Presentation give to the South Haven Michigan Rotary Club on October 28, 2013

1. A Time to Reflect:
What can we expect from the
economy and what do we expect
from government?
George A. Erickcek
W.E. Upjohn Institute for Employment Research
October 28, 2013

2. 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
1

3. GDP grew by 2.5 percent in the second
quarter, and the forecast is positive.
Solid footing in the 2nd Quarter:
strong exports, improved business
investment, and solid consumer
spending
2

4. Employment conditions have improved; however, the
number of job seekers per opening is still
double what it was in 2008.
Number of Job Seekers to Job Openings
8
7
6
5
4
3
2
1
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
3

5. Unemployment is falling, but there are still too
many long-term unemployed workers.
4

6. 1st Scary Chart: Being unemployed for more than
six months is bad for your health.
Percent Unemployed More than 27 Weeks
50
45
40
35
30
The good news is that the percentage has been falling.
25
20
15
10
5
0
1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
5
Source: BLS CES.

7. Consumers appear to be holding more debt and
not feeling that good about it.
25
20
15
10
5
0
-5
-10
-15
-20
-25
120
100
80
60
40
Currently, consumer
confidence stands at 79.7.
2007
Index: 1995 = 100
Billions ($)
Consumer Confidence and Change in Consumer Debt
20
0
2012
Consumer debt
Consumer confidence
Source: Conference Board and the Federal Reserve.
6

8. Prices look pretty flat.
Change in the Consumer Price Index
12-month percent change
6
5
All Goods and Services
4
3
2
1
0
Less energy and food
-1
-2
-3
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
7

9. Interest rates are moving upward but are
still at historically low levels.
%
9
8
7
6
30-yr mortgage rate
5
4
3
2
1
90-day Treasuries
10-yr Treasury Bond
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
8

10. However… something is wrong
9

11. 2nd Scary Chart: Banks are still holding more than a
trillion dollars in excess reserves…and it is going up.
$ Billions
Total and Required Reserves at the Federal Reserve
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1997
Source: Federal Reserve.
1999
2001
2003
Total reserves
2005
2007
2009
Required reserves
2011
2013
10

12. 3nd Scary Chart: Corporations are making money
without hiring workers—a clear break
from past years.
Employment Rate and Corporate Profits
12%
96%
10%
94%
92%
8%
90%
6%
88%
4%
86%
84%
2%
82%
Corp. profits pct. of GDP
14%
98%
Employment rate
100%
0%
Employment rate
Corporate profits
11

13. 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
12

14. 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 created
10,300 manufacturing jobs
• U of M’s Forecast is positive.
69,300 additional jobs in 2013
54,900 additional jobs in 2014
Source: University of Michigan.
13

15. During the past four quarters, the state's
employment has increased by 42,000.
Employment Change, 2nd Quarter 2012 to 2nd Quarter 2013
Total
Construction
Manufacturing
Wholesale
Retail
Transportation & utilities
Information
Financial
Business & professional
Education & health
Leisure & hospitality
Other services
Government
Implied manufacturing
multiplier is 2.5.
-10
Source: Michigan Labor Market Information, CES.
0
10
20
30
Employment (in 000s)
40
50
14

16. 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.
255,000 jobs
Source: BLS and Upjohn Institute.
15

17. Auto sales continue to pick up.
Source: BEA.
16

18. 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.
17

19. Construction activity has
a long way to go.
Number of Building Permits Issued*
60,000
50,000
40,000
30,000
20,000
10,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total units
Source: U.S. Census.
Single family
* 2013 estimate based on activity during the first 5 months.
18

20. Turning to South Haven and
Van Buren County
19

21. Employment conditions appear to be
improving in Van Buren County
Unemployment Rate, 2007–Present (12-month moving average)
16
14
12
10
8
6
4
2
0
2007
2008
2009
United States
2010
Michigan
2011
2012
2013
Van Buren
20
Source: MI Labor Market Indicators, Local Area Unemployment Statistics.

22. Job posting are clearly up. Medical
provides a needed level of stability
Online Job Postings
120
100
80
60
40
20
0
Q4 2012
67 Total
Q1 2013
95 Total
Medical
Q2 2013
122 Total
Food, Hotel, Retail
Q3 2013
196 Total
Other
21
Source: Burning Glass Labor Insight.

23. The county’s unemployment has been
falling but for the wrong reason until 2012.
August-to-August
Labor Force Change
August-to-August
Employment Change
2011
-670
-264
August-to-August
Change in the
Unemployed
-406
2012
-804
-236
-568
2013
7
391
-384
End of August
22
Source: MI Labor Market Indicators, Local Area Unemployment Statistics.

24. What happened in Finance
and insurance?
Industry Employment Change, 2011-2012
Total, all industries
Ag., forestry, fishing
Mining
Construction
Manufacturing
Wholesale trade
Retail trade
Transport. and warehouse
Finance and insurance
Real estate
Prof and tech.
Mgmt. of companies
Admin. and waste
Educ. serv.
Health care
Arts, ent., and rec.
Accommodation and food
Other services
Government
-700 -600 -500 -400 -300 -200 -100
0
100
200
23
Source: MI Labor Market Indicators, Quarterly Census of Employment and Wages.

25. Major swings in employment
is the status quo.
Accommodation and Food Service Employment
2,500
350
2,000
300
250
1,500
200
1,000
150
100
50
0
Accommodation has a shorter
season but a 200% increase from
January to June.
Food Services employ, roughly, 550
additional persons during peak
times; about 35% more than winter.
2007
2008
2009
2010
Accommodation
2011
500
Food service employment
Accommodation employment
400
0
2012
Food service
24
Source: MI Labor Market Indicators, Quarterly Census of Employment and Wages.

26. The county has avoided the “dip” in the
educational attainment of younger adults.
Educational Attainment, Associate’s or Higher
45
Pct. of age group
40
35
30
25
20
15
10
5
0
Van Buren County
25 to 34
Michigan
35 to 44
45 to 64
United States
65 and higher
25
Source: Burning Glass Labor Insight.

27. 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
26

28. 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
27

29. 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?
28

30. 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.
29

31. A Time to Reflect:
What can we expect from the
economy and what do we expect
from government?
George A. Erickcek
W.E. Upjohn Institute for Employment Research
October 28, 2013