Michigan’s contribution to the Midwest economy remains positive

By Paul Traub

According to the September Midwest Economy Index (MEI), the pace of economic growth in the five Seventh District states (Illinois, Indiana, Iowa, Michigan, and Wisconsin) as a whole remained below its long-run average. The MEI remained unchanged in September at -0.15, after declining the previous eight months. In addition, at +0.04, Michigan’s contribution to the MEI in September fell to its lowest level since October 2014. According to the index, the strongest contributor to the MEI from Michigan in September was its manufacturing sector followed by its service sector (0.01) and consumer sector (0.01). The contribution its construction sector was slightly negative (-0.03).

The Midwest economy was growing more slowly relative to the national economy in September. The relative Midwest Economy Index fell to –0.29 in September, which was its lowest level since June 2010. (A zero value for the relative MEI indicates that the Midwest economy is growing at a rate consistent with the growth rate of the national economy; positive values indicate above-average relative growth; and negative values indicate below-average relative growth.) Only the consumer sector managed to make a positive contribution to the relative MEI in September. The largest negative swing was in the contribution from the manufacturing sector—which went from a positive at 0.04 in August to –0.05 in September. At +0.02, Michigan’s contribution to the relative MEI remained positive in September almost entirely because of its contribution from manufacturing. Even after falling for three consecutive months, Michigan’s year-to-date average monthly contribution to the relative MEI (of +0.19) remained well above that for 2014. Michigan is the only state in the Seventh District that has positively contributed to the relative index throughout 2015.

Income in Michigan still significantly lags the national average, but is slowly catching up. Real per capita income in Michigan continued to improve—to $38,454 in 2015:Q2, up 3.4% on a year-over-year basis. The nation’s real per capita income was $43,303 in 2015:Q2, up 3.1% on a year-over-year basis. Michigan has seen its real per capita income growth exceed that of the nation for the past six consecutive quarters. Since 2010:Q1, real per capita income growth averaged about 2.0% for Michigan, compared with 1.6% for the nation.

U.S. light vehicle (car and light truck) sales remain a bright spot for Michigan manufacturing. Light vehicle sales for September 2015 were reported to be 18.1 million units at a seasonally adjusted annual rate (SAAR). This was the best month for light vehicle sales since July 2005, when the U.S. light vehicle sales at a SAAR reached 20.6 million units. Year-to-date sales have averaged 17.2 million units on a SAAR basis. According to the forecast from the October 2015 Blue Chip Economic Indicators, light vehicle sales for the United States are expected to reach 17.2 million in 2015, with an additional increase in 2016 to 17.3 million units. According to data from Ward’s Automotive, Michigan’s light vehicle production for 2015 is expected to reach slightly over 2.4 million units. This would be an increase of 8.5% from 2014.

Michigan’s housing market has recently experienced some modest improvement. Although construction of privately owned homes in Michigan was negatively affected by the past two winters, housing permits and starts have continued to modestly improve since bottoming out in 2009. Housing starts in the state through August averaged 1,454 per month in 2015—a 16.5% improvement compared to the same period last year. However, even with that improvement, privately owned housing starts are still only about 40.0% of what they were at their peak in 2005. Home prices in Michigan were reported to be up 3.4% on a year-over-year basis in 2015:Q2. While home prices for the state are above their 2000 level, they are still well below their 2005 peak. In addition, home prices for the Detroit metropolitan area, which was harder hit than the state as a whole, were up 3.9% in 2015:Q2 compared with a year ago. While some areas within the Detroit metro region have seen significant improvements in home prices, prices for residential real estate in the region remain 22.1% below their 2006:Q1 peak.

Michigan’s unemployment rate is now lower than the nation’s: Michigan’s unemployment rate of 5.0% in September compares somewhat favorably to the national unemployment rate of 5.1%. Michigan’s unemployment rate declined from 5.1% in August, while the labor force participation rate of 60.0% was unchanged for the third consecutive month. While September’s unemployment rate reflects an increase in civilian employment of 54,583 for January through September of this year, it was also aided by a declining labor force (down by 16,172 participants) over the same period.

Payroll employment growth for Michigan has slowed in recent months. Nonfarm payroll employment, which is based on a survey of businesses, fell by 9,800 jobs in September following an increase of 3,700 in August. So far in 2015 (through September), nonfarm employment has increased by 53,900, which is equal to an average monthly job growth of about 6,000 per month. Michigan has added 443,000 jobs since its recessionary trough in March 2010, but total nonfarm employment is still about 400,000 jobs below its peak, which was reached in 2000. Michigan’s dependence on manufacturing remains strong, as approximately 21.2% of the Michigan’s gross state product and 14.1% of its payroll jobs are directly associated with the manufacturing sector. Sectors that experienced losses in jobs this year include information, mining and logging, and government. The government subsector that experienced the biggest decline in employment was local government: 4,200 local government jobs were lost in Michigan this year. However, these losses were offset by gains of 200 federal and 3,100 state government jobs.

Michigan GSP

Based on the first nine months of available data, Michigan’s economy is estimated to be growing at 2.2% on an annualized basis. This estimate is down slightly from the Q2 forecast mostly because of slower employment growth in recent months. However, total nonfarm employment is still on a path to grow by 2.0% in 2015 if the current monthly average pace of employment growth continues. Because Michigan’s economy remains highly dependent on the manufacturing sector and because almost half of Michigan’s manufacturing output is related to the auto industry, the projected (continued) growth in Michigan’s auto production for 2015 should help the economy sustain its positive momentum through the rest of this year and into 2016.

For a detailed copy of the report, please click Michigan Economic Update – 2015 Q3.

The D.A.B.E. Hears from Macroeconomic Advisors

By: Paul Traub
On Thursday, October 15, 2015, the Detroit Association of Business Economists met at the Detroit Branch of the Federal Reserve Bank of Chicago and heard an in-depth presentation on the U.S. economy from Chris Varvares, Senior Managing Director and Co-Founder of Macroeconomic Advisors (MA). Varvares is an accomplished macroeconomic forecaster with over 30 years of experience and service as an economist.

According to Macroeconomic Advisors, the U.S. economy will continue to grow at or near its potential through 2018. MA’s estimate for growth in 2015 is 2.2% on a year-over-basis, with growth of 2.5%, 2.5%, and 2.1%, respectively, in the following three years. Varvares pointed to the following assumptions that help form MA’s view:

• China’s devaluation and global financial market turmoil raises new downside risks but does little to change the forecast
o Growth effects of higher dollar and lower equities about offset lower oil prices
o The dollar and oil reinforce a forecast of continued low inflation
o Uncertainty regarding global growth and risky asset prices create added downside risk
• Domestic final demand growth is solid and even better than originally reported
o Past fiscal headwinds could turn into a slight tail breeze as state and local government revenues increase
o Growth of private domestic sales should remain above 3.0% through 2016
o Declining net exports and inventory building are drags to growth, especially in 2015
• Unemployment rate undershoots MA’s “full employment” estimates
o MA estimates the current non-accelerating inflation rate of unemployment (NAIRU) to be 5.0%
o The unemployment rate should reach 5.0% soon and continue to fall to 4.7% by the end of 2016
• PCE inflation will move slowly to 2.0% by the end of 2018
o Core PCE 4Q/4Q should be 1.4% in 2015, increasing to 1.7% in 2016, 1.9% in 2017, and 2.0% in 2018
• Improving labor markets and continued low inflation pose new risks key to the Fed
o MA expects the first federal funds rate hike to come in December 2015 but it’s a close call
o Long rates will rise on expected policy rate increases and rising term premiums
• Equity markets will continued to be challenged by global market turmoil and rising rates

For a look at Varvares entire presentation please click here.

Michigan’s Economy is the Fastest Growing in the Midwest

Written by Paul Traub

According to the latest estimates from the U.S. Bureau of Economic Analysis, the Michigan economy grew by 1.9% in 2014 when compared with 2013 to an inflation-adjusted level of $417.3 billion. The sectors that realized the biggest gains on a percentage basis were private-service-related industries, including professional and business services, which saw the biggest real dollar increase of $2.3 billion, or 4.3%. However, manufacturing saw the second largest gain in real dollar value, increasing by $2.0 billion in 2014 from 2013. Other industry sectors that realized significant gains were information (3.6%), trade, transportation, and utilities (2.4%), and education and health services (2.0%).

It also looks as if Michigan’s economic expansion is poised to continue through 2015. Based on the most recent release of the Federal Reserve Bank of Chicago’s Midwest Economy Index (MEI), Michigan’s contribution to the economic growth of the Seventh Federal Reserve District decreased only slightly in June to 0.19; moreover, the June 2015 annual year-to-date average of 0.18 exceeds every annual average dating back to 1994. The MEI is a weighted average of 129 state and regional indicators for the five states of the Seventh District (Illinois, Indiana, Iowa, Michigan and Wisconsin). The index is designed to measure nonfarm business activity by tracking four broad sectors of economic activity: manufacturing, construction and mining, services, and consumer spending. A value of zero for the MEI indicates the Midwest economy is growing at its long-term trend rate of growth, while a positive number indicates above-average expansion and a negative number suggests below-average growth. Michigan’s contribution to the MEI of 0.19 for June would suggest that Michigan’s economy is performing better than its long-run average.

Chart 1

A quick look at the four components for the MEI show Michigan’s strong contribution for June was driven mostly by strength in manufacturing and positive contributions from the service sector and consumer spending. Although construction did not add to Michigan’s contribution, a value of zero still implies long-run average growth in the sector. Another indication of strength in manufacturing is the Institute for Supply Management (ISM)–Southeast Michigan Purchasing Managers Index, which was reported to be 66.1 for June (helping to keep the 12-month moving average above 50 for the 64th consecutive month). For this index, a value above 50 indicates that those surveyed are anticipating continued growth in manufacturing activity in the coming months. On the residential investment front, although the 12-month moving averages for housing starts and permits for Michigan remain well below their peak levels that were reached in 2005, both of them continued their slow upward trend in June, rising to 1,439 and 1,343, respectively. Strength in the service sector was supported by continued growth is service-related jobs, which have averaged annual growth of over 1.4% for the past five years. And finally, personal consumption is being supported by recent improvements in real per capita income, which was reported to be up 3.7% in 2015:Q1 on a year-over-year basis.

Chart 2

Based on the first six months of 2015 data used to generate the MEI, Michigan’s economy looks to be currently growing by an estimated 2.3% rate on an annualized basis. This estimate is supported by the fact that total nonfarm employment is up 1.9% year to date in 2015 compared with 2014; and as chart 2 indicates, there is a strong relationship between economic activity and changes in employment. The relationship between employment and economic activity can be explained in this manner. A firm can increase output in one of two ways. One way is to increase labor input—either by having its existing staff work more hours or by adding more employees. A second method would be to seek improvements in productivity—through investment in either physical or human capital. In essence, output growth or decline is a function of changes in labor inputs and productivity. More labor or higher productivity will result in increased output. The overall economy works in a similar manner, though tracking economic output is somewhat more complicated than this simple analysis for a firm would imply. This is because the outputs of different sectors of the economy provide different contributions. Nevertheless, the basic premise is the same for an individual firm and the economy as a whole.

The data also suggest that Michigan’s economy still remains highly dependent on the manufacturing sector, which accounted for 21.2% of Michigan’s gross state product (GSP) in 2014. Because almost half of Michigan’s manufacturing output is related to the auto industry, the projected (continued) growth in light vehicles sales and production for the foreseeable future suggests that Michigan’s economy should sustain its positive momentum, at least through the rest of this year.
While Michigan never relied solely on the auto industry for employment and economic growth, this industry’s importance to the state should not be overlooked. While Michigan has seen a significant shift away from its reliance on manufacturing jobs to more service-related employment, the auto industry’s contribution to the state’s economy remains significant. As chart 3 shows, in 2000, manufacturing accounted for 19.2% of all nonfarm employment in Michigan, or the equivalent of 896,900 jobs. Since 2000, manufacturing’s share of total nonfarm employment has shrunk: Today it stands at 13.8%, or 575,700 jobs. Granted, while manufacturing’s contribution to Michigan’s GSP has fallen somewhat over the past decade and a half (decreasing from 24.5% in 2000 to 20.1% in 2014), it is still a large part of the overall Michigan economy.

It is also important to note that within Michigan the employment share of the private service sector has gone up from 61.5% in 2000 to 68.4% in 2015. However, during the past 15 years, private service sector employment in Michigan has remained relatively flat, moving up somewhat from 2,879,400 in 2000 to 2,902,850 jobs today. The increase in service sector employment share without a significant addition to payroll employment can be explained by the fact that total nonfarm employment in Michigan is down over 400,000 jobs from its peak in April 2000. Despite the modest gains in payroll employment, the private service sector’s contribution to Michigan’s GSP increased from 59.6% in 2000 to 64.5% in 2014.

Chart 3

While some of the overall service sector growth has been in more high-skilled, high-paying industries, such as professional and business services, there has also been significant growth in low-skilled, low-paying industries, such as education and health services and leisure and hospitality. It could be argued that the increase in the share of low-paying service-related jobs in Michigan has had a slightly negative impact on average annual wage growth in the state. A sector-weighted calculation of annual average nonfarm payroll using wages by sector for 2013 would suggest that if the state still had the same employment by industry distribution today as it did in 2000 the all-sector annual average wage would be approximately $51,100 today versus $50,100 in 2000, or roughly 2% higher.

For a more detailed look into the numbers behind Michigan’s economic performance, follow this link to the Michigan Blog’s Michigan Economic Update – 2015:Q2.

Preview of the upcoming Summit on Inner City Economic Development in Detroit

By Martin Lavelle

In a recent blog, I shared my observations about Pittsburgh’s efforts to revitalize its urban core. Then, I analyzed the extent to which Pittsburgh’s turnaround can serve as a model for Detroit as its city leaders and stakeholders look to revitalize the city’s urban core. While Detroit has begun to replicate the efforts of other cities, such as showcasing the city’s riverfront with the Detroit RiverWalk and collaborating with regional leaders and stakeholders, overall its efforts lag those of other Rust Belt cities. The relatively sluggish pace of Detroit’s efforts to revitalize its urban core are also reflected in the slow development of the city’s business clusters, including new business formation. Meanwhile, other parts of the Rust Belt have advanced the development of their respective business clusters, such as West Michigan’s office and institutional furniture cluster and Pittsburgh’s advanced materials and energy clusters.(1)

Policy professionals, researchers, and other experts will gather in Detroit for a two-day summit–“Revisiting the Promise and Problems of Inner City Economic Development,”—at the Renaissance Center on September 15th and the Federal Reserve Bank of Chicago—Detroit Branch on September 16th. The summit will look at new research and best practices in the field of urban revitalization. It is sponsored by the W.E. Upjohn Institute for Employment Research, the Initiative for a Competitive Inner City (ICIC), the Federal Reserve Bank of Chicago, Economic Development Quarterly, and Sage Publications. For those interested in attending, there is no registration fee but advance registration is required here.

Day 1 will focus on what’s currently happening in Detroit, with an introduction by the Chicago Fed’s Regional Research staff and a bus tour of Detroit provided by the Chicago Fed’s Community Development & Policy Studies group. The tour will highlight some of Detroit’s successes and challenges in its effort to revitalize its urban core and how the three levers of growth—business environment, clusters, and individual firms—are promoting and complementing the efforts of Eastern Market and Midtown Detroit. Eastern Market’s food cluster is expanding in part because of greater economic growth within the city of Detroit. Part of that growth is originating from the development of an innovation district along Detroit’s major boulevard, Woodward Avenue, which is helping to draw young entrepreneurs to work and live in Midtown Detroit. In addition, the tour will illuminate some of what Detroit must still overcome on the path to renewal. The first day ends with a presentation by Detroit Free Press writer John Gallagher, who will share his thoughts about the city.

The second day of the summit will feature two keynote addresses. ICIC Founder and Chairman Michael Porter will look back on his research of clusters and their competitive advantages in inner cities. Later on, Matthew Cullen, President and CEO, Rock Ventures LLC, will provide insight into how his firm has helped contribute to Detroit’s recent surge in economic development. Other featured speakers include Carol O’Cleireacain, Deputy Mayor for Economic Policy, Planning, and Strategy, City of Detroit. Sessions on the second day will examine new thinking on the competitiveness of inner cities and opportunities for business in the inner city.

(1)See p.5 of http://citeseerx.ist.psu.edu/viewdoc/download?doi=

Pittsburgh: A Detroiter’s Perspective

Written by Martin Lavelle

For Detroit or any Rust Belt city looking to revitalize its urban core, Pittsburgh is often brought up as a model to follow. Before World War II, Pittsburgh was well known for the black clouds of soot that often hovered over its downtown area. (Given its industrial legacy, it has been dubbed “the Steel City.” ) But more recently, it has been deemed America’s most livable city six times by three different publications since 2000.(1) According to Scott Bricker of Bike Pittsburgh, Pittsburgh is the fourth most active walking/biking city in the United States. Bike Pittsburgh and other civic-minded organizations and stakeholders have been the key to Pittsburgh’s turnaround. They are united by a mission to make their city thrive.

On June 18–19, 2015, the Federal Reserve Banks of Cleveland, Philadelphia, and Richmond sponsored a policy summit on housing, human capital, and inequality in Pittsburgh. This summit gave me not only a chance to experience Pittsburgh for myself, but also an opportunity to hear from some of the people whose efforts have steered the city in a positive direction. In this blog entry, I will share my thoughts on my visit to Pittsburgh and some observations on how Pittsburgh is and is not a model Detroit can follow in its revitalization efforts.

In preparation for my trip, I did a statistical comparison of Detroit and Pittsburgh. The table below displays the similarities and differences I found most interesting.
Det Pitts table 1
Source: QuickFacts Beta, U.S. Census Bureau.

From the table, it’s clear that both cities lost a similar percentage of their respective populations after peaking in 1950. While both cities’ population densities are similar, the size of Detroit’s land mass stands out: Detroit is more than twice the size of Pittsburgh. When adding up the size of each of Detroit’s vacant land parcels, it amounts to 40 square miles—almost 30% of Detroit’s land area, but almost 75% of Pittsburgh’s!(2) Another major difference between the two cities is their racial composition: Pittsburgh’s population today is predominantly white, whereas Detroit’s shifted from mostly white to mostly African-American.
The other statistics in the table depict a higher standard of living in Pittsburgh versus Detroit. A higher percentage of Pittsburgh’s population has a bachelor’s degree, participate in the labor force and possess health insurance. Not surprisingly, per capita incomes are higher and poverty rates lower in Pittsburgh than in Detroit. The chart below shows how median household incomes have steadied and slightly rebounded in Pittsburgh versus the continued decline in Detroit.

Median Household Income: United States and Central Cities of Pittsburgh and Detroit, Select Years
Det Pitts table 2
Note: All values are in 2009 (inflation-adjusted) dollars.
Sources: Author’s calculations based on data from SOCDS (1969, ’79, ’89, and ’99) and the U.S. Census Bureau (2009, 2012); U.S. Census Bureau data adjusted using http://data.bls.gov/cgi-bin/cpicalc.pl.

When looking at the chart, keep in mind that the city of Pittsburgh lost population in this time frame, yet incomes have started to record positive gains in recent years. So even if the city of Detroit were to continue to lose population, positive income gains in the future are attainable as seen in Pittsburgh.

East Liberty
My business trip to Pittsburgh began by taking one of its rapid buses(3) to the neighborhood of East Liberty, located within the East End of Pittsburgh. According to Rob Stephany, director of community and economic development, The Heinz Endowments, East Liberty was Pennsylvania’s third busiest commercial corridor until World War II (only behind the downtowns of Philadelphia and Pittsburgh). However, activity decreased after World War II as consumers headed out to suburban shopping centers to do their shopping. To try and revitalize East Liberty, Pittsburgh’s Urban Redevelopment Authority decided to make the neighborhood’s center more walkable by transforming much of its outer surface streets into a one-way ring road where visitors could park and then walk to nearby shops. Developers hoped that this plan would also spawn development along the ring road. Unfortunately, the ring road deterred further commercial development and prompted businesses to close and residents to leave. The only major development projects along the ring road were large, multifamily apartment towers.

In the late 1990s, then-mayor of Pittsburgh, Tom Murphy, noticed the relatively poor condition of the East Liberty neighborhood when compared with wealthier neighborhoods Highland Park to the north and Shadyside to the south. Mayor Murphy’s recruitment of Home Depot to the neighborhood along with the creation of a new mixed-income housing development helped lead to East Liberty Development, Inc.’s (ELDI) 1999 community plan, which outlined the community’s vision for the neighborhood.(4) In subsequent years, Whole Foods and Target moved into East Liberty, the apartment towers were torn down, an old Nabisco factory was transformed into lofts and office space (where a unit of Google does business), and East Liberty came to symbolize how Pittsburgh has changed recently.

Because I took a rapid bus, my ride to East Liberty from downtown Pittsburgh only took ten minutes. The quick buses have contributed to East Liberty’s renaissance by providing residents fairly easy access to their respective places of employment while improving the neighborhood’s connections with the rest of the city. When I disembarked from the bus, I couldn’t help but notice the large development project taking place at the transit station. When completed, the East Liberty rapid bus transit station will include a retail/residential complex that will allow easier access to the neighborhood from the station.(5) The development of new residential units in East Liberty has made it a trendy place to live, driving up home values and rents. Unfortunately, recent development has made it more difficult for some lifelong residents to remain in the neighborhood. (6)

As I left the transit station and entered the core area of East Liberty, I was struck by the contrasts in the types of businesses and development. Across from the transit station stood the new Target, but as I walked down Penn Ave. away from Target, I encountered a mix of new construction along with blighted storefronts. A similar mix of buildings greeted me when I turned north on Highland Ave., which is also home to the iconic East Liberty Presbyterian Church that dominates the core area’s landscape. East Liberty was truly diverse in that within blocks, I saw signs of a neighborhood on the rise, including trendy restaurants and boutique hotels, while symbols of struggle—such as run-down apartments, check cashing outlets and discount stores—remained. This dichotomy reminded me greatly of Detroit.

Redefining Pittsburgh
During the summit’s panel on redefining Pittsburgh, Bill Flanagan, chief corporate relations officer, Allegheny Conference on Community Development, said that city leaders and stakeholders looking to revitalize their cities must learn to listen, must craft public policy with much forethought, and must be patient because civic engineering takes time to implement. Leaders and stakeholders in East Liberty have learned those lessons, as evidenced by their increasingly providing opportunities for lifelong residents to stay in the neighborhood, thanks to more mixed-income, affordable housing projects. Kendall Pelling, director of land recycling, East Liberty Development, Inc., shared how ELDI is buying up vacant properties, as well as properties home to crime, in order to lower crime rates and make East Liberty an even more attractive place to live. In the Larimer neighborhood, which borders East Liberty’s east side, assisting lifelong residents in their effort to stay was a central piece of their neighborhood development plan. It seems safe to say that leaders in Pittsburgh are following their own advice, especially the listening part.

In a separate panel, Bill Peduto, mayor, City of Pittsburgh, shared some of the policies and programs he’s participated in or promoted during his tenure on the Pittsburgh City Council and now as the mayor. Mayor Peduto’s comments focused on social mobility and neighborhood investment. Mayor Peduto argued the most important factors to social mobility are the chance to earn a quality education and the ability to get to work. According to Peduto, another avenue for greater social mobility is his policy in granting tax increment financing (TIFs)(7) to developers. Mayor Peduto said his administration only grants TIFs if developers agree to pay their workers prevailing wages. Moreover, the Mayor said he sees a lack of investment in a particular neighborhood as sending a negative message to its residents. As a way to circumvent that potential problem, Mayor Peduto shared that his office assists in writing each neighborhood’s master development plan.

Pittsburgh: A Model for Detroit?
It’s easy to draw a comparison between Pittsburgh and Detroit because both cities saw a majority of their respective fortunes rise and fall with labor-intensive durable goods manufacturing industries. The cities’ and industries’ heydays came in the first half of the twentieth century. To the common observer, it may seem that Pittsburgh’s turnaround happened rather quickly and therefore is attainable for Detroit.
What the common observer may not realize is the forethought and diligence Pittsburgh leaders and stakeholders had regarding their city’s future. In the 1940s, the Allegheny Conference on Community Development—along with David Lawrence, then-mayor of Pittsburgh, and Andrew Mellon, the well-known banker and industrialist—started planning and implementing their idea for Pittsburgh’s future.(8)

In contrast, Detroit has lagged behind other cities in its revitalization efforts. For example, the Detroit Riverwalk Conservancy was formed in 2003 to help make the Detroit Riverfront more visitor-friendly. Impressed by what the Allegheny Conference did in Pittsburgh, the Greater Baltimore Committee began implementing its plan to improve Baltimore’s downtown in the 1950s, which eventually encompassed the city’s Inner Harbor in the 1960s.(9) The planning of Chicago’s Lakefront Trail provides an even starker contrast with the city planning for Detroit. Daniel Burnham’s 1909 Plan of Chicago included plans for a continuous lakefront park with a trail that became the Chicago Lakefront Trail, which was resurfaced in 1979. (10) Detroit unveiled its most recent plan, the Detroit Future City plan, in 2010. This plan is the latest attempt at envisioning the path forward for Detroit. Will the Detroit Future City plan come to fruition? Time will tell if it matches the results already realized in places like Pittsburgh.

Bill Flanagan’s advice for cities and their stakeholders most definitely applies to Detroit, especially the two pertaining to listening and public policy. I associate listening in a Detroit context with regional collaboration—which Detroit and its neighbors have improved upon in recent years. For example, regional authorities were created for entities such as Cobo Hall (our convention center), and regional leaders came up with the “grand bargain,”(11) which helped lift Detroit out of bankruptcy (and save the Detroit Institute of Arts’ collection). More regional collaboration will be needed for other solutions, especially public transportation, which has the potential to increase labor mobility and help better match employers with employees. With regard to public policy, Detroit must continue to improve its delivery of police and fire service in order to ensure the safety of its citizens.

The importance of social mobility and neighborhood investment that Mayor Peduto underscored at the summit is shared by Detroit Mayor Mike Duggan, as demonstrated in his 2015 state of the city address. (12) The magnitude of Detroit’s turnaround will be determined by how far it can reach outside of Detroit’s Downtown and Midtown neighborhoods and into other areas of the city. Just as in Pittsburgh, a strong correlation between neighborhood investment and neighborhood condition exists in Detroit. Mayor Duggan has looked to increase neighborhood investment through programs such as the Detroit Blight Task Force and Detroit Land Bank. One of Detroit’s challenges is to better coordinate activity between city government and city neighborhoods as Pittsburgh has done. Mayor Duggan is in the middle of implementing his neighborhood plan, which included the creation of a Department of Neighborhoods, placing neighborhood managers within each City Council District.(13) Plans to improve social mobility, which in Detroit means reforming Detroit Public Schools have been presented by a task force and Michigan Governor Rick Snyder.

Detroit faces the same obstacles Pittsburgh faced and continues to face, though the magnitude of those obstacles appears larger in Detroit. Most of the obstacles will require greater collaboration among community developers, city leaders, and regional stakeholders so that as many Detroiters as possible can experience the city’s rebound. In many ways Pittsburgh’s redevelopment can serve as a model for Detroit’s, but in other ways it cannot. When the Pittsburgh model doesn’t apply to Detroit, Detroit can look to other cities for ideas. Arguably, the biggest take-aways from the policy summit were the many different plans and strategies other cities have executed that are available to help cities such as Detroit return to prosperity.

(1) Those publications are The Economist, Forbes, and Places Rated Almanac; see https://www.clevelandfed.org/~/media/Files/Events/2015/2015PolicySummit/presentations/PechaKucha_Andrews.pdf?la=en.
(2) See http://www.pbs.org/wnet/need-to-know/economy/shrinking-cities-detroit-pays-its-residents-to-move/8819/
(3) See https://www.itdp.org/library/standards-and-guides/the-bus-rapid-transit-standard/what-is-brt/.
(4) See http://www.eastliberty.org/sites/default/files/plan/files/1999%20Communityplan.pdf.
(5) See http://mosites.net/portfolio/eastside-iii/.
(6) See http://www.post-gazette.com/local/city/2013/11/04/New-era-in-E-Liberty-housing/stories/201311040065
(7) TIF is a financial mechanism used by municipalities and other governments to promote economic (re)development. TIF is intended to generate economic (re)development activity that would not otherwise occur. It works by establishing a specifically defined district, using incremental growth in revenues over a frozen baseline amount to pay for (re)development costs. TIF may utilize property, sales, or utility tax revenues.
(8) See p.3 of https://upress.pitt.edu/htmlSourceFiles/pdfs/9780822942825exr.pdf.
(9) See http://gbc.org/about-us/gbc-history/.“>gbc.org/about-us/gbc-history/.
(10) See http://www.northlakeshoredrive.org/about_history.html.
(11) See http://www.pbs.org/newshour/bb/behind-detroits-grand-bargain-emerge-bankruptcy/.
(12) See https://www.youtube.com/watch?v=GYj9h8i5_60.
(13) See http://www.dugganfordetroit.com/wp-content/themes/duggan/DugganNeighborhoodPlan.pdf.

Michigan Exports Lagging

By Martin Lavelle

The Michigan economy has surged since the end of the Great Recession (in 2009). Until recently, rising exports had been part of this story. However, Michigan’s exports abroad have fallen off significantly of late even as its economy continues to grow.

According to the Federal Reserve Bank of Chicago’s Michigan and Relative Michigan Economic Indexes, Michigan’s economy grew at a rate faster than its long-run trend and at a higher rate relative to that of the U.S. since 2010./1 Moreover, during the past five years, Michigan has added 334,700 nonfarm payroll jobs and its unemployment rate has fallen from 13.8% to 5.6% as of March, 2015./2

Much of this improvement can be attributed to rising Michigan exports since the end of the recession. Using data provided by the U.S. Department of Commerce’s TradeStats Express,/3 then deflating it with the Personal Consumption Expenditures Price Index from the U.S. Bureau of Economic Analysi,/4 I generated the two charts below. They both show that Michigan’s real exports of goods fell sharply in 2009 because of the Great Recession before rebounding strongly in 2010. Like Michigan’s exports, U.S. real exports of goods rebounded sharply in 2010 and grew each year afterward, albeit at slower rates relative to those of the state. But this pattern persisted only through 2013: Michigan’s real exports of goods fell 6.2% in 2014, while U.S. real exports of goods grew 1.4% that year.

Chart 1: Michigan Real Exports of Goods, 1999–2014
Chart 1
Source: Author’s calculations using data from tse.export.gov.

Chart 2: Real Exports of Goods, U.S. & Michigan, 1999=100
chart 2 20150519
Source: Author’s calculations using data from tse.export.gov.

While pullbacks in Michigan’s real exports occurred in multiple sectors in 2014, the largest one was seen for transportation equipment. The chart below shows the change in real exports in 2014 relative to 2013 for the top five categories of goods by share of Michigan real exports. From that chart, one can calculate that transportation equipment accounted for just under half of Michigan’s real exports in both years. Michigan’s transportation equipment exports decreased $3.2 billion from 2013 to 2014; this drop made up the bulk of Michigan’s $3.4 billion decline in total real exports. Meanwhile, automotive exports from the rest of the U.S. did not experience such a decline over the same period.

Chart 3: Michigan Real Exports of Goods, Selected Sectors, 2014 vs. 2013
chart 3 20150519
Source: Author’s calculations using data from tse.export.gov.

Outlook for 2015

Michigan’s exports may rebound in 2015 given the somewhat more buoyant outlook for the global economy. According to the International Monetary Fund’s (IMF) latest global forecast, the world economy is expected to grow 3.5% this year, with more growth expected among advanced economies. Of Michigan’s five largest trading partners, all expect to see positive economic growth in 2015, with three anticipating accelerations in economic activity. However, the strengthening U.S. dollar may slow export growth, especially since the U.S. dollar has significantly appreciated against the Japanese yen and the euro. But if Michigan’s transportation exports continue to decrease, another question would have to be considered: What is the story behind transportation equipment exports from Michigan relative to those from the rest of the U.S.?

/1 See https://www.chicagofed.org/~/media/others/research/data/mei/mei-data-series-xlsx.xlsx. [NOTE: The essential URL does not need “?la=en.”] A zero value for the index indicates that the Michigan economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth. A zero value for the Relative MEI indicates that the Michigan economy is growing at a rate historically consistent with the growth of the national economy; positive values indicate above-average relative growth; and negative values indicate below-average relative growth.

/2 Author’s calculations using data from the U.S. Bureau of Labor Statistics (http://www.bls.gov).

/3 Trade data are provided by the U.S. Department of Commerce, Census Bureau, Foreign Trade Division. All state export statistics are drawn from the Origin of Movement (OM) series compiled by the Foreign Trade Division of the U.S. Census Bureau. The series credits export merchandise to the state where the goods began their final journey to the port (or other point) of exit from the United States, as specified on official U.S. export declarations filed by shippers. The OM can be either the location of the factory where the export item was produced or, in many cases, the location of a distributor, warehouse, or cargo processing facility. For further details, see http://tse.export.gov/TSE/HELP_TSE/helpTSE.htm and http://tse.export.gov/TSE/TSEhome.aspx.

/4 See www.stlouisfed.org/publications/re/articles/?id=2390

Health Care in America with Nancy Schlichting

By Paul Traub

U.S. consumers are reported to be spending an ever increasing amount of their personal income on health care each year. According to Personal Consumption Expenditures data from the Bureau of Economic Analysis (BEA), consumers spent close to $2.0 trillion on health care in the United States in 2014. Based on this, spending in 2014 on health care was equal to 11.5% of total gross domestic product (GDP). The Affordable Care Act (ACA, P.L. 111-148) together with the Health Care and Education Act of 2010 (P.L. 111-152) expanded access to health care coverage for millions of Americans who were without health insurance. The ACA (also known as Obama Care) has been the center of much debate and has been cited by some as a major impediment to job creation since it requires employers with more than 50 full-time employees to provide health care insurance for their workers. Between 1980 and 2010, the compound growth rate in inflation-adjusted health care spending equaled just 4.9%./1 As Chart 1 below illustrates, in the four years since then per capita spending on health care has increased by about 10%. But should all of the concern about health care be just focused on cost or are there other issues just as important that should be discussed? In an effort to get a better understanding of the issues surrounding health care and the ACA, the Detroit Association of Business Economists (D.A.B.E.) presented a program on the state of health care in the U.S. with guest speaker Nancy Schlichting, CEO of Henry Ford Health Systems. Henry Ford Health Systems is a nationally recognized $4.0 billion health care organization with 23,000 employees.

Chart 1

Schlichting opened her presentation by pointing out that health care is one of those services about which everyone has an opinion and that opinion is often based on personal experience. While the experiences that form a person’s opinion can at times be positive, more times than not they are likely to negative. Witnessing a sick parent or family member go through a difficult time is often the experience that people remember. Schlichting highlighted three important features of health care.

First, health care matters most when you need it. Schlichting went on to explain that the perceived need for health care is much different for someone who is healthy than for someone who has experienced a debilitating illness. When people are young and haven’t experienced many medical difficulties, they often believe they are immune to illness. Older individuals, who are more likely to have seen someone else go through a medical problem, more easily recognize their own frailties. This leads people to recognize a need for insurance against the unknown. The same need to be prepared for anything is felt more strongly by someone who is the head of a family or a household more than by someone who has no dependents.

Second, a person who has never been uninsured doesn’t understand what it is like to live without health insurance. It is not widely recognized that many individuals that don’t have insurance do work, often multiple part-time jobs. Schlichting said more than 50% of the people not covered under a health care plan do work and many of them are young people.

Third, the American health care system is the most complex in the world. Consumers often don’t understand how their coverage works and what is covered and what isn’t. This complexity also adds cost to the system. It is estimated that $0.25 of every dollar spent on health care in the United States goes to cover administration costs. This complexity has also led to the need for more administrative staff than care givers in some institutions. The confusing process is also one of the reasons that uncompensated care is still rising. Consumers find it difficult to navigate through the complexity of the system of co-pays and deductibles, Schlichting argued, and often choose to ignore a bill that they believe is the responsibility of the insurance company.

Schlichting said, in her view, the passage of the ACA will be a positive for the industry in the long run. Hospitals and health care providers have been working to improve services and lower costs and are doing so by concentrating on some specific areas. Schlichting said the largest opportunities for improvements are related to the incentives the ACA provides to improve the quality of health care procedures. For example, the act imposes penalties on hospitals for readmitting patients. This is forcing providers to do a better job in caring for their patients and making sure they are ready to be released. Another way to help eliminate frequent trips to the hospital is to provide patients with the ability to share information with their care giver either by phone or email. Schlichting’s company is also trying to improve quality by studying other models of success and adopting reliable quality systems, such as the Six Sigma process, The Deming Institutes quality management principles, and Baldrige performance programs. These processes are helping to lower costs while improving the patient’s experience, which is an important aspect of success in the highly competitive health care industry.

What does the future hold? The health care industry will continue to change, Schlichting said, as providers work to reduce cost and improve care. The consolidation of hospitals, physician practices, and insurance companies will most likely continue as part of the industry’s overall efforts to cut costs. The marketing of health care services is also likely to become more important, she pointed out, as providers recognize the need to market to individuals who are opting out of group coverage and shopping for their own coverage on health care exchanges.

1/ Current dollar BEA PCE health care spending was adjusted for inflation using PCE chain-type index.

Detroit Association of Business Economists – Economic Update

By Paul Traub

On February 19, 2015, the Detroit Association of Business Economists met at the Detroit Branch of the Federal Reserve Bank of Chicago to hear Chicago Fed senior economist and economic advisor William Strauss discuss the U.S. and Midwest economy. It has now been over seven years since the U.S. plunged into its worst recession in decades and there has been some debate recently as to how well the economy is currently performing. Some economic indicators that suggest the recovery is strengthening, but others imply there is still a lot of room for improvement. Following the January 28, 2015, meeting of the Federal Reserve Open Market Committee (FOMC), the Committee released a statement indicating that between December 2014 and January 2015:

1. Economic activity looked to have expanded at a solid pace.
2. Labor market conditions continued to improve with strong job growth and diminishing underutilization of the labor force.
3. Household spending rose moderately with purchasing power being boosted by falling energy prices.
4. Business fixed investment continued to advance.

However, the FOMC also noted the following less favorable indicators:

1. The recovery of the housing market remains very slow.
2. Inflation continues to be below the Committee’s long-run objective of 2%, a level of inflation that is consistent with sustainable positive economic performance.
3. The share of those unemployed more than six months remains at 31.2%, well above the pre-recession long-run average of 12.8%.
4. The number of employees working part-time for economic reasons still remains elevated.
5. And about 1.4% of the fall in the unemployment rate can be explained by workers that have left the labor force because they can’t find work or have become discouraged looking for a job.

Even in the face of this less than positive news, Strauss said that recently he has been hearing concern from some economic analysts that given the current length of this recovery, 68 months and counting, the U.S. economy could be close to heading into its next cyclical slowdown. Strauss went on to explain that even though the average economic expansion since the 1960s has been roughly 72 months, it is not the length of the recovery as much as other unexpected circumstances that predict the end of an economic expansion. For example, the 2008 recession didn’t start because the economy had been expanding for 73 months and just ran out of momentum; rather it was the result of a financial crisis that was preceded by the bursting of a housing bubble. So even though the most recent economic expansion looks to be very close to the average of past expansions, there is no reason to believe the U.S. economy will suddenly just run out of steam. Strauss went on to say that the manufacturing sector continues to expand nicely, business investment continues to advance, and the consumer looks to be benefiting from lower energy prices. He also pointed to forecasts from the consensus of the Blue Chip Economic Indicators and the FOMC for the U.S. economy to continue to grow at about 2.8% to 2.9% over the next two years, a pace slightly better than its long-run potential. For more detailed information and to see Strauss’s entire presentation, click here: Presentation to the Detroit Association of Business Economists.

Is the buzz surrounding STEM justified?

By Martin Lavelle

STEM is an acronym that stands for science, technology, engineering, and math. It is associated with education and is often mentioned in tandem with policymakers’ desire to increase the number of graduates in STEM-related occupations and fields. In recent years, the campaign to increase the number of STEM graduates has become more aggressive—even the White House has shown deep interest in producing more of them /1.

STEM education has received such attention because many contend that the U.S. economy will need more STEM experts as time progresses and the economy evolves /2. Moreover, STEM has received greater notice of late because it is believed that the analytical and technical skills required to work in a STEM-related field provide opportunities for workers to merit higher wages and salaries than those who work in non-STEM-related fields.

In this blog entry, I will compare STEM-related versus non-STEM-related employment and wages in Michigan, the neighboring states of Indiana and Ohio, and the U.S. as a whole over the period 2003–13. This period was chosen because it captures Michigan’s one-state recession that lasted from 2003 through 2009, the nation’s Great Recession (which lasted from the end of 2007 through mid-2009), and the subsequent recovery from them /3. The data come from the U.S. the Bureau of Labor Statistics’ (BLS) Occupational Employment Statistics (OES) database /4. The criteria to define STEM- and non-STEM-related occupations were taken from the U.S. Census Bureau /5. All calculations were done using the annual May releases of the OES data by state /6.


Over the period 2003–13, Michigan’s total employment fell by 7.8%, according to the state’s OES data. After splitting up the period into recessionary (2003–09) and post-recessionary (2009–13) periods, one can see that employment decreased by 10.2% during Michigan’s one-state recession but rebounded afterward, going up by 2.7%. By separating STEM- and non-STEM-related employment growth, one will note that STEM employment grew at a faster pace. Figure 1 shows employment in STEM-related fields increased (on net) by 9.7% in Michigan during the 2003–13 period. In sharp contrast, employment in non-STEM-related fields decreased (on net) by 10.1% in Michigan over that span.

Figure 1: STEM- versus non-STEM-related employment growth in Michigan, 2003–13
Figure 1Note: 2003=100.
Source: Author’s calculations based on data from the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Michigan’s STEM employment growth is striking when compared with the STEM employment growth of its neighbors Indiana and Ohio, as well as the nation as a whole. Figure 2 compares STEM employment growth in these three Midwest states and the U.S. In 2003–09, STEM employment (on net) increased just under or moderately above 10% in Indiana, Ohio, and the U.S., while Michigan STEM employment decreased slightly. Since 2009, Michigan’s STEM employment growth increased at a faster rate than that of Ohio and the U.S., but at a slower rate than that of Indiana.

Figure 2: STEM employment growth in Michigan, Indiana, Ohio, and U.S., 2003–13
Figure 2Note: 2003=100.
Sources: Author’s calculations based on data from Haver Analytics and the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

During 2003–13, the percentage of workers in STEM-related fields as a share of total Michigan employment increased from 11.4% to 13.6%. Remarkably, STEM-related employment grew as a share of total employment in Michigan during a period when the state’s overall employment decreased. Similar increases in the proportion of STEM employment were seen in Indiana, Ohio, and the U.S. The areas listed in table 1 experienced a 1.5 to 2 percentage point increase in their respective shares of STEM-related employment.

Table 1: STEM-related employment as a share of total nonfarm employment in U.S., Michigan, Indiana, and Ohio
Table 1Sources: Author’s calculations based on data from Haver Analytics and the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Using 2013 data from the final column of table 1, I determine that Michigan’s total work force is 13% more concentrated in STEM occupations than the nation’s by calculating Michigan’s STEM location quotient (see third column, last row of table 2). Comparing the composition of Michigan’s STEM workers with that of the nation’s helps explain this difference in concentration. To a large degree, the higher concentration in STEM employment among Michigan’s work force is due to the state’s much higher concentration of jobs in architectural and engineering occupations relative to the nation’s: The state’s STEM work force is 48% more concentrated in this occupational category than that of the nation when calculating the category’s STEM location quotient /7. In contrast, Michigan’s concentrations of employment in life, physical, and social sciences occupations and computer and mathematical occupations are moderately lower than the nation’s.

Table 2: Distribution and concentration of STEM workers by occupational category in Michigan and U.S., 2013
Table 2Notes: For all but the last row, Michigan Location Quotient = ((MI STEM category employment/MI Total STEM employment)/(U.S. STEM category employment/U.S. Total STEM employment)). For the last row, Michigan Location Quotient = ((MI Total STEM employment/MI Total nonfarm employment)/(U.S. Total STEM employment/U.S. Total nonfarm employment)).
Sources: Author’s calculations based on data from Haver Analytics and the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Wages and income

In order to compare the wages of STEM- and non-STEM-related occupations, I divided each occupation’s STEM (or non-STEM) employment level by the total STEM (or non-STEM) employment level, calculating each occupational category’s weight. I took that weight, multiplied it by the occupation’s annual median income, and then deflated that with the Personal Consumption Expenditures Price Index from the U.S. Bureau of Economic Analysis /8. Using the weighted averages, I determine the average real annual median wage for a STEM-related occupation in Michigan barely increased during 2003–13. Meanwhile, the average annual median wage for a non-STEM-related occupation decreased 5.5% over that span. Figure 4 below depicts two noteworthy trends. First, the average annual median wage of a worker in a STEM-related field increased at a faster rate during Michigan’s one-state recession (2003 through 2009) than during the Great Recession (end of 2007 through mid-2009). After 2009, annual median wages of all workers, in STEM or non-STEM occupations, remained below 2009 levels.

Figure 3: STEM- versus non-STEM- related real average annual median wage growth in Michigan, 2003–13
Figure 3Note: 2003=100.
Source: Author’s calculations based on data from the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Annual median incomes for STEM-related occupations in Michigan increased at a slower rate relative to those for STEM-related occupations across the entire U.S. during 2003–13, as figure 4 shows. The nation’s STEM-related occupational incomes continued to grow through the end of the national recession, while Michigan’s STEM-related occupational incomes fell during 2007–12 but then rebounded slightly in 2013. Michigan’s STEM-related real income growth performed similarly to Ohio’s, especially from mid-2009 onward; however, it performed worse than Indiana’s STEM-related real income growth over the period of study.

Figure 4: STEM real annual median income growth in Michigan, Indiana, Ohio, and U.S., 2003–13
Figure 4Note: 2003=100.
Source: Author’s calculations based on data from the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.


Most of Michigan’s employment gains since the end of the Great Recession have come in STEM-related occupations. However, real wage growth for STEM jobs has not rebounded very quickly since mid-2009. Meanwhile, non-STEM-related employment only started rebounding in 2012. Notable decreases in employment for specific occupations (chosen based on size) over the 2003–13 period include those in production (–20.0%), transportation and material moving (–21.8%), and construction and extraction (–38.6%), all of these being non-STEM-related fields.

The data on real wages by occupation, especially for those in STEM-related fields, are quite surprising when viewed more closely. Over the period 2003–13, annual real wages fell for computer and mathematical occupations, veterinarians, electrical engineers, and general pediatricians. But significant real wage gains were made in occupations such as chemical engineers, survey researchers, family and general medical practitioners, and physicists.

If forecasts for STEM job growth come to fruition, STEM-related fields will make up an increasingly larger percentage of total employment /9. Most likely this will not be the result of just higher employment levels for STEM-related occupations as currently defined. Rather, a greater number of occupations that are not presently regarded as being affiliated with STEM may adopt STEM-based applications over time, also boosting the share of STEM-related employment. Regardless of what may happen in the future, it’s clear that Michigan workers with expertise in a STEM-related field were well served by it during 2003–13—a period that saw great volatility in Michigan’s economy.


1. See www.ed.gov/stem
2. See www.stemdcoalition.org/wp-content/uploads/2013/10/fact-Sheet-STEM-Education-Good-Jobs-and-American-Competitiveness-June-2013.pdf.
3. For more on the Great Recession, see www.cbpp.org/cms/index.cfm?fa=view&id=3252.
4. See www.bls.gov/oes/.
5. See www.census.gov/people/io/files/STEM-Census-2010-occ-code-list-xls.
6. See www.bls.gov/oes/tables.htm.
7. By inference, this sharp engineering concentration is not surprising given that much of the state’s research and development strengths can be found in the automotive industries (see http://michiganeconomy.chicagofedblogs.org/?p=561).
8. See www.stlouisfed.org/publications/re/articles/?id=2390.
9. See Posted in Employment, Michigan's Economy, Midwest Economy

Detroit Association of Business Economists 2015 Annual Automotive Outlook

by Paul Traub

On January 22, 2015, the Detroit Association of Business Economists (DABE) held its annual Automotive Outlook Symposium at the Detroit Branch of the Federal Reserve Bank of Chicago. The event was attended by approximately 50 guests, including DABE members together with other local business leaders, academics, and media representatives. I was among the speakers, as was Peter Sweatman, director of the University of Michigan Transportation Research Institute (UMTRI).

Sweatman was appointed UMTRI director in September 2004. UMTRI was created in 1965 with the main goal of improving vehicle safety and sustainable transportation in the U.S. and around the world. It currently has a staff of 102 full-time researchers, faculty, graduate students, and administrative staff affiliated with the University of Michigan, who have conducted over 1,000 research projects over the years. In its latest endeavor, UMTRI has created a public/private research and development partnership called the Michigan Mobility Transformation Center (MTC). The goal of the MTC is to be in the forefront of research and development of vehicle connectivity. This includes vehicle to vehicle (V2V) and vehicle to infrastructure (V2I) technology. As Sweatman pointed out, it’s not just about transportation but about safe and sustainable personal mobility that transcends just getting from one place to another. The vehicles of the future will free the occupants from many of the hands-on tasks and decision processes that are part of operating a vehicle today. By doing this, it is believed that the driving experience can be transformed into a much safer and more productive and enjoyable experience for the vehicle occupants. The major goal of the initiative is to make vehicles of the future much safer by adding technology that will aid in accidence avoidance. Vehicles will not only be able to communicate with one another, they will also be linked with their surrounding environment. For example, Sweatman explained that the connected vehicle (CV) technology could warn drivers before they reach areas of dangerous weather, poor visibility, or other hazardous road conditions. The vehicle could be programed to respond to these conditions on its own either by adjusting its speed or offering alternative routes or a truly autonomous vehicle could choose to take an alternative route on its own. If the driver were to decide to continue to travel on the perilous road, the CV would inform the driver of any accidents in path ahead immediately giving the driver or the vehicle time to adjust accordingly.

CV technology is in its infancy today, and there is still a lot of research and development to do before it can be implemented. To aid in this work, MTC has adopted a plan in collaboration with the Michigan Department of Transportation (MDOT). The plan has three pillars:

1. Ann Arbor Connected Vehicle Test Environment (2014+)
2. Southeast Michigan Connected Vehicle Deployment (2015+)
3. Ann Arbor Automated Vehicle Field Operational Test (2016+).

Pillar 1 of the connected vehicles (CV) pilot deployment program commenced on August 21, 2012, and included a pilot deployment of 2,836 vehicles— cars, trucks, buses and motorcycles—equipped with wireless communication devices in the Ann Arbor area. This phase ran for six months and was extended for an additional three years by the U.S. Department of Transportation.

Pillar 2 will test the rationality of connected vehicles by implementing a jump from research to regional deployment. It will include 20,000 vehicles together with 500 infrastructure nodes located based on safety and congestion needs and the installation of 5,000 vehicle and pedestrian safety devices. The U.S. has invested approximately $1.0 billion dollars over a ten-year span for this research.

Pillar 3 will include an automated Ann Arbor, where a select group of industry and government partners will work together. This phase will include testing in a simulated city (M City) a $6.5 million 32-acre site located in Ann Arbor near the University of Michigan campus and is scheduled to open in July 2015.

The investment that has taken place so far is likely just the tip of the iceberg in terms of what will be needed to complete a national intelligent transportation system. Sweatman argued that if the needed investment is made to complete a national system, it will not only provide an opportunity for the U.S. to lead the world in developing a CV technical knowledge base, it will also lead to the creation of numerous high-tech jobs in Michigan and throughout the country. For more information on this topic, follow some of the links provided in this article or on the University of Michigan Transportation Research Institute website.

Following Dr. Sweatman’s presentation I gave a short summary of the 2014 light vehicle industry. Here are some of the highlights. There were 16.434 million light vehicles sold in the U.S. in 2014 making it the best year the industry had seen since 2006, when 16.504 million light vehicles were sold. Although job growth has been good in the auto industry, the pace of growth has slowed in conjunction with the slowing pace of growth in sales. As a result, the automotive and parts sector added 41,600 jobs in 2014, down slightly from the peak job growth year of 2012 when the industry added 59,600 jobs. Average hourly earnings of automotive manufacturing workers, which were flat for most of the period following the 2008 recession, grew only slightly in 2014, up just 0.5% when adjusting for inflation. According to data from J.D. Power and Associates, vehicle incentives as a percentage of total vehicle prices rose to 9.1% in 2014, while the average transaction price for a new vehicle grew to an estimated 56.7% of median household income. One of the more controversial developments of 2014 was the number of vehicles recalled. According to data from the National Highway Traffic Safety Administration, vehicle manufacturers recalled almost 64.0 million vehicles in 2014, the most ever reported. And, of course, the biggest story was the reduction in gasoline prices through the year, with the national average for a gallon of regular gasoline falling more than $1.10 from December 2013 to December 2014. This resulted in about $600 per year in fuel cost savings for the average driver. Looking ahead, there will be 16.9 million and 17.0 million light vehicles sold in the U.S. in 2015 and 2016, respectively, according to the Blue Chip Indicators consensus forecast. If you’d like to see more information or to view the entire presentation you may click the DABE Auto Update – January 22, 2015 here.