Economic Conditions in 2018: A Look at the Nation, the ... · W.E. UPJOHN INSTITUTE FOR EMPLOYMENT RESEARCH Economic Conditions in 2018: A Look at the Nation, the State, and the Grand

W.E.

UPJOHN INSTITUTEFOR EMPLOYMENT RESEARCH

Economic Conditions in 2018:A Look at the Nation, the State, and

the Grand Rapids Region

Jim Robey, Director, Regional Economic Planning ServicesW.E. Upjohn Institute for Employment Research

December 11, 2018

A Presentation at the Annual Meetingof The Right Place

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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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NATIONAL ECONOMY

3

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We are currently in the second-longest expansion since WWII

1960–1969

1981–1990

1990–2000

2001–2007

2007–present (132months)

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

4

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We’re in the longest business cycle (contraction + expansion) and the second-longest expansion, while experiencing the longest recession

5

Length of:1945-1948

1949-1953

1954-1957

1958-1960

1961-1969

1970-1973

1975-1980

1980-1981

1982-1990

1991-2001

2002-2007 2009-?

Contraction 8 11 10 8 10 11 16 6 16 8 8 18

Expansion 37 45 39 24 106 36 76 12 92 120 73 114Business Cycle 45 56 49 32 116 47 92 18 108 128 81 132

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The stock market has reacted to various events this year, and the ride is getting bumpier

20,000

21,000

22,000

23,000

24,000

25,000

26,000

27,000

28,000

Inde

x at

Clo

se

Dow Jones Industrial Average

1/23 Announcement of withdrawal from TPP, solar panel and appliance tariffs 3/1 Steel

and aluminum tariffs

4/2 and 4/4 Announcements of Chinese tariffs on U.S. exports

10/2 USMCA agreement announced

6/15 Announcement second round of tariffs with China, additionally retaliatory tariffs from Canada, EU, and Mexico take effect in late June and early July

3/22 Announcement first round of tariffs with China

December 2018

Source: Yahoo Finance 6

11/23rd quarterearnings reports;Expected costsof tariffs

January 2018

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GDP is projected to remain solid, with a slowing rate of employment growth

-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 2018

Empl

oym

ent C

hang

e (0

00s)

GDP

Chan

ge (%

chg

)

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 7

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National University of Michigan RSQE Forecast

2018 2018(Forecast)

2019(Forecast)

GDP(Percent) 2.9 2.7 1.9

Employment (Percent) 1.6 1.5 1.2

Light Vehicle Sales ($Millions) 17.1 16.6 16.9

Unemployment Rate(Percent) 3.9 3.5 3.4

Housing Starts (Millions) 1.3 1.3 1.3

CPI/Inflation(Percent) 2.3 2.2 2.3

8

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Strong fundamentals: Consumer confidence up, debt down

0

20

40

60

80

100

120

140

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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 Board 9

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0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Like

lihoo

d of

Rec

essio

n

Likelihood of Being in a Recession in the Next 6 Months

Moody’s predictions of recession are relatively low

10Source: Moody’s Analytics

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2001

2002

20032004

2005

2006

2007

2008

2009

20102011

2012

20132014

2015

20162017

-4

-3

-2

-1

0

1

2

3

4

5

0 10 20 30 40 50 60 70

GDP

Grow

th R

ate

6 M

onth

s Aft

er

Risk of Recession

Moody’s recession risk probability appears strongly correlated with real GDP change during the next 6 months

Correlation Coefficient = -.812018

Note: Risk is measured in December of each year.

11

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Risk Factors

“Expansions don’t get tired; rather, they end due to policy mistakes.”

• Tax cuts and increases• Federal deficits and debt• Fed interest rate hikes• Tariffs• Elections

12

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With tax cuts and 2009 fiscal stimulus overhang, federal debt continues to climb

0

20

40

60

80

100

120

-1.6-1.4-1.2

-1-0.8-0.6-0.4-0.2

00.20.4

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Fede

ral D

ebt P

erce

nt o

f GDP

Fede

ral D

efic

it ($

000,

000,

000,

000)

Federal Deficit and Debt

Deficit Deficit (projected) Debt Debt (projected)

13Source: Office of Management and Budget

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Inflation and interest rates have increased in the past 2 years

-3

-2

-1

0

1

2

3

4

5

6

7

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Perc

ent

Interest Rates and 12-Month Inflation Change

Federal Funds 10 year T-Bill CPI-U 12-month change

14Source: Bureau of Labor Statistics and New York Federal Reserve

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MOVING ON TO MICHIGAN

15

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Michigan continues to outperform expectations

Construct.Manufacturing

Wholesale

Retail

Transport. and util.

Info.

Finance

Prof. and business

Educational srv.

Health care

Leisure and hospitality

Other services

Government

-10

-5

0

5

10

15

20

Empl

oym

ent C

hang

e (0

00s)

Michigan Employment Change, Q3 2017 to Q3 2018

16Source: Bureau of Labor Statistics, Current Employment Statistics

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Light vehicle sales have been steady

02468

1012141618202224

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

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 Analysis 17

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Statewide University of Michigan RSQE Forecast

2018 2019(Forecast)

2020(Forecast)

Employment (Percent) 1.3 0.8 0.9

Manufacturing Employment (Workers) 6.0 3.3 2.2

Unemployment Rate(Percent) 4.4 3.9 3.8

CPI-Detroit/Inflation(Percent) 2.53 1.95 1.97

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Michigan exports in 2017: USMCA matters!Industry Total ($) China (%) Canada (%) Mexico (%) EU (%)

TOTAL 59,870,398,343

Transportation equipment 29,166,614,764 5.9 52.5 16.0 7.6

Chemicals 4,931,046,846 8.7 16.8 19.0 25.6

Machinery 4,867,193,313 6.3 26.6 36.4 15.7

Computer and electronic 3,300,542,901 7.4 19.1 30.4 13.4

Electrical equipment 2,770,293,745 5.7 23.3 43.1 11.1

Fabricated metals 2,680,555,726 6.4 23.9 36.7 10.4

Primary metals 2,569,171,206 2.8 40.9 14.1 9.7

19Source: Trade Stats Express

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Exposure on the agricultural side

Illinois Indiana Michigan Ohio Wisconsin

Soy bean farms 34,686 21,841 12,039 24,586 17,106

Soy bean sales $5,006,587 $2,956,767 $1,092,453 $2,703,658 $879,153

Agricultural products to China $1,448,762 $26,813 $190 $615,073 $21,698

Other animal products to Canada $1,406 $7,860 $9,030 $33,379 $73,606

Food manufacturing to Canada $1,270,290 $341,269 $418,464 $688,268 $998,595

20Source: U.S. Census of Agriculture

Dollars in ‘000s

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REGIONAL CONDITIONS: THE RIGHT PLACE

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The Grand Rapids-Wyoming Metropolitan Statistical Area

• Barry County• Kent County• Montcalm County• Ottawa County

22

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The current unemployment rate is 2.7%, with 16,160 persons looking for work

0

2

4

6

8

10

12

14

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Perc

ent o

f Lab

or F

orce

Unemployment Rate for Grand Rapids MSA (seasonally adjusted)

Source: Bureau of Labor Statistics Local Area Unemployment Statistics 23

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The national unemployment rate was 3.5% in August 2018. The unemployment rate for the region was 2.6%. These rates are not seasonally adjusted.

24Source: Bureau of Labor Statistics, Local Area Unemployment Statistics

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The national labor force participation rate was 62.9% in August 2018. The labor force participation rate for the region was 68.5%. These numbers are not seasonally adjusted.

25Source: Bureau of Labor Statistics, Local Area Unemployment Statistics and Census Population Estimates

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The national S&P CoreLogic Case-Shiller index change year/year for September 2018 was 5.1%

26

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Grand Rapids leads the state and nation in recovery

85

90

95

100

105

110

115

120

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Inde

x (2

007

= 10

0)

Nonfarm Employment Index (2008 = 100)

Grand Rapids MSA Michigan United States

Source: Bureau of Labor Statistics Current Employment Statistics and Upjohn Institute 27

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Grand Rapids has recovered, although the state and nation haven’t

60

70

80

90

100

110

120

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Inde

x (2

007

= 10

0)

Manufacturing Employment Index (2008 = 100)



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Grand Rapids exceeds both the state and nation

85

90

95

100

105

110

115

120

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Inde

x (2

007

= 10

0)

Private Service-Providing Employment Index (2008 = 100)



W.E.


PMI remains well above 50

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Inde

x

Purchasing Managers Index

12-Month Moving Average

Source: National Association of Purchasing Management 30

W.E.


MADA and Furniture Index remain strong

80859095100105110115120125130

30

35

40

45

50

55

60

65

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Furn

iture

Em

p. In

dex

(201

1 =

100)

MAD

A In

dex

Furniture Index and Employment

MADA Index Employment Index

Source: Michael A. Dunlap and Associates and Bureau of Labor Statistics 31

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• 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 areas: Economically comparable and/or aspirational

32

Metropolitan Statistical Areas:

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The Grand Rapids MSA posted the lowest unemployment rate of the group

4.63.9

3.83.73.73.7

3.53.4

3.33.7

3.2

0 1 1 2 2 3 3 4 4 5 5

Rochester, NYLouisville, KYPortland, OR

Tulsa, OKCharlotte, NC

Birmingham, ALDallas, TX

Knoxville, TNGreenville, SC

Comparison averageGrand Rapids

Percent of Labor Force

Average Unemployment Rate, Jan-Oct 2018

Source: Bureau of Labor Statistics Local Area Unemployment Statistics 33

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Despite a tight labor market, employment growth was strong

0.60.7

1.11.4

1.82.2

2.62.7

3.11.8

2.2

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Knoxville, TNLouisville, KY

Rochester, NYBirmingham, AL

Greenville, SCPortland, OR

Tulsa, OKCharlotte, NC

Dallas, TXComparison average

Grand Rapids

Employment Percent Change

Total Employment Change Jan-Oct 2017 to Jan-Oct 2018

34Source: Bureau of Labor Statistics Current Employment Statistics

W.E.


Services grew faster than the average of the comparison group

-0.20.9

1.11.3

1.81.9

2.13.0

3.11.6

1.9

-0.5 0 0.5 1 1.5 2 2.5 3 3.5

Knoxville, TN

Louisville, KY

Portland, OR

Tulsa, OK

Charlotte, NC

Grand Rapids


Services Employment Change Jan-Oct 2017 to Jan-Oct 2018

Source: Bureau of Labor Statistics Current Employment Statistics 35

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Manufacturing employment change was below the comparison group average

-0.9-0.3

0.81.6

2.73.5

3.74.7

4.82.3

1.9

-2 -1 0 1 2 3 4 5 6

Louisville, KY

Greenville, SC

Dallas, TX

Portland, OR

Tulsa, OK

Grand Rapids


Manufacturing Employment Change Jan-Oct 2017 to Jan-Oct 2018

36Source: Bureau of Labor Statistics Current Employment Statistics

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Our indicator for entrepreneurship shows the area slightly below average for the comparison group

23.324.224.424.7

28.829.0

30.330.3

35.027.8

25.2

0 5 10 15 20 25 30 35 40

Dallas, TXRochester, NY

Louisville, KYCharlotte, NC

Birmingham, ALPortland, ORKnoxville, TN

Tulsa, OKGreenville, SC

Comparison averageGrand Rapids

Percent of Industry

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

Source: U.S. Census American Community Survey 37

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The area ranks among the most educated for early prime-aged within the comparison group

26.532.232.732.9

35.835.936.4

40.943.4

35.241.3

0 5 10 15 20 25 30 35 40 45 50

Tulsa, OK

Greenville, SC

Birmingham, AL

Rochester, NY

Portland, OR

Grand Rapids

Percent of Age Group

Bachelor's Degree or Higher, Age 25-34

Source: U.S. Census American Community Survey 38

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Housing prices are rising at the rate of most of the group

100

150

200

250

300

350

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 Agency 39

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THE NEXT RECESSION: WHAT WE ARE WATCHING AND FACTORS AFFECTING THE FORECAST

40

W.E.


The next recession and what we’re watching: Our thoughts and concerns• The effect of the announced tariffs

41

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The next recession and what we’re watching: Our thoughts and concerns• The role of trade agreements

– Blocks– Bilateral

42

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The next recession and what we’re watching: Our thoughts and concerns

• Expect interest rates to rise

43

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The next recession and what we’re watching: Our thoughts and concerns• Tight labor markets (U-3 and LFPR)

44

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45

• “Elections have consequences”

W.E.


The next recession and what we’re watching: Our thoughts and concerns• The movement from industry 2.0, to 3.0, and to 4.0

46

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• The rising deficit

47

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HOW DID WE DO LAST YEAR?

48

W.E.


Review of last year’s forecast

2.2

2.9

1.8

2.6

0.70.5

0.7

1.5

0

1

1

2

2

3

3

4

Total Goods producing Service providing Government

Perc

ent c

hang

e in

em

ploy

men

t

Annual Percent Change in Employment

Current estimate Forecasted

49Source: Bureau of Labor Statistics Current Employment Statistics &

Upjohn Institute

W.E.


Review of last year’s forecast

3.2

3.9

3.1

1.8

3.0

1.2

0112233445

Total Goods producing Service providing

Perc

ent c

hang

e in

GRP

Annual Percent Change in GRP

Current estimate Forecasted

50Source: Upjohn Institute

W.E.


IS THE THIRD TIME THE CHARM? OUR LOOK AT 2019: THE THIRD TIME’S THE CHARM?

51

W.E.


Grand Rapids MSA 2018–2019 forecast

2.2

2.9

1.8

2.6

1.20.7

1.30.9

0.20.0

0.30.0

01122334455


Perc

ent C

hang

e in

Em

ploy

men

t


2018 2019 2020


Upjohn Institute

W.E.


National, state, and Grand Rapids MSA 2019 forecast

1.0

0.4

1.3

0.80.81.0

0.8

0.5

1.6

0.00.20.40.60.81.01.21.41.61.82.0


Perc

ent C

hang

e in

Em

ploy

men

t


Grand Rapids Michigan United States


Upjohn Institute

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Grand Rapids MSA 2018–2019 forecast

3.2

3.9

3.1

1.4

2.8 2.8 3.0

2.02.2 2.4 2.3

1.1

-1

0

1

2

3

4

5


Perc

ent C

hang

e in

GRP

Annual Percent Change in GRP

2018 2019 2020

54Source: Upjohn Institute

W.E.


Questions?

• Jim Robey, PhD– [email protected]– 269-385-0450

• Contributors– Randy Eberts, President– Brian Pittelko, Senior Regional Analyst– Marie Holler, Mapping and Data Visualization Specialist– Claudette Robey, Regional Economics and Workforce Development

Specialist

55

mailto:[email protected]

Economic Conditions in 2018: A Look at the Nation, the ... · W.E. UPJOHN INSTITUTE FOR EMPLOYMENT RESEARCH Economic Conditions in 2018: A Look at the Nation, the State, and the Grand

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