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Why am I here…and not this guy? 2
Citation preview
The 2016–2017 Employment Forecast for Holland-Ottawa County Area
Randall EbertsBrian Pittelko
W.E. Upjohn Institute for Employment Research
January 12, 2016
Can it get any better than this?
A Special Thanks to …
2
for its support of this presentation…
and to
…for sponsoring this event.
Why am I here…and not this guy?
3
The answer…
Retirement and…
…a new grandson 4
"Investors have started the new year in panic mode," said Ed Yardeni,
Most of the blame goes to China
HAPPY NEW YEAR!!??
Investors are also alarmed by the decline in China’s currency
Crude oil continues to nosedive. Crude plunged as much as 4% to $32.10 a barrel, the lowest level since late 2003.
5
Others think stocks will rebound from the China fears, which is exactly what happened last summer.
"There isn't really some new structural smoking gun for the economy and markets like mortgages were back in 2008," Kopp said.
This bull market will celebrate its seventh anniversary in early March.
6
The news last week wasn’t new—slowing Chinese economy and another bad week for China’s stock market…
7
2015-12-21
2015-12-22
2015-12-23
2015-12-24
2015-12-25
2015-12-26
2015-12-27
2015-12-28
2015-12-29
2015-12-30
2015-12-31
2016-01-01
2016-01-02
2016-01-03
2016-01-04
2016-01-05
2016-01-06
2016-01-07
2016-01-081800
1850
1900
1950
2000
2050
2100
S&P5
00 In
dex
But once again the U.S. stock market reacted to the “news.”
6% declinein the first week
8
But let’s put last week behind us and look at why 2016 should not be 2008
• China stock market problems do not equal a global financial meltdown
• Strong fundamentals…at least GDP and employment• Growing consumer confidence and solid balance sheet• No apparent bubbles; housing coming backTempered by…• Weak international economies• Continued strong stimuli in US• Strong dollar (good for low inflation and imports/bad for
exports)• Mental fatigue (whatever that means)
9
What’s on the docket this morning…
• National view of what the economy looks like today compared to 2007
• Turn to the state economy to take its pulse and see how it might affect Ottawa County’s economy in 2016
• Focus on the Ottawa County’s economy and what may lie ahead
• Which all leads up to …
10
2016-2017 Employment Forecast
National
11
GDP is still relatively strong and expected to keep chugging along through 2016
-7 -6 -5 -4 -3 -2 -1 0 1 2 3 4-10
-8
-6
-4
-2
0
2
4
6
8 qtrs before now 8 qtrs before recession
Consensus forecast
Q1 2016
Q1 2008
12
-24 -23 -22 -21 -20 -19 -18 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1
-100
0
100
200
300
400
500
2014-2015 2006-2007
Months since January 2016
Mon
thly
cha
nge
in e
mpl
oym
ent
24-month average2014-2015 of 240,000
24-month average2006-2007 of134,000
Employment growth is quite strong…last three months it was above the 24-month average of 240,000 and above the 63-month average of 205,000 per month
13
The consensus forecast sees employment growth continuing at an average monthly increase of 197,000 …whereas 2008 was a blood bath, losing close to 1 million jobs
-6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12-1000
-800
-600
-400
-200
0
200
400
2016 forecasts 2008 actual
Months from January of 2008 or January 2016
Mon
thly
chan
ge in
em
ploy
men
t
Consensus forecast
14
Forecasts look for continued employment growth in the next two years
Source: University of Michigan RSQE & Upjohn Institute
2014 2015 2016 20170
0.5
1
1.5
2
2.5
3
3.5Consensus Forecast
Annu
al e
mpl
oym
ent c
hang
e (m
illio
ns)
RSQE (U of M) Forecast
258,000/ mth
221,000/mth197,000/mth
133,000/mth
15
Demand for workers is strong…number of job seekers per opening is back to pre-recession levels
2006 2007 2008 2009 2010 2011 2012 2013 2014 20150
1,000
2,000
3,000
4,000
5,000
6,000
0
1
2
3
4
5
6
7
8
U.S. Job Openings and New Hires
Thou
sand
s (00
0s)
Unem
ploy
ed /
job
open
ings
Job seekers per opening
Job openings at end of month
16Source: BLS Job Opening and Labor Turnover.
Question is whether supply can keep up…
Employment growth depends upon:• Population growth, primarily immigration• Labor force participation growth• Employment per labor force (flip side of natural rate of
unemployment)Over the long-run, many analysts believe that the trends are
moving in the wrong direction:– Population growth is slowing from 1.2 percent to less than
1 percent, unless immigration picks up.– As the workforce ages and young people postpone
entering the workforce, LF participation continues to fall
17
Facing possible skills shortage of those in the labor force…but has not caused wages to increase
20052005
20062006
20072007
20082008
20092009
20102010
20112011
20122012
20132013
20142014
20150.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Year-over-Year Change in Total Compensation of Private Industry Workers
Source: BLS.18
In the past five years, consumer confidence has risen and so has household debt, but not where it was in 2008—135% of disposable income v. 103% now
2010 2011 2012 2013 2014 2015-15-10
-505
101520253035
0
20
40
60
80
100
120
Consumer Confidence and Change in Consumer Debt
Consumer debt Consumer confidence
Billi
ons (
$)
Inde
x: 1
995
= 10
0
Source: New York Federal Reserve and Conference Board.19
Consumers are not spending beyond their means…rate falling as more people are working
1991 1994 1997 2000 2003 2006 2009 2012 201576%
78%
80%
82%
84%
86%
88%
Personal Outlays as a Percent of Personal Income
Source: BEA.20
What about possible bubbles?
21
A housing bubble? No, home prices have recovered and are back to about where they were before the recession
1991 1996 2001 2006 2011 20160
50
100
150
200
250
Housing Price Index 1991=100
Source: Federal Housing Finance Agency.22
Stock market bubble? No, price-to-earnings ratio slightly below average since 2001
1998.011999.032000.052001.072002.092003.112005.012006.032007.052008.072009.092010.112012.012013.032014.052015.070.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
S&P5
00 P
rice
Earn
ings
Rati
o
2001-2015 average=27
That’s a bubble
23
Is there a bubble in the auto industry? No, sales have been gradually moving upward…
2010 2011 2012 2013 2014 201502468
101214161820
0
200
400
600
800
1000
1200
1400
1600
U.S. Light Vehicle Sales and Inventories
Total light vehicle sales Unit inventory
Seas
onal
ly a
djus
ted
annu
alize
d sa
les (
mill
ions
)
Unit
inve
ntor
ies (
000s
)
Source: New York Federal Reserve and Conference Board.24
…and in the long-term it looks like we’re just returning to “Normal”
2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011 2012 2013 20140
2
4
6
8
10
12
14
16
18
20
22
24
Annualized Rate of U.S. Light Vehicle Sales (in millions)
Annu
al ra
te o
f sal
es (i
n m
illio
ns)
8Source: BEA.
Car Industry Fundamentals
• In 2014, the average age of a vehicle on the road was 11.4 years. Come on people get with the program.
• With low gas prices, CUVs, SUVs, and pick-ups are back
• According to the BLS, auto prices are trending with the prices of all goods
• U of M is forecasting car sales to reach 18 million units in 2016 and 2017. Wow!
• Imports may be on the rise as higher dollar value makes imports cheaper
26
Other Bubbles?
• Oil? No, current OPEC policies appear aimed at keeping new oil reserves off line, by keeping prices low. If it raises its price, supply will likely increase.
• Housing prices in major cities? No. • Yet, you may never see what hits you
27
Concerns: Sluggish international economies, with some teetering on the edge of another recession and China losing steam
2010 2011 2012 2013 2014 2015-4
-2
0
2
4
6
8
10
12Percent Change in GDP over the Previous Year
JapanOECD Europe
China
U.S
Source: OECD.28
2014
Even though China continues to be a larger player in the world economy, it’s share of the world equity market is quite small
Brazil1%
China3%
Japan7%
Germany3%
France3%
UK6%
US52%
other26%
Share of World Equity Market
Brazil3%
China13%
Japan6%
Germany5%
France4%UK
4%
US22%
other43%
Share of World Economy ($US)
29
Stimulus is still present: Even with the recent Fed Funds hike, short-term interest rates are close to zero…
2010 2011 2012 2013 2014 2015-1
0
1
2
3
4
5
6
Interest Rates and Inflation
3 month T-Bill New home mortgages10 year T-Bill CPI-U 12-month change
Annu
al p
erce
ntag
e ra
te
Source: New York Federal Reserve and BLS CPI.6
The Banking Situation Looks Calm
2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1-30
-20
-10
0
10
20
30
40
Federal Reserve Senior Loan Officers Survey:Demand and Lending Standards for Commercial and Industrial
Loans by Medium-to-Large Firms
Reporting stronger loan demand Reporting tightening standards
Source: BEA and Federal Reserve. 31
One reason the Fed has been reluctant to raise rates is the low inflation rate: below the Fed’s target of 2%.
1990 1995 2000 2005 2010 2015-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%Year-Over-Year Change in the PCE Price Index
Source: BEA PCE Price Index.32
The value of the dollar has skyrocketed in recent months…helps to keep down inflation but could be trouble for manufacturing and other export-heavy sectors
2010 2011 2012 2013 2014 2015-60,000
-50,000
-40,000
-30,000
-20,000
-10,000
0
50556065707580859095
U.S. Trade Balance and Nominal Index of the Value of the Dollar against Seven Major Currencies
Trade balance Major currencies' dollar index
Trad
e Ba
lanc
e
Inde
x
Source: BEA and Federal Reserve.
Biggest rally in 40 years
33
Is the economy getting tired? Only 4 business cycles have ever lasted longer than our current cycle of 96 months…and all but one occurred since 1960
Q1 Q3 Q5 Q7 Q9Q11
Q13Q15
Q17Q19
Q21Q23
Q25Q27
Q29Q31
Q33Q35
Q37Q39
Q41Q43
90
100
110
120
130
140
150
160Real GDP Index
2007-present
2001-2007
1981-1990
1991-2001
1960-1969
34
M1 M11 M21 M31 M41 M51 M61 M71 M81 M91 M101 M111 M1219095
100105110115120125130135
Employment Index1960-1969
1991-2001
2007-present
2001-2007
1981-1990
If we could replicate the 1990s, we could enjoy another 3 yearsof expansion before we’re the longest in US history
35
At this stage of the business cycle, interest rates were considerably higher, which means those expansions were sustainable without the extra stimulus this one is still receiving
M1 M11 M21 M31 M41 M51 M61 M71 M81 M91 M101 M111 M12102468
101214161820
Interest Rates
1960 Peak 1981 Peak 1991 Peak 2001 Peak 2007 Peak36
Summing up the national scene
• It is hard to find a cause for a recession in 2016—strong fundamentals: GDP, jobs, confidence, debt
• However, there are some headwinds – Sluggish international markets, particularly China’s slowing
growth rate– High value of the dollar could slow manufacturing and other
exports even more– High value of the dollar will moderate inflation but that could
prevent the Fed from raising interest rates, which may be good now but not good if we head into another recession
– Labor and skills shortages (perceived or actual)
37
Michigan
38
Michigan Employment Trends
• From 3rd Quarter 2014 to 3rd Quarter 2015, employment increased by 90,000 jobs – Manufacturers added 24,000 jobs during the
four quarters; US added only 126,000– Michigan’s GDP grew 4.5% in Q2, 13th best in US– If you are willing to assume an employment
multiplier for manufacturing of 3.8, all of the state’s employment growth during the period was due—directly and indirectly—to its manufacturers
39Source: University of Michigan.
Manufacturing clearly stands above the other sectors
-10
-5
0
5
10
15
20
25
30
Series3
Wholesale
Retail trade
Transport., util.
Real estate
Prof., tech. Admin. and support
Educ. services
Health care
Arts, ent., rec.
Other serv.
Employment Change, Q3 2014 to Q3 2015
Job
chan
ge (0
00s)
Source: BLS CES.40
Again, possible skills shortages are not reflected in higher wages
2007200720082008200920092010201120112012201220132014201420150
5
10
15
20
25
30
Average Hourly Wage in Michigan, 2015 dollars
Hour
ly w
age
($)
Source: BLS CES.41
Latest University of Michigan Employment Forecast shows continued growth
Employment forecast 4th quarter to 4th quarter:
2015 89,100 jobs2016 61,100 jobs2017 64,800 jobs
42Source: University of Michigan RSQE Nov, 2015.
Michigan employment forecasted to grow over the next 2 years but at a slightly slower pace than nation
2015 2016 20170.0
0.5
1.0
1.5
2.0
2.5
2.1
1.7 1.6
2.2
1.4 1.5
Employment Forecast
United States Michigan
Annu
al p
ct ch
ange
Source: University of Michigan RSQE & Upjohn Institute43
The state’s unemployment rate continues to decline and stands close to the nation’s: 5.1 v. 5.0
2000 2001 2002 20032005 2006 200720082010 2011 2012 201320150
2
4
6
8
10
12
14
16
Unemployment Rate
Perc
ent o
f lab
or fo
rce
44Source: BLS LAUS.
45
Ottawa County
Commute into Ottawa County 50,956
Commute out of Ottawa County 63,973
Live and work in Ottawa County 55,840
Ottawa County’s employment patterns are pretty well balanced…with most commuters heading east and northeast
46
Manufacturing continues to dominate employment in Ottawa County…has created more jobs than the other sectors
-1,000
-500
0
500
1,000
1,500
2,000
2,500
Series3
Employment Change Q2 2014 to Q2 2015
Source: BLS CES47
Ottawa County’s unemployment rate is almost 2 points lower than the nation’s, yet it wasn’t spared during the recession
20002001200220032004200520062007200820092010201120122013201420150
2
4
6
8
10
12
14
16
Unemployment Rate for Ottawa County
Source: BLS LAUS and Upjohn Institute.48
The decline in the area’s unemployment rate is a healthy combination of an increase in employment and more people coming into the labor forceYear Labor Force Change Employment
ChangeUnemployment
Change2011 728 3,751 -3,4042012 1,761 3,229 -1,6532013 3,722 4,005 -3332014 4,274 6,140 -2,1162015 4,412 5,364 -1,112
Source: MI Labor Market Indicators, Local Area Unemployment Statistics49
While following the state down during the depression, Ottawa County has generated 10% more jobs since the last peak
14014014080
85
90
95
100
105
110
Total Employment Index(2004=100)
U.S. Michigan Ottawa Co.50
Source: BLS LAUS and Upjohn Institute.
Service employment growth follows the state and national trends…
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201480
85
90
95
100
105
110
115
120
Private Services Index(2004=100)
U.S. Michigan Ottawa Co.51
Source: BLS LAUS and Upjohn Institute.
…as the growth rate in manufacturing far exceeds the US rate and outpaced the state
1401401406065707580859095
100105110
Manufacturing Index(2004=100)
U.S. Michigan Ottawa Co.52
Source: BLS LAUS and Upjohn Institute.
But what about the area’s core industries? How did they weather the storm?
• Time period of the analysis: 2004 to 2014• Definition of the core: An industry that is at
least twice as concentrated in the Ottawa County than nationwide
• The question: Did these industries outperform their national rivals?
53
List of Core Industries
• Food manufacturing• Plastics and rubber manufacturing• Primary metal manufacturing• Fabricated metal manufacturing• Machinery manufacturing• Computer and electronic manufacturing• Transportation equipment manufacturing• Furniture manufacturing
54
During the period, the area’s core industries added 5,700 jobs due to their competitiveness
Core IndustriesJob change due only to the area’s firms outperforming their national rivals
Food 1,080Plastics 1,087Primary metal -203Fabricated metal 1,079Machinery -45Computer and electronic 3,100Transportation equipment -2,562Furniture 2,174
55
Production wages have been flat if not slightly declining for most ranges, even the highest
10th Percentile
25th Percentile
Median
75th Percentile
90th Percentile
0102030405060708090
Full-Time Production Wages in Ottawa County
2007 2008 2009 2010 2011 2012 2013 2014
Annu
al In
com
e ($
000s
)
Source: IPUMS USA56
Holland exceeds the state and nation with the percentage of prime-age workers with Associate’s degrees
Holland Michigan United States0
2
4
6
8
10
12
Associate’s Degrees
25 to 34 35 to 44 44 to 64 65 and Over
Source: Census ACS 201457
Holland also does better with Bachelor’s degrees or higher for the 25 to 44 year range
Holland Michigan United States0
510
15
202530
35
4045
Bachelor’s Degrees or Higher
25 to 34 35 to 44 44 to 64 65 and Over
Source: Census ACS 201458
In Holland, those with graduate degrees earn nearly twice those with Bachelor’s degrees
Less
than HS
High Sc
hool
Some Colle
ge
Associa
tes
Bachelors
Graduate
0102030405060708090
Annual Income by Educational Attainment
Inco
me
($00
0’s)
Source: IPUMS USA 201359
Better able to find a job with a diploma in hand, even only a high school diploma
Less
than HS
High Sc
hool
Some Colle
ge
Associa
tes
Bachelors
Graduate
02468
1012141618
Unemployment by Educational Attainment
Unem
ploy
men
t Rat
e
Source: IPUMS USA 201360
Even with a highly educated labor force, Ottawa County’s demand for skills may outstrip the supply
49%
8%
38%
5%
Education Requirements of Postings
Less than HS High school or cert.
8%
51%10%
21%
11%
Educational Attainment of Employed
Assoc. Bach. Grad.
Source: IPUMS USA 2014 & BurningGlass 201561
So What Is Our 2016 and 2017 Employment Forecast for Ottawa County?
But wait, how did we do last year?
62
Review of Last Year’s Forecast:Didn’t expect the big jump in goods-producing employment
Total Goods producing Service providing Government-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
3.4%
6.2%
2.6%
-1.6%
2.4% 2.5% 2.8%
-0.2%
Annual Percent Change in Employment
2015 actual 2015 forecast
Perc
ent c
hang
e in
em
ploy
men
t
63
Drum roll please . . .
64
But before that…what did we consider in deriving the forecast?
65
Construction is growing at a modest pace
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
50100150200250300350400450500
Number of Dwelling Units Put Under Contract for Construction (SAAR*)
New dwelling units 12-month moving average
66*Seasonally adjusted annual rateSource: Dodge Data and Analytics.
Building permits for single family houses tapered off in 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
500
1,000
1,500
2,000
2,500
Building Permits Ottawa County
Total Units Single Family Houses
Source: BLS LAUS and Upjohn Institute.67
Real wages are flat since 2000
20002000
20012002
20032003
20042005
20062006
20072008
20092009
20102011
20122012
20132014
20150
200
400
600
800
1,000
1,200
1,400
Total Nonfarm Wages (2015 Dollars)
Michigan Moving average (Michigan)Ottawa County Moving average (Ottawa County)
Aver
age
wee
kly
wag
e ($
)
Source: Michigan LMI and BLS CPI.68
… and wages in manufacturing are holding steady if not ticking up slightly
20002000
20012002
20032003
20042005
20062006
20072008
20092009
20102011
20122012
20132014
20150
200400600800
1,0001,2001,4001,6001,800
Total Manufacturing Wages (2015 Dollars)
Michigan Moving average (Michigan)Ottawa County Moving average (Ottawa County)
Aver
age
wee
kly
wag
e ($
)
54Source: Michigan LMI and BLS CPI.
Brian Long’s PMI has hiccupped a little after remaining steady for a while
2008 2009 2010 2011 2012 2013 2014 20150
10
20
30
40
50
60
70
80
Purchasing Managers Index
Purchasing Managers Index 12-month moving average70
Source: National Association of Purchasing Management.
Michael Dunlap’s Survey continues to show moderate strength in the area’s office furniture industry
2010 2011 2012 2013 2014 201546
48
50
52
54
56
58
60
85
90
95
100
105
110
115
120
MADA Office Furniture Industry Index and Index of West Michigan Furniture Industry Employment
MADA indexIndex of Grand Rapids metro furniture employment
MAD
A In
dex
Inde
x of
Em
ploy
men
t (20
00=1
00)
Source: BEA and Federal Reserve. 71
And now…at last…the forecast
72
Ottawa County2016–2017 Employment Forecast
Total Goods producing Service providing Government-2.0%
-1.0%0.0%
1.0%
2.0%3.0%
4.0%5.0%
6.0%7.0%
3.4%
6.2%
2.6%
-1.6%
2.0%2.4%
2.0%
0.6%
1.9% 1.9% 2.1%
0.8%
Annual Percent Change in Employment
2015 2016 2017
Perc
ent c
hang
e in
em
ploy
men
t
73
For all three years, Ottawa County is forecasted to outpace the state and the nation
2015 2016 20170.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2.11.7 1.6
2.2
1.4 1.5
3.4
2.0 1.9
Employment Forecast
United States Michigan Ottawa County
Annu
al p
ct ch
ange
Source: University of Michigan RSQE & Upjohn Institute74
Parting Thoughts
• US, Michigan, and Ottawa County are in a good position with strong fundamentals
• It is highly unlikely that the economy will turn negative in 2016. However, it could slow due to:– Sluggish international markets– Dramatic drop in consumer confidence– Continued obsession with China– Fiscal austerity: lessons from Europe– Unforeseen events
• Of course, 2016 is an election year and …
75
The 2016–2017 Employment Forecast for Holland-Ottawa County Area
Randall EbertsBrian Pittelko
W.E. Upjohn Institute for Employment Research
January 12, 2016
Can it get any better than this?