Michigan Economic UpdateMartin Lavelle

Senior Research AssociateFederal Reserve Bank of Chicago-Detroit Branch

December 11, 2013Martin.lavelle@chi.frb.org

Michiganeconomy.chicagofedblogs.com

The comments and opinions that I will be expressing are my own and do not reflect the thinking or policy posture of the Federal Reserve System nor of the Federal Reserve Bank Of Chicago, (7th District).

Michigan Economic Activity: Sector BreakdownSector 2000 (% of Total Real GSP) 2012 (% of Total Real GSP)

Agriculture & Mining 0.9 1.0

Utilities 2.0 2.2

Construction 6.2 2.7

Manufacturing 18.9 18.3

Trade, Transportation, & Warehousing

14.7 15.9

Information 2.0 3.0

Financial Activities 17.6 18.1

Professional & Business Services

13.5 13.1

Educational & Health Services 7.2 9.3

Leisure & Hospitality 3.1 3.6

Other Services 3.0 2.4

Government 11.5 10.6

US vs. Michigan Personal Income (Real)(Quarterly Y/Y% Change)

2001

.120

01.3

2002

.120

02.3

2003

.120

03.3

2004

.120

04.3

2005

.120

05.3

2006

.120

06.3

2007

.120

07.3

2008

.120

08.3

2009

.120

09.3

2010

.120

10.3

2011

.120

11.3

2012

.120

12.3

2013

.120

13.3

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

US

Michigan

Source: BEA

US, Midwest, Michigan Unemployment RatesJa

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

USA

Midwest

Michigan

Source: BLS

Labor Force Participation RatesJa

n-00

May

-00

Sep-

00Ja

n-01

May

-01

Sep-

01Ja

n-02

May

-02

Sep-

02Ja

n-03

May

-03

Sep-

03Ja

n-04

May

-04

Sep-

04Ja

n-05

May

-05

Sep-

05Ja

n-06

May

-06

Sep-

06Ja

n-07

May

-07

Sep-

07Ja

n-08

May

-08

Sep-

08Ja

n-09

May

-09

Sep-

09Ja

n-10

May

-10

Sep-

10Ja

n-11

May

-11

Sep-

11Ja

n-12

May

-12

Sep-

12Ja

n-13

May

-13

Sep-

13

58.0

59.0

60.0

61.0

62.0

63.0

64.0

65.0

66.0

67.0

68.0

69.0

70.0

58.0

59.0

60.0

61.0

62.0

63.0

64.0

65.0

66.0

67.0

68.0

69.0

70.0

USA

Michigan

Source: BLS

Michigan Regional Unemployment Rates(12 MMA)

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0Tri-Cities

W. Michigan

Mid-Michigan

SE Michigan

Source: BLS

Michigan Initial Unemployment Claims

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 520

10000

20000

30000

40000

50000

60000

0

10000

20000

30000

40000

50000

60000

2008 2009 2010 2011 2012

2013

Changes in MI Total Nonfarm Payroll Employment(Level vs. 3 month MA, 1990-present)

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

-100

-80

-60

-40

-20

0

20

40

-100

-80

-60

-40

-20

0

20

40

Level

3 month MA

Chan

ge in

Tot

al N

onfa

rm P

ayro

ll Em

ploy

men

t (10

00s)

Chan

ge in

Tot

al N

onfa

rm P

ayro

ll Em

ploy

men

t (10

00s)

Source: BLS

Nonfarm Payroll Employment Growth(US, Michigan, 7th District; 2013Q3/2012Q3)

9

Total Nonfarm

Construction

Manufacturing

Trade, Transportation & Utilities

Information

Financial Activities

Professional & Business Services

Educational & Health Services

Leisure & Hospitality

Other Services

Government

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0

Midwest

Michigan

US

Year/Year Percentage Change (%)

Source: BLS

Michigan Top Job Gaining Sectors(2013 YTD)

Sector Number of Payroll Employees Added

Total Nonfarm Payrolls 72,600

Professional & Technical Services 12,600

Retail Trade 10,600

Durable Goods Manufacturing 9,100

Health Care 9,100

Accommodation & Food Services 5,900

US Top Job Gaining Sectors(2013 YTD)

Sector Number of Payroll Employees Added

Total Nonfarm Payrolls 2,074,000

Restaurants 260,500

Employment Services 243,500

Ambulatory Health Care 185,500

Specialty Trade Contractors 95,600

General Merchandise Retail 90,500

Michigan Retail SalesJa

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

35.0

40.0

45.0

50.0

55.0

60.0

65.0

Source: MI Retail Association

Purchasing Managers’ Indexes(US, 7th District)

Values above 50 indicate expansion; values below 50 indicate contraction. The chart shows each PMI’s 12 month moving average. 13Source: ISM, Grand Valley

St., Creighton University

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

38.0

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

USA Chicago SE Michigan W. Michigan Milwaukee

*The W.Michigan and Iowa indices' most recent ticks as seen on the chart are not seasonally adjusted

Michigan Housing Starts vs. MI FHFA Home Price Index(Quarterly, 1990-present)

200

0-I

200

0-III

200

1-I

200

1-III

200

2-I

200

2-III

2003

-I

2003

-III

2004

-I

2004

-III

2005

-I

2005

-III

2006

-I

2006

-III

2007

-I

2007

-III

2008

-I

2008

-III

2009

-I

2009

-III

2010

-I

2010

-III

2011

-I

2011

-III

2012

-I

2012

-III

2013

-I

2013

-III0

500

1000

1500

2000

2500

3000

3500

4000

-12

-10

-8

-6

-4

-2

0

2

4

6

8

Housing Starts

Housing Prices

Hou

sing

Sta

rts,

Qua

rter

ly

Qua

rter

ly Y

/Y %

Cha

nge

MI F

HFA

Pri

ce In

dex

Source: FRED, FHFA

Still Deflating The BubbleCity Peak-to-Trough Remaining Gap

USA -33.5% -22.5%

Phoenix -56.4% -39.0%

Los Angeles -41.1% -24.7%

San Diego -41.6% -24.8%

San Francisco -44.3% -20.6%

Denver -13.8% +3.3%

Washington, DC -32.0% -20.8%

Miami -50.8% -40.1%

Tampa -47.3% -37.4%

Atlanta -36.1% -20.3%

Chicago -35.7% -28.2%

Boston -15.9% -8.5%

Detroit -46.0% -28.8%

Minneapolis -35.5% -24.0%

Charlotte -17.3% -8.7%

Las Vegas -61.5% -48.1%

New York -25.4% -22.4%

Cleveland -20.0% -15.3%

Portland -28.5% -16.3%

Dallas -11.6% +4.6%

Seattle -30.5% -17.7%

Current Monetary Policy

• Target Federal Funds Rate: 0-.25%– Will be appropriate at least as long as:

• Unemployment rate remains above 6.5%• Medium-term inflation expectations less than 2.5%• Anchored long-term inflation expectations

– Projection: Won’t move until 2015• Purchasing $45 billion/month of longer-term

securities• Purchasing $40 billion/month of mortgage-

backed securities

Capacity Utilization Rates(Total vs. Auto)

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

35.040.045.050.055.060.065.070.075.080.085.090.095.0

35.040.045.050.055.060.065.070.075.080.085.090.095.0

Total

Auto

Source: Federal Reserve

2014 Federal Fiscal Policy

• Potential Short-term Budget Deal?– 2 years– Eliminates some of the sequester– Avoids Government Shutdown

• Debt Ceiling: February 2014• Affordable Care Act: Employer Mandate

Things To Look Out For (Michigan version)

• Any sign of letup in the state’s growth drivers?– Auto-related manufacturing– Health Care

• Potential Growth Additives– Financial Activities– Infrastructure

• Employment growth– Sustainability?– Improvement?

• Continued Issues with State & Local Government Finances– Unfunded pension liabilities– School districts

• 2014: Michigan economic growth will pickup, but not at the same rate as the US.