Download 2006-2007 Economic Outlook for the Grand Rapids Area

Battle Creek MSA 2006 and
2007 Economic Forecast
January 13, 2006
W.E. Upjohn Institute
George A. Erickcek & Brad R. Watts
A special thanks to




Battle Creek Community Foundation
Battle Creek Unlimited
Consumers Energy
SEMCO Energy
Outline
 Strong economic outlook but with growing
uncertainty.
 The impact of productivity gains on
employment.
 The state’s economy is still struggling.
 Local numbers: Still sluggish except for
manufacturing.
 Forecast – But how did you do last year?
 The challenge facing Calhoun County
Gross Domestic Product
The expansion is three years old and is still going strong in
terms of output.
Seasonally Adjusted Annual Rate
8.0
Productivity and normal employment
growth will allow a 3.3% increase in GDP
with inflation.
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
2001
Source: BEA.
2002
2003
2004
2005
There is clearly a turnaround in national employment
growth; however…
800
Thousands of jobs
600
400
200
0
-200
-400
-600
-800
-1,000
2001
2002
2003
2004
2005
National employment increased by 108,000 in December, slightly below
expectations.
Source: BLS.
…manufacturing employment conditions are
much softer.
100
50
Thousands of jobs
0
-50
-100
-150
-200
-250
-300
-350
-400
-450
2001
Source: BLS.
2002
2003
2004
2005
Productivity gains and globalization have taken their
toll on the ability of manufacturers to create jobs.
In December: Manufacturers employed 14.3 million.
20,000
Thousands of jobs
19,000
18,000
17,000
16,000
15,000
14,000
13,000
50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 '01 '04 '07
Source: BLS.
130
20,000
120
18,000
110
16,000
100
14,000
90
12,000
80
10,000
70
60
8,000
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Year
Federal Reserve Board Production Index (Manufacturing)
U.S. Manufacturing Employment
U.S. Mfg Employment (000)
Production Index 2002=100
Production Index and U.S. Manufacturing
Employment – Manufacturing is doing great!
Jobs, what new jobs?
 DaimlerChrysler AG’s Chrysler Group
announced that it plans to increase its annual
production capacity by 43 percent without any
new plants or new workers.
 As reported in Business Review West Michigan,
the last time the Herman Miller was at its
current quarterly sales volume, it had 3,000
more employees on the payroll.
The Changing Manufacturing Environment
 Outstanding productivity gains have limited
employment growth in manufacturing.
 Michigan is losing its dominance as the production
center for the auto industry. The Big Three’s share of
the North American market has dropped to 57 percent.
 The world’s high-growth regions are outside the U.S.
Often it makes more sense to produce the goods where
they are sold.
 Clearly, other nations can assemble goods more
cheaply. In China, the cost of factory labor is $1.00/hr.
including benefits. (Note: that hourly wage buys nearly
$3.50 worth of goods and services in China.)
Forecasters agree that the national
economy is likely to continue growing,
though the pace may slow.
Philadelphia Fed
GDP Forecast
U of M RSQE
GDP Forecast
5.0
3.7
3.4
3.0
2.0
4.0
% GDP Growth
% GDP Growth
4.0
5.0
2.8
2.0
1.0
0.0
0.0
2006
3.4
3.0
1.0
2005
3.7
2005
2006
Source: Philadelphia Fed Q3 2005 Forecast; U of M RSQE, U.S. Economic Outlook
2007
What I worry about:
 You and
 what a trusted friend is saying.
We are not saving very much, which is fine
if nothing bad happens.
Personal savings as a percentage of disposable personal income
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
2002
Source: BEA
2003
2004
2005
Consumer debt as a percent of income is
slowly rising.
19
18
17
16
15
Credit cards & mortgage payments
14
13
12
11
10
95
q2
95
q4
96
q2
96
q4
97
q2
97
q4
98
q2
98
q4
99
q2
99
q4
00
q2
00
q4
01
q2
01
q4
02
q2
02
q4
03
q2
03
q4
04
q2
04
q4
05
q2
% of Personal Income
20
Total debt including rent, auto leases,
property taxes, and house insurance.
Consumers keep hanging on, but their
confidence is flat.
Index 100 = 1985
U.S. Consumer Confidence
160
140
120
100
80
60
40
20
0
2000
2001
2002
Source: The Conference Board, Business Cycle Indicators.
2003
2004
2005
Interest rate spread - This indicator has not
given a false positive in more than 50 years. But
there is always the first time.
Percent difference between 10-year T-bonds and 90-day T-notes.
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Federal Reserve Board.
What’s going on?
 Could be the result of an increasing global
glut of dollars due to our ongoing trade
deficit – Our payments for goods have to
be going somewhere.
 It is a worldwide event.
 Inflation expectations are surprisingly flat
due to the Fed’s money tightening policies
—despite energy prices.
 OR… we are in trouble.
Auto Sector
Let’s look at the highly cyclical auto industry.
Sales of Cars and Light Trucks
U of M forecasts sales of cars and light trucks to reach
17.0 million units in 2006 and 17.1 million in 2007
SAAR
25
Millions of Units
20
15
10
5
0
'98 Jan
Source: BEA
'99 Jan
'00 Jan
'01 Jan
'02 Jan
'03 Jan
'04 Jan
'05 Jan
Concerns about the Auto Sector
 Delphi – a tip of an iceberg? Legacy costs will not go
away. GM & UAW reaching a tentative agreement on
health care costs is a major breakthrough.
 The Big Three still lag in productivity.
 According to industry analysts, the increase in gas
prices will not impact car sales nor the type of cars
being sold.
 Major concerns:
 The industry continues to move south.
 Suppliers continue to be squeezed.
 Ford and GM continue to lose market share.
Auto employment declines reflect a loss of
production and not an improvement in
productivity.
Michigan Motor Vehicle Production
200
Vehicles (1000)
180
100
160
140
80
120
100
60
80
40
60
40
20
20
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Vehicles
Employment
0
Production workers (000)
120
Michigan
Economic Conditions and Outlook
From 2000 to 2005, Michigan lost over
300,000 jobs.
Total Michigan Employment
Thousands of jobs
4,800
4,700
4,600
4,500
4,400
4,300
4,200
4,100
2000
Source: BLS
2001
2002
2003
2004
2005
Unemployment has declined in 2005 but
is still relatively high.
Unemployment Rate Trends
8.0
6.0
4.0
2.0
0.0
2000
2001
2002
Michigan
Source: BLS.
2003
U.S.
2004
2005 11month Avg.
Michigan has suffered greater employment
losses than any other Great Lakes state.
2000 to 2004 Employment Losses
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
Illinois
Source: BLS.
Indiana
Michigan
Ohio
Wisconsin
Michigan’s employment environment is
weaker than other parts of the U.S.
Index of Total Employment
(100 = 2000 average)
110
105
100
95
90
2000
2001
2002
2003
Michigan
Source: W.E. Upjohn Institute.
2004
U.S.
2005
Michigan manufacturing employment has
underperformed a very weak sector.
Index of Manufacturing Employment
(100 = 2000 average)
105
100
95
90
85
80
75
70
2000
2001
2002
2003
Michigan
Source: W.E. Upjohn Institute.
U.S.
2004
2005
The private service-providing sector has
maintained flat employment in Michigan
over the last few years.
Index of Private Service Employment
(100 = 2000 average)
110
105
100
95
90
2000
2001
2002
2003
Michigan
Source: W.E. Upjohn Institute.
2004
U.S.
2005
Any way you look at it, Michigan incomes
have declined since 2000.
Michigan Income Trends
(Real 2004 $)
$60,000
$50,000
$40,000
$30,000
$20,000
2000
2001
2002
Median household income
Source: U.S. Census Bureau, ACS estimates.
2003
2004
Median family income
Michigan’s population is growing slowly—
about 0.4% annually.
Michigan Population Trends
10,000,000
9,800,000
9,600,000
9,400,000
9,200,000
9,000,000
2000
Source: U.S. Census Bureau, ACS estimates.
2001
2002
2003
2004
Unfortunately, no quick turnaround to
growth is expected for Michigan.
U of M's RSQE Forecast for Michigan
3.0%
2.0%
1.0%
0.0%
-1.0%
Real disposable income
2005
Employment
2006
2007
Source: University of Michigan, RSQE, Michigan Forecast Highlights, 11/18/05.
Battle Creek MSA (Calhoun County)
Only the manufacturing and leisure sectors
gained employment during the past year.
Employment Change Calhoun County
Jan-Nov 2004 to Jan-Nov 2005
Total Nonfarm
Manufacturing
Wholesale
Retail
Transport & Warehouse
Financial Activities
Professional & Business
Private Education & Health
Leisure & Hospitality
Other
Government
-600
Source: MDLEG
-400
-200
0
200
400
A surprising group of manufacturers may
be driving the sector’s growth.
Detailed Sector Employment Change
Calhoun County, Q1 2004 to Q1 2005
Total Manufacturing
Food
Paper
Printing
Primary Metals
Fabricated Metals
Machinery
Automotive
Other
-400
Source: MDLEG, ES-202 series.
-300
-200
-100
0
100
200
300
400
Local unemployment rate has declined, but
remains higher than the nation’s.
Percent Unemployment Rate
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2000
2001
2002
2003
Calhoun County
Source: BLS
2004
U.S.
2005 Q3
Calhoun County was outperforming the
U.S., but slipped in 2005.
Index of Total Employment
(100=2000 average)
106
104
102
100
98
96
94
2000
2001
2002
2003
Calhoun County
2004
2005
U.S.
A welcomed difference from the state’s trend, however.
Source: W.E. Upjohn Institute.
Local manufacturing has remained relatively
stable despite a downward trend nationally.
Manufacturing Employment Index
(100=2000 average)
120
This is downright impressive.
110
100
90
80
2000
2001
2002
2003
Calhoun County
Source: W.E. Upjohn Institute.
2004
U.S.
2005
Calhoun County’s private service-providing
sector employment did better than
expected over most of the past five years.
Index of Private Service-Providing
Employment (100=2000 average)
110
105
100
95
90
2000
2001
2002
2003
Calhoun County
Source: W.E. Upjohn Institute.
2004
U.S.
2005
How can the Battle Creek MSA’s unemployment rate be slipping
below the nation’s when its goods-producing sector is
outperforming the nation’s and its private service-providing
sector is doing as well as the nation’s.
25%
20%
Battle Creek MSA
15%
10%
U.S.
5%
0%
2001
2002
2003
2004
2005
Source: W.E. Upjohn Institute, seasonally adjusted data based on BLS employment.
Calhoun County is growing very slowly—on
average, by less than 250 residents per
year, or about 0.2%.
Calhoun County Population Trends
139,500
139,000
138,500
138,000
137,500
137,000
136,500
136,000
135,500
135,000
2000
2001
2002
Source: U.S. Census Bureau, July population estimates.
2003
2004
Forecast
Last year, we came pretty close with our
2005 forecast for the Kalamazoo–Battle
Creek area!
Old 2005 Forecast Comparison
1.5%
1.0%
0.5%
0.8%
0.4%
0.1%
0.0%
0.0%0.0%
0.2%
-0.3%-0.3%
-0.5%
Total
Goodsproducing
Last Year's KZ-BC Forecast
Private serviceproviding
Government
KZ-BC MSA 2005 Est.
Source: W.E. Upjohn Institute. Year-to-date 2005 estimate based on Jan-Nov period BLS data.
However, Calhoun County employment
growth did not meet expectations.
Old 2005 Forecast Comparison
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
1.2%
0.3%
0.6%
0.0%
-0.3%
-0.6%
-1.4%
Total
Goods-producing
Private serviceproviding
Last Year's 2005 Calhoun Co. Forecast
-1.9%
Government
Calhoun Co. 2005 Est.
Source: W.E. Upjohn Institute. Year-to-date 2005 estimate based on Jan-Nov period BLS data.
Looking Ahead: The factors behind
the forecast.
 Local manufacturers are optimistic.
Hopefully a strong auto sector will balance
out bad news from Eaton, Lotte USA.
 Private services turned down in 2005 and
have not developed a “life of their own” in
Battle Creek.
 A small state budget surplus probably won’t
do much to stop the bleeding in local
government employment, though we
expect the Federal Center to be stable.
Combined Area Kalamazoo MSA
and Battle Creek MSA Forecast
2.0%
1.5%1.5%
1.5%
1.0%
1.0%
0.9%
0.5%
0.1%
0.0%
-0.1%
-0.2%
-0.5%
-0.1%
-1.0%
Total
Goodsproducing
2006
Private serviceproviding
2007
Government
Calhoun County Employment Forecast
2006–2007
2.0%
1.5%
1.0%
0.8%
0.7%
0.5%
1.2%
1.0%
1.0%
0.3%
0.0%
-0.1%
-0.5%
-0.7%
-1.0%
Total
Goodsproducing
2006
Private serviceproviding
2007
Government
Now, what am I worried about?
 Diversifying the county’s economic
base.
 Attractiveness
 Stickiness
The economic impact of manufacturing
activity on the county cannot be overly
emphasized
Employment Impact of 100 new Base Jobs on Calhoun
County
Direct Employment
Indirect Employment
Goods-producing
Construction
Manufacturing
Services
Wholesale Trade
Retail Trade
Finance, Insurance
Profess, Tech Services
Admin, Waste Services
Health Care, Social Asst
Accom, Food Services
Government
Total Impact
Employment multiplier
Automotive
Manufacturing
100
Professional
Hospitals
& Technical
100
100
122
39
57
7
11
3
1
3
1
5
32
4
9
8
6
12
2
222
2.2
0
8
1
2
9
2
5
1
139
1.4
0
12
1
4
11
4
8
2
157
1.6
However, not all jobs bring in new dollars.
Employment Impact of 100 new "jobs" in Calhoun County
Direct Employment
Indirect Employment
Goods Producing
Construction
Manufacturing
Services
Wholesale Trade
Retail Trade
Finance, Insurance
Profess, Tech Services
Admin, Waste Services
Health Care, Social Asst
Accom, Food Services
Government
Total Impact
Employment multiplier
Automotive
Manufacturing
100
Professional
Hospitals
& Technical
100
100
120
-47
10
7
10
1
0
2
1
5
32
4
9
8
6
12
2
220
2.2
0
3
0
1
3
-61
2
0
53
0.5
0
9
1
-27
8
3
6
1
110
1.1
Challenges Facing Battle Creek
The very essence of long-run growth is, in
fact, the transition …from one export base to
another as the area matures in what it can
do, and as rising per capita income and
technological progress change what the
world economy wants done.
W.R.Thompson (1965)
Globalization and Neighborhoods
 Obtaining stickiness in a slippery world.
 Knowledge-based workers can pick their
locations. Key factors:
Thick labor markets:
 Opportunities for two-career households
 Opportunities for advancement
 Large metro areas have a major advantage.

 Neighborhoods, downtowns, schools and a
sense of place will matter more and more.
Movers are younger than stayers.
Age Profile of Southwest Michigan Residents by
Migration Status
Age Category
Nonmovers and Migrants from
In-state Movers other U.S. States
5 to 18
21.8%
23.1%
18 to 24
10.1%
14.6%
25 to 34
13.3%
23.6%
35 to 44
17.2%
18.5%
45 to 54
14.8%
10.4%
55 to 64
9.3%
4.1%
65 and older
13.5%
5.7%
Source: 2000 PUMS
Allegan, Barry, Berrien, Calhoun, Kalamazoo, Kent, Muskegon, Ottawa, Van Buren
Movers are better educated than
stayers.
Educational Attainment of Southwest Michigan Adults
Age 25 to 34
Nonmovers and Migrants from
In-state Movers other U.S. States
Dropouts
11.7%
11.5%
H.S. Graduates
30.0%
19.8%
Some College, No Degree
26.3%
26.9%
Associate Degree
9.5%
7.0%
Bachelor's Degree
18.6%
26.0%
Graduate Degree
4.0%
8.8%
Source: 2000 PUMS
Allegan, Barry, Berrien, Calhoun, Kalamazoo, Kent, Muskegon, Ottawa, Van Buren
Conclusions
 Do everything you can to keep your
manufacturing base. Toyota would
make a nice addition.
But then
 Think about how your area can
attract and keep the best and
brightest.
Battle Creek MSA 2006 and
2007 Economic Forecast
January 13, 2006
W.E. Upjohn Institute
George A. Erickcek & Brad R. Watts