outlook 2012: will the real economic recovery finally stand up?
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Outlook 2012: Will the Real Economic Recovery Finally Stand Up? . Mark Partridge October 18, 2011 Swank Chair in Rural-Urban Policy ([email protected]) Department of Agricultural, Environmental & Development Economics Ohio State University Extension. Introduction. - PowerPoint PPT PresentationTRANSCRIPT
Outlook 2012: Will the Real Economic Recovery Finally Stand
Up? Mark Partridge
October 18, 2011Swank Chair in Rural-Urban Policy
([email protected])Department of Agricultural, Environmental & Development
EconomicsOhio State University Extension
Introduction The title of my 2009 talk: The
Great Crisis: Will Economic Recovery Look More Like the Crisis? Even though I realized that we were entering recovery, my answer was Yes!, but I never thought Yes!!!!!!!!!! and then some…
So, a good question is when will have recovery and then what are our next challenges/issues.
10/18/2011 Policy & Oulook Program 2
Introduction—Continued I will first provide an overview of
where we are in the U.S. and Ohio to provide the context of today’s outlook.
Then I will discuss forecasts for the U.S. and try to put some context on that for Ohio and perhaps for the 2012 elections.
I will then conclude with a little about the economic impacts of Marcellus Shale and then inequality for the US.
10/18/2011 Policy & Oulook Program 3
Economic Recovery: Then and Now From WW II to 1990, recessions
tended to be cyclical. Orders slowed down. Inventories fell and pent-up-demand took hold.
Factories rehired workers—i.e., most jobs did not disappear.
10/18/2011 4Policy & Oulook Program
Economic Recovery: Then and Now Since 1990—recessions have
become structural as industries/firms downsize and the lost jobs permanently disappear. “Jobless recoveries”
Bubbles in the 1980s and 1990s took years to work off after recession.
This recovery also looks like the financial crisis recessions pre-Great Depression.10/18/2011 Policy & Oulook Program 5
National Non-farm Employment
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60 months after the onset of recession, seasonally adjusted, Month 0 =100
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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8
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Ohio’s performance in recession and recoveries Ohio usually falls deeper in
recession than the nation as a whole. This time we actually fared about average (just a little below average).
Ohio recoveries tend to be drawn out.
10/18/2011 7Policy & Oulook Program
Ohio Non-farm Employment
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60 months after the onset of recession, seasonally adjusted
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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8
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60 months after the onset of recession, seasonally adjusted
Manufacturing and Recession Manufacturing’s share of the
economy is falling meaning that it has a smaller impact on growth.
This recession is actually slightly better for manufacturing than the 2001 recession and the jobless recovery.
910/18/2011 Policy & Oulook Program
Manufacturing Employment Shares
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1972 1980 1990 2000 2006 20100.00
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US Employment Share in manufacturingOH Employment Share in manufacturing
U.S. Manufacturing Employment
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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8
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Ohio Manufacturing Employment
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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8
60 months after
60 months after the onset of recession, seasonally adjusted
Growth in the “Three C’s” The Three C’s performance also
illustrates that OH will likely recovery differently depending on what part of the state we are talking about.
A key reason for the economic differences across the 3 C’s is their relative manufacturing intensity, though each have their own culture.
Columbus is lagging the other 2 C’s. Cleveland continues to surprise.
1310/18/2011 Policy & Oulook Program
Columbus Non-farm Employment
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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8
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Cincinnati Non-farm Employment
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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8
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60 months after the onset of recession, seasonally adjusted, Month 0=100
Cleveland Non-farm Employment
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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8
60 months after
60 months after the onset of recession, seasonally adjusted, Month 0=100
U.S. Forecast I use the NABE September
Forecast. It reflects the average of 52 economists and does not have an agenda.
http://www.nabe.com/publib/macsum.html NABE forecasts 1.7% GDP growth
in 2011 and 2.3% in 2012 (about 1% lower than their May 2011 forecast.) A reasonable economic expansion should have > 4% growth for 2 years or so.
IMF’s U.S. forecast is 1.5% and 1.8%. Also revised down by about 1% since
June.
10/18/2011 Policy & Oulook Program 17
US Forecast NABE sees a very weak labor
market Monthly Nonfarm payrolls are
expected to rise 124,100 per month in 2011 and 162,100 per month in 2012. At sustained monthly rate of at least 200,000+ is needed for a few years.
UR rate will still be 8.5% at end of 2012 US still 1 million jobs below 2000 level.
Most panelists don’t see labor market recovery to pre-recession levels until 2015 and some don’t see it until 2017.
10/18/2011 Policy & Oulook Program 18
U.S. Forecast On the positive side, NABE sees
Expansionary monetary policy (?) Growth in the rest of the world (?) Business investment and pent-up consumer demand (?)
On the negative side: Low consumer and business confidence
Uncertainty about future gov’t policies (?) I add uncertainty whether ‘Washington’
can do anything of consequence. Tepid housing market (2013 recovery?)
10/18/2011 Policy & Oulook Program 19
U.S. Forecast Negative Factors continued:
Financial headwinds caused by tight credit conditions and balance sheet restructuring
High federal deficits and the European debt (Greek) crisis weigh on the world economy
In this economic environment, while I do not see a recession, I have a difficult time seeing how a President could be reelected in this climate. 1968 and 2000 elections are exceptions where economy was not THE issue.
10/18/2011 Policy & Oulook Program 20
Ohio Context Ohio has added 1.6% jobs in the
last year US added 1%. Ohio Unemployment rate 9.1% in Aug
2011, 9.9% Aug 2010, and 8.6% in May 2011.
Columbus has lost about 0.6% jobs--local performance has been uneven.
10/18/2011 Policy & Oulook Program 21
Ohio Context Ohio’s strengths are (1) strong leadership direction
I am not saying good or bad direction.
Improved position on state taxes. (2) State budget is mostly
balanced on a structural basis. State avoided tax increases by pushing them down to local gov’t.
Yet, there is little uncertainty that the state budget is sustainable if we have another recession.10/18/2011 Policy & Oulook Program 22
Ohio Utica (Marcellus) Shale: Game Changer? Commenting on shale energy
development: “This will be the biggest thing in the state of Ohio since the plow…This is truly extraordinary.” Aubrey McClendon CEO of Chesapeake Energy of Oklahoma.
Quoted in the Columbus Dispatch “Realism on Renewable Energy.” September 22, 2011, Pp. B1-B2.
10/18/2011 Policy & Oulook Program 23
Utica Shale: Game Changer?1. Economists point out that ‘projects’
and policies should be judged on their net benefits and costs, and NOT net job creation. E.g., CO2 content of coal vs natural gas. E.g., lower energy costs or energy
security. 2. The best source of an industry’s actual
economic impact is NOT the industry itself, studies paid for by the industry, or sympathetic politicians and newspapers. This is not a surprise . In serious research, we use peer review to
weed out poor studies. We create counterfactuals.
10/18/2011 Policy & Oulook Program 24
Utica Shale: Game Changer? A counterfactual is what would have
happened if there was no shale industry. The difference between the number of jobs that did happen and the counterfactual is the actual jobs CREATED.
3. So-called ‘impact studies’ that estimate direct and indirect effects are over-estimates of new job creation and serious regional economists have not viewed them as anywhere near best practice for decades. NOT COUNTERFACTUALS! At best, a well done impact study should
tell you how many jobs are ‘supported’ by an industry, not how many jobs it ‘created.’
10/18/2011 Policy & Oulook Program 25
Utica Shale: Game Changer? #3 continued: The “Penn State Impact Study” funded by the
shale industry is a good example. It predicts 111,000 jobs in 2011 and 212,000 in 2020 using the IMPLAN software.
Such studies usually ignore displacement effects and do not compare development’s impact to the counterfactual. Also, it estimated 95% of shale industry purchases are in PA. (Mexican Restaurant/IA studies/no price
effects)4. We do a difference in difference
assessment of those with heavy mining vs similar counties w/o mining to get a better handle on the actual income and job creation.
10/18/2011 Policy & Oulook Program 26
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010708090
100110120130140150160170
OH PENN
OH and PA Natural Gas Related Employment 2001=100
Source: U.S. Dept. of Labor QCEW http://data.bls.gov/pdq/querytool.jsp?survey=en Note: 21111-Oil and gas extraction 213111 - Drilling Oil and Gas Wells 213112 - Support Activities for Oil and Gas Operations 541360 - Geophysical Surveying and Mapping Services 238912 - Nonresidential Site Preparation Contractors 333132 - Oil and Gas Field Machinery and Equipment Manufacturing 333911 - Pump and Pumping Equipment Manufacturing for natural gas wells 486210 - Pipeline Transportation of Natural Gas 237120 - Oil and Gas Pipeline Construction
2001 2002 2003 2004 2005 2006 2007 2008 2009 20101000012000140001600018000200002200024000260002800030000
OH and PA Natural Gas Related Employment
Source: U.S. Dept. of Labor QCEW http://data.bls.gov/pdq/querytool.jsp?survey=en Note: 21111-Oil and gas extraction 213111 - Drilling Oil and Gas Wells 213112 - Support Activities for Oil and Gas Operations 541360 - Geophysical Sur -veying and Mapping Services 238912 - Nonresidential Site Preparation Contractors 333132 - Oil and Gas Field Machinery and Equipment Manufacturing 333911 - Pump and Pumping Equipment Manufacturing for natural gas wells 486210 - Pipeline Transportation of Natural Gas 237120 - Oil and Gas Pipeline Construction
Source: U.S. Dept. of Labor QCEW http://data.bls.gov/pdq/querytool.jsp?survey=en and U.S. Bureau of Labor Statistics CES, Total Nonfarm Employment by state, www.bls.gov.Note: 21111-Oil and gas extraction 213111 - Drilling Oil and Gas Wells 213112 - Support Activities for Oil and Gas Operations 541360 - Geophysical Surveying and Mapping Services 238912 - Nonresidential Site Preparation Contractors 333132 - Oil and Gas Field Machinery and Equipment Manufacturing 333911 - Pump and Pumping Equipment Manufacturing for natural gas wells 486210 - Pipeline Transportation of Natural Gas 237120 - Oil and Gas Pipeline Construction
2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.0
0.1
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0.6
OH PA
Percent Natural Gas Non-Farm Employment Share: OH and PA
3010/18/2011 Policy & Oulook Program
PA Counties considered in our simple difference in difference counterfactual
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
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1998
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2000
2001
2002
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2007
2008
2009
80
85
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100
105
110
Three Mining Counties
Southern PA Matched Employment Pairs
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.go
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
90
95
100
105
110
Three Mining Counties
Northeastern PA Matched Employment Pairs
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
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2009
65707580859095
100105110115120125130
Three Mining Counties
Southern PA Matched Per Capita Income Pairs
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
1997
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1999
2000
2001
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65707580859095
100105110115120
Three Mining Counties
Northeastern PA Matched Per Capita Income Pairs
Inequality, taxes and class warfare Growing inequality is likely to be a major
issue in future political discourse—eg Occupy Wall Street.
Greater inequality encourages growth, entrepreneurship, and innovation. Source: Partridge, 1997 AER; 2005 J. of Reg Sci.) It is also associated with greater job growth and
lower unemployment (Pre-2000 Europe vs U.S. comparisons)
Greater inequality comes at the expense of breakdown in social cohesion, lower educational attainment, worse health outcomes, etc.
The pro inequality incentive aspects would clearly breakdown if the benefits are not widely shared. (Welsch, 1999)
Some politicians say the wealthy should pay more taxes. “Buffet Rule” Other changes possible…
10/18/2011 Policy & Oulook Program 35
U.S. Income Growth by Household Percentile: 1973=100
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
0
100
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300
400
500
600
0 TO 90 90-100 99-100 99.9-100
Inco
me
Leve
l in
2008
Dol
lars
(1
973=
100)
Slight decline in bottom 90%
Massive rise at very top
Conclusions The economy continues to sputter.
I don’t see ‘normal’ growth until 2013 and full recovery until 2015-16.
In other words, 2012 will represent a continuation of the jobs recession.
Ohio is on a better budget footing. Utica shale should be evaluated
on costs vs. benefits, not on job creation.
The spectacle of high inequality is real and could approach a tipping point.
3710/18/2011 Policy & Oulook Program
Mark PartridgeSwank Chair in Rural-Urban PolicyDept. Agricultural, Environmental &
Development EconomicsThe Ohio State UniversityGoogle “Partridge Swank” and you will get my website(614) 688-4907([email protected])
10/18/2011 Policy & Oulook Program 38
Individual County Graphs Follow
10/18/2011 Policy & Oulook Program 39
1995
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2009
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120
Washington(Mining)
Washington-Cumberland Matched Employment Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov.
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov.
1995
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Greene(Mining) Perry(Non-Mining)
Greene-Perry Matched Employment Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov.
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Fayette(Mining)
Fayette-Franklin Matched Employment Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov.
1995
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Susquehanna(Mining)
Susquehanna-Carbon Matched Employment Pair
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1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
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100
105
110
Tioga(Mining) Union(Non-Mining)
Tioga-Union Matched Employment Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
1997
1998
1999
2000
2001
2002
2003
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Bradford(Mining)
Bradford-Columbia Matched Employment Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
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1997
1998
1999
2000
2001
2002
2003
2004
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2009
707580859095
100105110115120125
Washington(Mining)
Washington-Cumberland Matched Per Capita Income Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
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2000
2001
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2003
2004
2005
2006
2007
2008
2009
65707580859095
100105110115120125130135
Greene(Mining) Perry(Non-Mining)
Greene-Perry Matched Per Capita Income Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
65707580859095
100105110115120125
Fayette(Mining)
Fayette-Franklin Matched Per Capita Income Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
65707580859095
100105110115120125
Susquehanna(Mining)
Susquehanna-Carbon Matched Per Capita Income Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
65707580859095
100105110115120
Tioga(Mining) Union(Non-Mining)
Tioga-Union Matched Per Capita Income Pair
Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
65707580859095
100105110115120
Bradford(Mining)
Bradford-Columbia Matched Per Capita Income Pair