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W.E.

UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Economic Conditions:A Look at Factors Affecting the Grand Rapids

Region and a Look Forward

Jim Robey, PhDDecember 7, 2016

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.

2

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Regional and Economic Planning Services

• Data Dissemination & Analysis• Economic Impact Studies• Economic & Workforce Development Strategy• Talent Assessment• Urban & Regional Planning

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Is it really that good?

-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

Empl

oym

ent C

hang

e (0

00s)

GDP

Chan

ge (%

)

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

4

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

The calendar isn’t yet calling for a recession—if you trust history

1960–1969

1981–1990

1991–2000

2001–20072007–present (108

months)

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

5

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Consumer confidence has been flat for over a year

0

20

40

60

80

100

120

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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 Board6

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Good for the consumer, but…

0

20

40

60

80

100

120

140

0

1

2

3

4

5

6

7

2011 2012 2013 2014 2015 2016

$ Pe

r Bar

rel

$ Pe

r Mill

ion

Met

ric B

TU

Energy Commodity Prices

Natural Gas (L) Crude Oil (R)

Source: International Monetary Fund

Natural Gas spot price at the Henry Hub terminal in Louisiana, US$ per million metric BTU;Crude Oil (petroleum) simple average of Dated Brent, West Texas Intermediate, and the Dubai Fateh. 7

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Some recent upturns portend good things

0

2

4

6

8

10

12

0

5

10

15

20

25

30

2011 2012 2013 2014 2015 2016

$ Pe

r Met

ric T

on (0

000s

)

$ Pe

r Met

ric T

on (0

00s)

Industrial Inputs Commodity Prices

Nickel (L) Copper (R)

Source: International Monetary FundNickel - melting grade; Copper - grade A cathode, LME spot price, CIF European ports. 8

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Bumper crops will not be good for agricultural capital expenditures

024681012141618

0123456789

2011 2012 2013 2014 2015 2016

$ Pe

r Bus

hel

$ Pe

r Bus

hel

Agriculture Commodity Prices

Corn (L) Soybeans (R)

Source: University of Illinois Farm Decision Outreach Central (Farmdoc)9

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Mixed signals from credit markets?

-3-2-1012345678

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inte

rest

Rat

e &

CPI

Cha

nge

Interest Rates and Change in Consumer Price Index

30-Year Mortgage 10-Year Treasury 3-Month Treasury 12-Month Change in CPI-U

Source: New York Federal Reserve and Bureau of Labor Statistics, Consumer Price Index10

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

National nondurables: Growth or no growth?

-10-8-6-4-202468

0 5 10 15 20 25 30

Empl

oym

ent C

hang

e (%

)

Gross Product Change (%)

2015–2020 Projection Food

Beverage and Tobacco Products

Textile Mills

Textile Product Mills

Apparel

Leather and Allied Products

Wood Products

Paper

Printing and Related Support Activities

Petroleum and Coal Products

Chemical

Plastics and Rubber Products

Source: Moody’s Analytics and Upjohn Institute11

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

National durables: More of the same?

-10

-5

0

5

10

15

0 10 20 30 40 50

Empl

oym

ent C

hang

e (%

)

Gross Product Change (%)

2015–2020 ProjectionNonmetallic Mineral Products

Primary Metals

Fabricated Metal Products

Machinery

Computer and Electronic Products

Electrical Equipment, Appliance, andComponentsTransportation Equipment

Furniture & Related Products

Miscellaneous

Source: Moody’s Analytics and Upjohn Institute12

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

-10%

0%

10%

20%

30%

40%

-20% -10% 0% 10% 20% 30% 40% 50%

Empl

oym

ent C

hang

e %

Gross Product Change %

2015–2020 Projection

The technology and business services

Accounting, tax preparation, bookkeeping, & payroll services

Architectural, engineering, & related servicesComputer systems design & related servicesData processing, hosting, & related services

Insurance carriers

Legal services

Management of companies & enterprisesManagement, scientific, & technical consulting servicesOffice administrative services

Other professional, scientific, & technical services

Scientific research & development servicesSoftware publishers

Specialized design services

Source: Moody’s Analytics and Upjohn Institute 13

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Moving on to Michigan

14

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Michigan is doing well, year to date

Construct.

Manufacturing

Wholesale

Retail

Transport. and util.

Info.

Finance

Prof. and business

Education and health

Leisure and hospitality

Other services

Government

-10

-5

0

5

10

15

20

25

30

35

Empl

oym

ent C

hang

e (0

00s)

Employment Change, Q3 2015 to Q3 2016

15

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Auto sales have reached a peak?

02468

1012141618202224

2000 2002 2004 2006 2008 2010 2012 2014 2016

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 Analysis16

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Michigan Forecast

Job Growth Per Year(All Sectors)

2016 – 69,000 jobs2017 – 41,600 jobs2018 – 50,000 jobs

Source: University of Michigan Research Seminar on Quantitative Economics17

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Michigan Forecast

Job Growth Per Year(Manufacturing)

2016 – 11,900 jobs2017 – -7,040 jobs2018 – -2,990 jobs

Source: University of Michigan Research Seminar on Quantitative Economics18

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Moving on to Grand Rapids

19

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Tight labor markets should push wages up

0

2

4

6

8

10

12

14

16

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Perc

ent o

f Lab

or F

orce

Unemployment Rate

Grand Rapids MSA Michigan United States

Source: Bureau of Labor Statistics Local Area Unemployment Statistics & Upjohn Institute20

W.E.

UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH Source: US Census American Community Survey

Labor Force Participation,

62.7 in the United States

21

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Full recovery by 2013, and then some

85

90

95

100

105

110

115

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inde

x (2

006

= 10

0)

Nonfarm Employment Index (2006 = 100)

Grand Rapids MSA Michigan United States

Source: Bureau of Labor Statistics Current Employment Statistics & Upjohn Institute22

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Pre-recession by mid-2015

6065707580859095

100105110

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inde

x (2

006

= 10

0)

Manufacturing Employment Index (2006 = 100)

Grand Rapids MSA Michigan United States

Source: Bureau of Labor Statistics Current Employment Statistics & Upjohn Institute23

W.E.

UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Strong performance in the services sector

85

90

95

100

105

110

115

120

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inde

x (2

006

= 10

0)

Private Service-Providing Employment Index (2006 = 100)

Grand Rapids MSA Michigan United States

Source: Bureau of Labor Statistics Current Employment Statistics & Upjohn Institute24

W.E.

UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Most sectors in Grand Rapids are doing well

Construct.

Manufacturing

Wholesale

Retail

Transport. and util. Info.

Finance

Prof. and business

Education and health

Leisure and hospitality

Other servicesGovernment

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Empl

oym

ent C

hang

e (0

00s)

Employment Change, Q3 2015 to Q3 2016

Source: Bureau of Labor Statistics Current Employment Statistics & Upjohn Institute25

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

• 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 cities (in partnership with The Right Place)

Comparison areas:

26

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Comparison city criteria

• Population 20% above or 20% below theGrand Rapids-Wyoming MSA

• Not located on an oceanic coast• Not a state capital city• Must have at least 10% of its overall GRP

generated from the manufacturing sector

27

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

The tightest labor market

5.65.0

4.94.8

4.74.7

4.44.3

3.84.7

3.3

0 1 2 3 4 5 6

Birmingham, ALTulsa, OK

Charlotte, NCPortland, OR

Greenville, SCRochester, NY

Louisville, KYKnoxville, TN

Dallas, TXComparison average

Grand Rapids

Percent of Labor Force

Average Unemployment Rate, Jan-Oct 2016

Source: Bureau of Labor Statistics Local Area Unemployment Statistics28

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Above average growth

-0.3-0.2

1.02.0

2.52.52.5

3.03.6

1.82.6

-0.5 0 0.5 1 1.5 2 2.5 3 3.5 4

Tulsa, OKRochester, NY

Birmingham, ALGreenville, SCKnoxville, TNCharlotte, NCLouisville, KYPortland, OR

Dallas, TXComparison average

Grand Rapids

Employment Percent Change

Total Employment Change Jan-Oct 2015 to Jan-Oct 2016

29Source: Bureau of Labor Statistics Current Employment Statistics

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Strong manufacturing performance YTD

-9.9-1.0-0.8-0.7

0.20.3

0.93.6

4.2-0.3

3.6

-12 -10 -8 -6 -4 -2 0 2 4 6

Tulsa, OKRochester, NY

Dallas, TXBirmingham, AL

Portland, ORCharlotte, NCGreenville, SCLouisville, KYKnoxville, TN

Comparison averageGrand Rapids

Employment Percent Change

Manufacturing Employment Change Jan-Oct 2015 to Jan-Oct 2016

30Source: Bureau of Labor Statistics Current Employment Statistics

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Middle of the pack in services

-0.20.8

1.22.0

2.12.52.5

3.34.1

2.02.3

-0.5 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

Rochester, NYTulsa, OK

Birmingham, ALGreenville, SCKnoxville, TNLouisville, KY

Charlotte, NCPortland, OR

Dallas, TXComparison average

Grand Rapids

Employment Percent Change

Services Employment Change Jan-Oct 2015 to Jan-Oct 2016

Source: Bureau of Labor Statistics Current Employment Statistics31

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Entrepreneurial activity in a growing sector

19.219.9

22.823.3

24.825.4

30.032.1

34.825.8

28.2

0 5 10 15 20 25 30 35 40

Rochester, NYKnoxville, TN

Birmingham, ALCharlotte, NC

Dallas, TXLouisville, KYPortland, OR

Tulsa, OKGreenville, SC

Comparison averageGrand Rapids

Percent of Industry

Percent Self-Employed in Professional, Scientific, and Technical Services

Source: US Census American Community Survey32

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More than one third have at least a four-year degree

28.128.7

29.934.234.334.7

37.238.0

40.834.0

35.9

0 5 10 15 20 25 30 35 40 45

Tulsa, OKGreenville, SCKnoxville, TN

Birmingham, ALLouisville, KY

Dallas, TXRochester, NYCharlotte, NCPortland, OR

Comparison averageGrand Rapids

Percent of Age Group

Bachelor's Degree or Higher, Age 25-34

Source: US Census American Community Survey33

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Low growth in housing prices

100120140160180200220240260280

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 Agency34

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Local Forecast

• Thank you to the Right Place and to our focus group contributors

• The next section includes “factors” affecting our forecast

35

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Permits issued at pre-recession levels

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Uni

ts p

er Y

ear

Construction Permits Issued, Grand Rapids MSA

Total, All Structure Types Single Family Houses

* Projection based on year to date Oct 2016

Source: US Census Building Permit Survey 36

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Increased activity in 2016

050

100150200250300350400450

2011 2012 2013 2014 2015 2016

Uni

ts p

er M

onth

Number of Dwelling Units Placed Under Contract for Construction

New Dwelling Units 12-Month Moving Average

Source: F.W. Dodge Division, McGraw Hill37

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Positive long-run trend to Purchasing Managers Index

40

45

50

55

60

65

70

75

2011 2012 2013 2014 2015 2016

Inde

x

West Michigan Purchasing Managers Index

Purchasing Managers Index 12-Month Moving Average

Source: National Association of Purchasing Management38

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Last year’s forecast – not too far off

2.6

3.6

2.6

0.4

2.42.2

2.7

0.10.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Total Goods Producing Service Providing Government

Perc

ent C

hang

e in

Em

ploy

men

t

Annual Percent Change in Employment

Current Estimate Forecasted

Source: Bureau of Labor Statistics Current Employment Statistics & Upjohn Institute39

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Our View of 2017 and 2018

40

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Grand Rapids MSA 2017–2018 Employment Forecast

2.6

3.6

2.6

0.4

1.1

0.5

1.3

0.5

1.0

0.1

1.3

0.7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Total Goods Producing Service Providing Government

Perc

ent C

hang

e in

Em

ploy

men

t

Annual Percent Change in Employment

2016 Estimate 2017 Forecast 2018 Forecast

Source: Bureau of Labor Statistics Current Employment Statistics & Upjohn Institute41

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UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Grand Rapids MSA 2017–2018 Output Forecast

1.1

0.5

1.3

2.52.2

2.8

1.0

0.1

1.3

2.4

1.8

2.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Total Goods Producing Service Providing

Perc

ent C

hang

e in

Em

ploy

men

t

Annual Percent Change in Output

2017 Employment 2017 Output 2018 Employment 2018 Output

42Source: Bureau of Labor Statistics Current Employment Statistics & Upjohn Institute

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Questions/Comments?

• Jim Robey, Ph.D.Jim.robey@Upjohn.org269-385-0450

43

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