100
110
120
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Inde
x (2
007
= 10
0)
Manufacturing Employment Index (2008 = 100)
Grand Rapids MSA Michigan United States
Source: Bureau of Labor Statistics Current Employment Statistics and Upjohn Institute 28
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Grand Rapids exceeds both the state and nation
85
90
95
100
105
110
115
120
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Inde
x (2
007
= 10
0)
Private Service-Providing Employment Index (2008 = 100)
Grand Rapids MSA Michigan United States
Source: Bureau of Labor Statistics Current Employment Statistics and Upjohn Institute 29
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
PMI remains well above 50
0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Inde
x
Purchasing Managers Index
12-Month Moving Average
Source: National Association of Purchasing Management 30
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
MADA and Furniture Index remain strong
80859095100105110115120125130
30
35
40
45
50
55
60
65
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Furn
iture
Em
p. In
dex
(201
1 =
100)
MAD
A In
dex
Furniture Index and Employment
MADA Index Employment Index
Source: Michael A. Dunlap and Associates and Bureau of Labor Statistics 31
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• Birmingham-Hoover, AL• Charlotte-Concord-
Gastonia, NC-SC • Dallas-Fort Worth-Arlington,
TX• Greenville-Anderson-
Mauldin, SC• Knoxville, TN
• Louisville/Jefferson County, KY-IN Metro Area
• Portland-Vancouver-Hillsboro, OR-WA Metro Area
• Rochester, NY• Tulsa, Ok
Comparison areas: Economically comparable and/or aspirational
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Metropolitan Statistical Areas:
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
The Grand Rapids MSA posted the lowest unemployment rate of the group
4.63.9
3.83.73.73.7
3.53.4
3.33.7
3.2
0 1 1 2 2 3 3 4 4 5 5
Rochester, NYLouisville, KYPortland, OR
Tulsa, OKCharlotte, NC
Birmingham, ALDallas, TX
Knoxville, TNGreenville, SC
Comparison averageGrand Rapids
Percent of Labor Force
Average Unemployment Rate, Jan-Oct 2018
Source: Bureau of Labor Statistics Local Area Unemployment Statistics 33
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Despite a tight labor market, employment growth was strong
0.60.7
1.11.4
1.82.2
2.62.7
3.11.8
2.2
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Knoxville, TNLouisville, KY
Rochester, NYBirmingham, AL
Greenville, SCPortland, OR
Tulsa, OKCharlotte, NC
Dallas, TXComparison average
Grand Rapids
Employment Percent Change
Total Employment Change Jan-Oct 2017 to Jan-Oct 2018
34Source: Bureau of Labor Statistics Current Employment Statistics
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Services grew faster than the average of the comparison group
-0.20.9
1.11.3
1.81.9
2.13.0
3.11.6
1.9
-0.5 0 0.5 1 1.5 2 2.5 3 3.5
Knoxville, TN
Louisville, KY
Portland, OR
Tulsa, OK
Charlotte, NC
Grand Rapids
Employment Percent Change
Services Employment Change Jan-Oct 2017 to Jan-Oct 2018
Source: Bureau of Labor Statistics Current Employment Statistics 35
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Manufacturing employment change was below the comparison group average
-0.9-0.3
0.81.6
2.73.5
3.74.7
4.82.3
1.9
-2 -1 0 1 2 3 4 5 6
Louisville, KY
Greenville, SC
Dallas, TX
Portland, OR
Tulsa, OK
Grand Rapids
Employment Percent Change
Manufacturing Employment Change Jan-Oct 2017 to Jan-Oct 2018
36Source: Bureau of Labor Statistics Current Employment Statistics
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Our indicator for entrepreneurship shows the area slightly below average for the comparison group
23.324.224.424.7
28.829.0
30.330.3
35.027.8
25.2
0 5 10 15 20 25 30 35 40
Dallas, TXRochester, NY
Louisville, KYCharlotte, NC
Birmingham, ALPortland, ORKnoxville, TN
Tulsa, OKGreenville, SC
Comparison averageGrand Rapids
Percent of Industry
Percent Self-Employed in Professional, Scientific, and Technical Services
Source: U.S. Census American Community Survey 37
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The area ranks among the most educated for early prime-aged within the comparison group
26.532.232.732.9
35.835.936.4
40.943.4
35.241.3
0 5 10 15 20 25 30 35 40 45 50
Tulsa, OK
Greenville, SC
Birmingham, AL
Rochester, NY
Portland, OR
Grand Rapids
Percent of Age Group
Bachelor's Degree or Higher, Age 25-34
Source: U.S. Census American Community Survey 38
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Housing prices are rising at the rate of most of the group
100
150
200
250
300
350
Inde
x (1
995
= 10
0)
Housing Price Index (1995=100)
Grand Rapids Birmingham, AL Charlotte, NC Dallas, TX Greenville, SCKnoxville, TN Louisville, KY Portland, OR Rochester, NY Tulsa, OK
Source: Federal Housing Finance Agency 39
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THE NEXT RECESSION: WHAT WE ARE WATCHING AND FACTORS AFFECTING THE FORECAST
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The next recession and what we’re watching: Our thoughts and concerns• The effect of the announced tariffs
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The next recession and what we’re watching: Our thoughts and concerns• The role of trade agreements
– Blocks– Bilateral
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The next recession and what we’re watching: Our thoughts and concerns
• Expect interest rates to rise
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The next recession and what we’re watching: Our thoughts and concerns• Tight labor markets (U-3 and LFPR)
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The next recession and what we’re watching: Our thoughts and concerns
45
• “Elections have consequences”
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The next recession and what we’re watching: Our thoughts and concerns• The movement from industry 2.0, to 3.0, and to 4.0
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The next recession and what we’re watching: Our thoughts and concerns
• The rising deficit
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HOW DID WE DO LAST YEAR?
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Review of last year’s forecast
2.2
2.9
1.8
2.6
0.70.5
0.7
1.5
0
1
1
2
2
3
3
4
Total Goods producing Service providing Government
Perc
ent c
hang
e in
em
ploy
men
t
Annual Percent Change in Employment
Current estimate Forecasted
49Source: Bureau of Labor Statistics Current Employment Statistics &
Upjohn Institute
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Review of last year’s forecast
3.2
3.9
3.1
1.8
3.0
1.2
0112233445
Total Goods producing Service providing
Perc
ent c
hang
e in
GRP
Annual Percent Change in GRP
Current estimate Forecasted
50Source: Upjohn Institute
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IS THE THIRD TIME THE CHARM? OUR LOOK AT 2019: THE THIRD TIME’S THE CHARM?
51
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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH
Grand Rapids MSA 2018–2019 forecast
2.2
2.9
1.8
2.6
1.20.7
1.30.9
0.20.0
0.30.0
01122334455
Total Goods producing Service providing Government
Perc
ent C
hang
e in
Em
ploy
men
t
Annual Percent Change in Employment
2018 2019 2020
52Source: Bureau of Labor Statistics Current Employment Statistics &
Upjohn Institute
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National, state, and Grand Rapids MSA 2019 forecast
1.0
0.4
1.3
0.80.81.0
0.8
0.5
1.6
0.00.20.40.60.81.01.21.41.61.82.0
Total Goods producing Service providing Government
Perc
ent C
hang
e in
Em
ploy
men
t
Annual Percent Change in Employment
Grand Rapids Michigan United States
53Source: Bureau of Labor Statistics Current Employment Statistics &
Upjohn Institute
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Grand Rapids MSA 2018–2019 forecast
3.2
3.9
3.1
1.4
2.8 2.8 3.0
2.02.2 2.4 2.3
1.1
-1
0
1
2
3
4
5
Total Goods producing Service providing Government
Perc
ent C
hang
e in
GRP
Annual Percent Change in GRP
2018 2019 2020
54Source: Upjohn Institute
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Questions?
• Jim Robey, PhD– [email protected]– 269-385-0450
• Contributors– Randy Eberts, President– Brian Pittelko, Senior Regional Analyst– Marie Holler, Mapping and Data Visualization Specialist– Claudette Robey, Regional Economics and Workforce Development
Specialist
55