Download - Upjohn Institute George A Ericksek
A Time to Reflect:
What can we expect from the economy and what do we expect
from government?
George A. ErickcekW.E. Upjohn Institute for Employment Research
October 28, 2013
Outline
• Yes we are growing, but can’t we go faster?• Three scary charts• Michigan’s performance and outlook are still
promising.• Local situation – Not bad, not great• Reconsider the role of government
2
GDP grew by 2.5 percent in the second quarter, and the forecast is positive.
3
Solid footing in the 2nd Quarter: strong exports, improved business investment, and solid consumer spending
Employment conditions have improved; however, the number of job seekers per opening is still
double what it was in 2008.
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
1
2
3
4
5
6
7
8
Number of Job Seekers to Job Openings
4
Unemployment is falling, but there are still too many long-term unemployed workers.
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1st Scary Chart: Being unemployed for more than six months is bad for your health.
194819511954195819611964196819711974197819811984198819911994199820012004200820110
5
10
15
20
25
30
35
40
45
50
Percent Unemployed More than 27 Weeks
The good news is that the percentage has been falling.
6Source: BLS CES.
Consumers appear to be holding more debt and not feeling that good about it.
2007
2008
2009
2010
2011
2012
2013
-25-20-15-10
-505
10152025
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
7Source: Conference Board and the Federal Reserve.
Currently, consumer confidence stands at 79.7.
Prices look pretty flat.
2003 2003 2004 2005 2006 2006 2007 2008 2009 2009 2010 2011 2012 2012 2013-3
-2
-1
0
1
2
3
4
5
6Change in the Consumer Price Index
12-m
onth
per
cent
cha
nge
All Goods and Services
Less energy and food
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Interest rates are moving upward but are still at historically low levels.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
1
2
3
4
5
6
7
8
9%
30-yr mortgage rate
10-yr Treasury Bond90-day Treasuries
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However… something is wrong
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2nd Scary Chart: Banks are still holding more than a trillion dollars in excess reserves…and it is going up.
1997 2002 2007 20120
200400600800
1,0001,2001,4001,6001,8002,000
Total and Required Reserves at the Federal Reserve
Total reserves Required reserves
$ Bi
llion
s
11Source: Federal Reserve.
3nd Scary Chart: Corporations are making money without hiring workers—a clear break
from past years.
1948195219571962196719711976198119861990199520002005200982%
84%
86%
88%
90%
92%
94%
96%
98%
100%
0%
2%
4%
6%
8%
10%
12%
14%
Employment Rate and Corporate Profits
Employment rate Corporate profits
Empl
oym
ent
rate
Corp
. pro
fits p
ct. o
f GDP
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There’s another problem.
• Last year, the top 1 percent of Americans took home 22 percent of the nation’s income; the top 0.1 percent, 11 percent. Ninety-five percent of all income gains since 2009 have gone to the top 1 percent.
• Median income in America hasn’t budged in almost a quarter-century. The typical American man makes less than he did 45 years ago (after adjusting for inflation).
• Men who graduated from high school but don’t have four-year college degrees make almost 40 percent less than they did four decades ago.
Joseph E. Stiglitz, New York Times, 10/13/13
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Turning to Michigan
• 2012 Employment Growth: 71,410 total jobs created, up 1.8%
27,260 manufacturing jobs, up 5.3%
• As of July of this year: 40,800 jobs have been created10,300 manufacturing jobs
• U of M’s Forecast is positive. 69,300 additional jobs in 2013
54,900 additional jobs in 2014
14Source: University of Michigan.
During the past four quarters, the state's employment has increased by 42,000.
GovernmentOther services
Leisure & hospitalityEducation & health
Business & professionalFinancial
InformationTransportation & utilities
RetailWholesale
ManufacturingConstruction
Total
-10 0 10 20 30 40 50
Employment Change, 2nd Quarter 2012 to 2nd Quarter 2013
Employment (in 000s)
15
Source: Michigan Labor Market Information, CES.
Implied manufacturing multiplier is 2.5.
Employment has expanded since the end of the recession. Since July 2009, employers have added 255,000 jobs.
However, 408,000 jobs were lost during the recession.
16Source: BLS and Upjohn Institute.
255,000 jobs
Auto sales continue to pick up.
17Source: BEA.
The auto outlook is promising.
• The current fleet on the road is old, very old–11.4 years.
• Incentives are back.• Trade-in values remain strong.• New selections – there will be 40 new
launches in 2014.• Financing is available.
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Construction activity has a long way to go.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
10,000
20,000
30,000
40,000
50,000
60,000
Number of Building Permits Issued*
Total units Single family
* 2013 estimate based on activity during the first 5 months.Source: U.S. Census.19
Turning to South Haven and Van Buren County
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Employment conditions appear to be improving in Van Buren County
20072007
20072008
20082008
20092009
20092010
20102010
20112011
20112012
20122012
20132013
0
2
4
6
8
10
12
14
16
Unemployment Rate, 2007–Present (12-month moving average)
United States Michigan Van Buren
Source: MI Labor Market Indicators, Local Area Unemployment Statistics.21
Job posting are clearly up. Medical provides a needed level of stability
Q4 2012 67 Total
Q1 2013 95 Total
Q2 2013 122 Total
Q3 2013 196 Total
0
20
40
60
80
100
120
Online Job Postings
Medical Food, Hotel, Retail Other
Source: Burning Glass Labor Insight.22
The county’s unemployment has been falling but for the wrong reason until 2012.
End of AugustAugust-to-August
Labor Force ChangeAugust-to-August
Employment Change
August-to-August Change in the Unemployed
2011 -670 -264 -406
2012 -804 -236 -568
2013 7 391 -384
Source: MI Labor Market Indicators, Local Area Unemployment Statistics.23
What happened in Finance and insurance?
Government
Accommodation and food
Health care
Admin. and waste
Prof and tech.
Finance and insurance
Retail trade
Manufacturing
Mining
Total, all industries
-700 -600 -500 -400 -300 -200 -100 0 100 200
Industry Employment Change, 2011-2012
Source: MI Labor Market Indicators, Quarterly Census of Employment and Wages.24
Major swings in employment is the status quo.
20072007
20072008
20082009
20092009
20102010
20112011
20122012
20120
50
100
150
200
250
300
350
400
0
500
1,000
1,500
2,000
2,500
Accommodation and Food Service Employment
Accommodation Food service
Acco
mm
odati
on e
mpl
oym
ent
Food
serv
ice
empl
oym
ent
Accommodation has a shorter sea-son but a 200% increase from Janu-ary to June.
Food Services employ, roughly, 550 additional persons during peak times; about 35% more than winter.
Source: MI Labor Market Indicators, Quarterly Census of Employment and Wages.25
The county has avoided the “dip” in the educational attainment of younger adults.
Van Buren County Michigan United States0
5
10
15
20
25
30
35
40
45
Educational Attainment, Associate’s or Higher
25 to 34 35 to 44 45 to 64 65 and higher
Pct.
of a
ge g
roup
Source: Burning Glass Labor Insight.26
Role of government
• I think there is general agreement that government should provide:– Defense – Protection of freedoms (however, the level is
debatable)– A fair legal structure– A monetary system– Public goods – goods that would be ill provided by
individuals/companies on their own.• Transportation• Education• Safety inspections• Parks
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Role of government
• Not so much agreement:– Economic Policy: Countercyclical activity
• Tax cuts vs. government spending – Tax cuts are seldom temporary.
• Targeting or subsidizing industries – Agricultural price supports
• Cyclical deficits vs. structural deficits– When do we know that the debt is too high?
Inflation and a falling currency relative to other world currencies
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Role of government
• Not so much agreement:– Social welfare programs such as social security,
Medicare, Medicaid, food stamps, general public assistance, unemployment insurance
• Worries about incentives• Worries about equity• Worries about spillover effects – Who pays for
overutilization of emergency rooms and overcrowded prisons?
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Role of government
• However, everyone will agree that government should NOT add uncertainty to the economic system.
There can be honest disagreement about tax policy and its potential impact on business activity.
It is in the interest of no one for government to raise the level of uncertainty to such heights that it negatively impacts businesses and consumers.
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A Time to Reflect:
What can we expect from the economy and what do we expect
from government?
George A. ErickcekW.E. Upjohn Institute for Employment Research
October 28, 2013