How Tight is Michigan’s Labor Market?

By Martin Lavelle

Michigan’s labor market continues to recover from the Great Recession that ran from December 2007 through June 2009 and its own recession that started four years prior to that. Michigan’s unemployment rate peaked at 14.9% in June 2009, coinciding with the end of the Great Recession. Since that time, Michigan’s unemployment rate has dropped steadily, reaching 4.5% in August 2016. The last time Michigan’s unemployment rate was this low was in January 2001, just before the much shorter and milder 2001 recession. (1)

While Michigan’s current labor market expansion isn’t the longest in its history, (2) the fact that the state’s unemployment rate is now lower than that of the nation makes one wonder how much longer it can last. The superior performance of Michigan’s Southeast and Western Michigan Purchasing Managers indexes relative to the U.S. measures and recent indications that auto sales may have plateaued also imply that Michigan’s labor market expansion may be near a turning point. This blog examines some of Michigan’s labor market indicators to assess whether Michigan’s labor market is at or near “full employment.”

Chart: Unemployment Rates, Annual Averages: U.S., Michigan
Analysis
1011-chart-1
Source: Author’s calculations using data from the Bureau of Labor Statistics.

The chart above shows the annual averages of the U.S. and Michigan unemployment rates, respectively. Since 1976, Michigan’s unemployment rate has generally been higher than that of the U.S., especially during the Great Recession and the severe 1981–82 recession. The two instances in which Michigan’s unemployment rate fell below that of the U.S. came during the mid to late 1990s and in recent months. The fluctuation in Michigan’s unemployment rate helps to show the cyclical nature of the state’s economy, driven by the manufacturing sector, specifically the automotive industry. The lows in Michigan’s unemployment rate came during boom times for the automotive industry and the highs came during rough times. Light vehicle sales volumes hit all-time highs last year and are just below those levels year-to-date in 2016. The majority of auto analysts feel that light vehicle sales will continue to slightly fall off of their 2015 highs in the next couple of years. With the automotive industry having peaked, does that mean Michigan’s labor market has peaked as well?

Historically, another sign of a tightening labor market are increasing wages and salaries. The chart below plots the unemployment rate versus workers’ total wage and salary income in the state.

Chart: Annual Wage & Salary Growth vs. Annual Average Unemployment Rate: Michigan
1011-chart-2
Sources: Author’s calculations using data from the Bureau of Economic Analysis and Bureau of Labor Statistics.

Over the past 40 years, changes in wage and salary income have led changes in the unemployment rate. Michigan’s unemployment rate reached its previous low in 2000, a few years after the rate of growth in wage and salary income peaked. Wage and salary income growth in Michigan bottomed out in 2008, the year before Michigan’s unemployment rate peaked. As Michigan’s unemployment rate decreased after the Great Recession, wage and salary income consistently increased, accelerating in the last two years following some slowing in 2012–13. The pace of wage and salary growth edged higher in 2015 versus 2014, signaling further tightening in Michigan’s labor market. Despite the increase in wages and salaries, however, data from the Bureau of Economic Analysis show that per capita income in Michigan remains about 12% below the national average. Since 1980, per capita income in Michigan has typically been lower than in the U.S. as a whole.

When looking at wage pressures by sector, the story becomes more muddled. The chart below examines the year-over-year percentage change in wage pressures in select employment sectors in Michigan.

Chart: Average Hourly Earnings of Michigan Production Employees by Employment Sector, Year/Year Percentage Change, Not Seasonally Adjusted
1011-chart-3
Source: Author’s calculations using data from the Bureau of Labor Statistics.

Michigan’s manufacturing sector, especially the automotive sector, led the state into the recovery it currently enjoys. However, after increasing in 2010, wages started to fall during 2011 and into 2012 as the new labor contract with the United Auto Workers (UAW) that created a lower, 2nd tier of wage ranges took effect. (3) After rebounding in 2013–15, wages are lower thus far in 2016 than in 2015, possibly because of the 2015 UAW contract that created a lower starting point for entry-level full-time workers. (4) Plateauing production volumes as light vehicle sales level off may also be a reason for lower wages in 2016.

Some sectors do support the full employment argument with their accelerations in recent months. Since the latter half of 2015, wages have moved higher in the construction and professional and business sectors, respectively. Labor shortages in building construction and within the engineering and information technology fields of the professional and business services sector have helped to create conditions for higher, more competitive wages. Wage increases have persisted in the retail trade sector since 2013. Competitive pressures from McDonalds and Walmart, as well as legislatively mandated increases in Michigan’s minimum wage, have contributed to higher wages in the retail sector. (5)

When a labor market tightens, it also means workers are increasingly hard to find. One unique characteristic of the current labor market recovery is the elevated level of those working part-time for economic reasons or involuntary part-time workers. The chart below shows what percentage of the labor force is comprised of involuntary part-time workers.

Chart: Part-Time Employment as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
1011-chart-4
Sources: Author’s calculations using data from the Bureau of Labor Statistics.

As labor markets expand, the percentage of the labor force that is working part-time falls. In Michigan and the U.S., the percentage of the labor force that is working part-time continues to be higher than during the previous labor market expansion. Interestingly, the difference between the part-time segments of the labor force in Michigan and the U.S. has shrunk after widening in the months leading up to and the year after the conclusion of the Great Recession. Another interesting point is that the gap between Michigan’s current percentage of the labor force that is working part-time and the percentage working part-time in the 2000s is narrower relative to the U.S. This could mean one of two things. One possibility is part-time workers in Michigan are finding increasing success in gaining full-time employment. An alternative possibility is part-time employment was elevated during the 2000s and Michigan’s one-state recession. Therefore, part-time employment as a percentage of the labor force would have been expected to fall since the mid-2000s.

In a tightening labor market, those who found themselves unemployed for a long period of time should find their way back into the workforce. The chart below looks at the percentage of the labor force that was unemployed longer than 15 weeks.

Chart: Unemployed Civilians for longer than 15 weeks as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
1011-chart-5
Sources: Author’s calculations using data from the Bureau of Labor Statistics.

Mirroring the previous chart, Michigan had a greater percentage of its labor force unemployed for more than 15 weeks than the U.S., most likely a result of Michigan’s recession in the previous decade. After peaking in the 2nd quarter of 2010, the percentage of Michigan’s labor force unemployed for more than 15 weeks fell and now equals that of the U.S. Are more previously long-term unemployed workers finding work or are they dropping out of the labor force altogether? Looking at the next chart, which shows the labor force participation rates of the U.S. and Michigan, respectively, we see that Michigan has seen a higher net increase off its lows than the U.S.

Chart: Labor Force Participation Rates: U.S., Michigan
1011-chart-6
Source: Haver Analytics/Bureau of Labor Statistics.

Finally, what about discouraged workers? If a labor market is tightening, the number of discouraged workers should be decreasing. The chart below shows discouraged workers as a percentage of the labor force in the U.S. and Michigan, respectively.

Chart: Discouraged Workers as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
1011-chart-7
Source: Author’s calculations using data from the Bureau of Labor Statistics.

Again, the same dynamics are in play from 2003 through the end of the Great Recession, with Michigan’s labor market relatively worse off because of its one-state recession. As shown in the previous chart, the gap between Michigan and the U.S. converged and is now all but eliminated. The current percentage of Michigan’s labor force that consists of discouraged workers equals that seen during the mid-2000s, whereas the U.S. hasn’t reached mid-2000s levels yet.

Conclusion
A strong argument can be made that Michigan’s labor market is at full employment. The unemployment rate is currently below that of the U.S. and nearing historical lows. Also, wage and salary growth is at its highest in almost 20 years, labor force participation is off its post-recession lows, and data focused on the marginally attached to the labor force in different ways indicate those numbers are near or at trend. Some anecdotal reports support the argument as well. Multiple firms have instituted significant wage and salary increases in order to keep their most talented employees, while others are giving prospective employees a second look after rejecting their original job inquiry. Finally, with the auto industry operating at peak production levels and historically high sales levels and the state still significantly dependent on the auto industry, Michigan’s robust labor demand growth may be coming to an end.

Footnotes
(1) We are addressing labor market tightness here, not growth rates, not restoration of past levels of labor force size. Out-sized outmigration of working age population in response to the state’s prolonged downturn in the last decade is being held in the background.
(2) Based on BLS data going back to 1976.
(3) See https://www.chicagofed.org/~/media/others/region/midwest-economy/dziczek-dabe-january-2012-pdf.pdf.
(4) See http://www.freep.com/story/money/cars/chrysler/2015/10/22/done-deal-uaw-confirms-ratification-fca-contract/74380230/.
(5) See http://www.mlive.com/lansing-news/index.ssf/2015/12/michigan_minimum_wage_to_incre.html.

Are Baby Boomers and Millennials Moving Back into Michigan’s Cities?

By Martin Lavelle

Currently, the two most often talked about demographic groups in the U.S. are baby boomers, those born from 1948 to 1964, and millennials, those born from 1981 to 1999. Even though they’re separated by Generation X, baby boomers and millennials have at least one thing in common: their increasing desire to live in cities. Some baby boomers who are also empty nesters feel the best way to stay active is to partake in city life where there’s always something happening. Many millennials prefer city life for the chance to live near a large group of young singles, in effect continuing their college experience.

Michigan offers three urban experiences that rival any in the U.S., with each experience unique in its own way. Detroit is in the midst of looking more like a typical U.S. big city with a light rail line and entertainment district featuring the new Detroit Red Wings arena set to begin operation next year. Also, the construction of additional bikeways, especially popular with millennials, should complement the city’s riverwalk, thriving restaurant scene, and historically renowned Eastern Market.

On the other side of Michigan lies Grand Rapids, whose comeback is a little further along. The transformation of Grand Rapids’ abandoned furniture plants into apartments helped persuade people to relocate downtown, allowing ventures like the city’s ArtPrize competition to succeed.

Finally, there’s Ann Arbor with its blend of unique restaurants and boutique shops located around the University of Michigan. The university’s reputation of drawing young talent has helped persuade nascent entrepreneurs and firms to locate in the area, leading to a building boom that has significantly increased Ann Arbor’s downtown residential inventory.

Is the renewed interest in Michigan’s downtowns, specifically from baby boomers and millennials, translating into population increases in those three cities? A recent blog by Kolko showed that since 2000, baby boomers and millennials have been moving back into downtowns in significant numbers. This blog will look at how the characteristics of the aforementioned cities’ populations have changed recently.

Population Changes

This analysis will compare population changes using Census data from 2000 and 2014. During that time, if we look at the central city area, Ann Arbor saw a small increase (3.3%) in its total population, while Grand Rapids saw a small decrease (-2%); Detroit suffered a substantial decline (-28.5%) in its total population. Looking at each city’s greater metropolitan area, Ann Arbor (1) and Grand Rapids (2) showed double digit increases of 10.5% and 10.4%, respectively, while Detroit (3) experienced a 4.1% decrease in its population. Given the changes in overall population, can we say that baby boomers and millennials (and groups that share their characteristics) are moving back into the cities?

In the chart below, population by age group, we see that young adults (15-24) make up an increasing share of Ann Arbor and Detroit’s population. At the other end of the age spectrum, in all three places and in their respective metropolitan areas, the baby boomer and silent (aged 75+) generations experienced increases in both of their population shares.

Chart 1: Change in Population Share by Age Group, 2000-2014: Ann Arbor, Detroit, Grand Rapids

Chart 1: Change in Population Share by Age Group, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

As the next chart indicates, 20-34 year olds (millennials) now comprise a greater share of Grand Rapids’ central city population, the opposite of what’s occurred in the Grand Rapids metropolitan area. Ann Arbor’s population share that consists of millennials registered a small increase, also the opposite of what’s taken place in Washtenaw County. Meanwhile, 55-74 year olds (baby boomers) moved back into all three cities (and metropolitan areas). Ann Arbor and Detroit now have a higher percentage of those from the silent generation within their city borders.

Chart2: Change in Population Share by Demographic Group, 2000-2014: Ann Arbor, Detroit, Grand Rapids

Chart 2: Change in Population Share by Demographic Group, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

The next chart looks at changes in population by education level. Grand Rapids saw a small increase in those with some college experience and a substantial increase in college graduates. In contrast, Washtenaw County saw a modest increase in those with some college experience and a significant increase in its college-educated population, the opposite of what occurred in the city of Ann Arbor. In Detroit’s central city, there were declines in both categories, whereas the Detroit metropolitan area saw a significant increase in those who had at least obtained their bachelor’s degree.

Chart: Change in Population by Educational Attainment, 2000-2014: Ann Arbor, Detroit, Grand Rapids Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Chart 3: Change in Population by Educational Attainment, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

The next chart focuses on the number of families presently living in cities. Grand Rapids saw a small influx of families with no children while that number remained relatively similar in Ann Arbor. Both metropolitan areas witnessed robust increases in the number of families without children. Detroit witnessed a massive outmigration of families with children of all age groups from both its central city and metro area. Ann Arbor and Grand Rapids saw significant, but less severe, declines in families with children. In their metro areas, Grand Rapids experienced small increases in families with older children and families with young and old children, while Ann Arbor experienced a moderate increase in families with older children.

Chart: Change in Number of Families by Family Type, 2000-2014: Ann Arbor, Detroit, Grand Rapids Source: Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Chart 4: Change in Number of Families by Family Type, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

The next chart looks at population share by race. All three cities saw increases in their Hispanic population, the largest occurring in Detroit. In contrast, all three cities saw decreases in their White population, though Detroit’s was small compared with the decrease in the metropolitan area’s white population. More recent census data suggests that Detroit’s White population increased in 2014 for the first time since the 1950 Census. (4) The Asian-American population grew in Ann Arbor and Detroit, while the African-American population increased in Grand Rapids.

Chart 5: Change in Population Share by Race, 2000-2014: Ann Arbor, Detroit, Grand Rapids Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Chart 5: Change in Population Share by Race, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

The final chart looks at household income. Since 2000, the population in Ann Arbor and Grand Rapids has increasingly comprised middle- to high-income earners. At the county level in both metro areas, the income distribution has shifted even more toward the higher end. Meanwhile, Detroit’s population still consists of mostly low- to middle-income earners. Comparatively, the counties that make up Detroit’s metropolitan area (5) have seen their income distributions shift away from the middle income brackets toward the low and high ends.

Chart 6: Change in Population Share by Income Decile, 2000-2014: Ann Arbor, Detroit, Grand Rapids Note: 1 is the highest income decile (greater than $200,000); 10 is the lowest income decile (lower than $10,000). Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Chart 6: Change in Population Share by Income Decile, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Note: 1 is the highest income decile (greater than $200,000); 10 is the lowest income decile (lower than $10,000).
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Conclusion

There is some evidence that three of Michigan’s most attractive and best-known cities are successfully attracting millennials and baby boomers. By age group, baby boomers and multiple segments of the millennial cohort now comprise a higher share of the populations of Ann Arbor, Detroit, and Grand Rapids. The picture becomes less clear when looking at changes in population by educational attainment and income, with Grand Rapids and Ann Arbor drawing a higher-skilled citizenry.
The most telling chart for me is the one concerning changes in family structure. The number of families with no children grew slightly in Grand Rapids, stayed the same in Ann Arbor, and significantly decreased in Detroit, though at a lower rate than the overall population decline during that time. While those trends are somewhat encouraging, the trends describing changes in the number of families with children are discouraging. Families with school-age children moved out of each of the three cities at relatively high rates, and we saw increases in families with children in the Ann Arbor and Grand Rapids metropolitan areas. The presence of families in cities signals an acceptable standard of living to those considering moving into cities from suburban areas, providing opportunities for cities to grow their populations and thrive.

———————————————————————————————————-

Footnotes:

(1) Ann Arbor’s metropolitan area consists of Washtenaw County.
(2) For overall population and population by race figures, the Grand Rapids metropolitan area consists of Barry, Kent, Montcalm, and Ottawa counties. Otherwise, the Grand Rapids metropolitan area consists of Kent and Ottawa counties because of the availability of data.
(3) For overall population, population by race, and educational attainment figures, Detroit’s metropolitan area consists of Lapeer, Macomb, Monroe, Oakland, St. Clair, and Wayne counties.
(4) See http://www.detroitnews.com/story/news/local/detroit-city/2015/09/17/detroit-white-population-rises-census-shows/72371118/.
(5) For household income, Detroit’s metro area consists of Macomb, Oakland, and Wayne counties because of the availability of data.

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.

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

The impact of the changing structure of employment on wages in Michigan

By Paul Traub

As of June 2014, total nonfarm employment for the U.S. is reported to be greater than its January 2008 peak by 430,000 jobs. In contrast, according to the most recent data from the U.S. Department of Labor’s Bureau of Labor Statistics, Michigan nonfarm employment as of June 2014 is still down by 550,800 jobs or 11.7% from its previous peak of April 2000 (Chart 1). In addition, since the start of the last recession, Michigan nonfarm employment is still down 105,300 jobs or 2.5%.

Chart 1

It is important to note that since bottoming in 2010, Michigan’s job growth has outperformed the nation’s on a percentage basis, growing by 8.1% versus 7.0% for the nation. However, Michigan’s job growth since 2010 has been concentrated in nontraditional industry sectors, leading to a significant change in Michigan’s employment structure. In addition to this change in employment structure by industry, Michigan’s average weekly wage, once higher than the nation’s, has fallen below the national average (Chart 2). At $844 per week, Michigan’s average real wage in 2013 is about equal to what it was in 1999, with much of the lack of wage growth being attributed to the change in employment structure by industry sector and associated wages. This blog explores the change in Michigan’s employment structure and its impact on Michigan’s average weekly wage over the past 15 years.

Chart 2

Although job growth in Michigan has outperformed that of the nation as a whole since 2010, according to the data in Chart 2 wages in Michigan haven’t kept pace. In fact, Michigan’s positive wage gap disappeared in 2006 and has continued to turn more negative since then. Michigan’s strong job growth since 2010 started from a much lower base than any of the other states. Total U.S. nonfarm employment reached an all-time peak of 134.4 million jobs in January 2008 then fell by 6.3% to 129.7 million jobs by February 2010. However, Michigan’s employment difficulties started almost eight years earlier, just prior to the 2001 recession. Michigan’s nonfarm employment peaked in April 2000 at 4.7 million jobs, before starting to trend downward and finally leveling off in 2010. During the almost ten years of employment decline, Michigan nonfarm employment fell by 18.4 % or 861.6 thousand jobs, the biggest loss of any state in the nation. In addition, as of June 2014, Michigan’s nonfarm employment remains 11.7% below its previous peak, which gives Michigan the distinction of having the largest employment gap, defined here as current employment below a previous peak, of any state in the country. In fact, the next largest employment gap is only about half that of Michigan at 5.9% for both Nevada and Ohio.

Chart 3 shows the current percentage change in Michigan’s total nonfarm employment by major industry sector since 2000, when Michigan’s employment started its gradual decline. The two sectors that have performed the best for Michigan since the start of the recovery are leisure and hospitality and education and health services. It should be noted here that education and health services employment did not fall noticeably during the 2008 recession and, therefore, it is the only sector in Michigan that has actually sustained a positive trend of job creation since the 1990s.

Chart 3

The sectors that lost the most employment on a percentage basis were manufacturing followed closely by construction. Michigan still has one of the nation’s highest employment concentrations in manufacturing jobs but of the top manufacturing states by employment in 2000, Michigan ranks third in job loss behind only California and Ohio. While the U.S. has seen employment numbers exceed their previous peak for every sector except two (information and government), Michigan hasn’t experienced the same fortunate results.

What happened to manufacturing jobs in Michigan has been well documented. Throughout the decade of the 1990s, manufacturing employment in Michigan averaged about 20.2% of total nonfarm employment. A large percentage of those jobs were tied to the automotive industry. By 2009, manufacturing employment as a share of total nonfarm employment in Michigan had fallen to just 12.0% from 19.2% in calendar year 2000. This equates to a loss of over 433,000 manufacturing jobs in less than a decade, the equivalent of almost 23,000 jobs per year. By 2013, Michigan had recoved some of the manufacturing jobs that were lost during the recession, but manufacturing’s share of total nonfarn employment of 13.7% remained well below its share in calendar year 2000 (Chart 4). These events surrounding the loss of many automotive manufacturing jobs also explain some of the job losses in other sectors. Construction, for example, is closely tied to investment, and in Michigan much of that investment is related to the automoble industry—not only business investment on plant and equipment but also residential investment on housing and durable goods for automotive workers, some of whom lost their jobs or left the state during the recession.

Chart 4

During this time frame, Michigan’s total share of U.S. nonfarm employment fell from 3.5% in 2000 to 3.0% in 2013 (Chart 5). The decline was felt in every sector except information. Even though the infromation sector was able to gain share relative to the U.S.—going from 2.0% in 2000 to 2.1% in 2013—it actually lost share in Michigan, falling from 1.6% in 2000 to 1.4% in 2013.

Chart 5

Although there were some industry sectors that added share as a percentage of Michigan employment between 2000 and 2013, including education and health services (10.7% to 15.4%), leisure and hospitality (8.5% to 9.8%), professional and business services (13.7% to 14.7%), other services (3.7% to 4.1%), and financial activities (4.5% to 4.8%), some of these share gains can be traced back to lower overall employment. Only two of these sectors, education and health services and leisure and hospitality, have added enough employment to surpass their 2000 employment levels.

At the same time that Michigan employment was declining, so were average weekly wages. Chart 6 below shows Michigan’s average weekly wages divided by the average weekly wage for the U.S. by sector in calendar years 2000 and 2013, or the wage permium Michigan workers were earning.(1)

Chart 6

Based on the latest data from the U.S. Department of Labor’s Quarterly Census of Employment and Wages (QCEW), in calendar year 2000 Michigan’s manufacturing workers earned an average premium of 16% relative to manufacturing workers elsewhere in the country, and Michigan’s construction workers earned a premium of 15%. While workers in the manufacturing and construction industries still earn more than the national averages, their wage premiums have been reduced significantly. In addition, the ratios between wages in Michigan and the U.S. have fallen in every sector except government. As noted earlier, the manufacturing and construction sectors also had the highest percentage decline in employment since calendar year 2000 and continue to remain well below their calendar year 2000 employment levels. While Michigan workers earned a 5% premium in 2000, that premium had been entirely reversed by 2013, when Michigan workers earned about 5.0% less than the national average.

Since 2000, the structure of Michigan’s employment and average wages has changed considerably. Although Michigan has made some employment gains recently, total nonfarm employment still remains below its previous peak. But how much different might Michigan’s total employment look if we could go back to the way things were in 2000? To answer this question, I constructed a scenario in which Michigan maintained the same percentage of national employment by sector as it had in 2000. Chart 7 below shows the results of this scenario in percent change by sector from average year 2000 to June, 2004. This shows that Michigan’s total employment would be 3.2% higher than it is today and 0.2% higher than its previous peak, with the largest percentage gains coming in the mining and logging, education and health services, and leisure and hospitality sectors. However, Michigan would still have suffered significant employment declines in the manufacturing, information, and construction sectors.

Chart 7

To look at what impact Michigan’s changing employment structure has had on wages, I constructed two different scenarios. In the first wage scenario, I held Michigan’s current wage by sector constant but changed the employment shares by sector to what they were in 2000 to match what I did in the employment scenario above. In the second scenario, I held the employment shares by sector equal to what they were in 2013 but I changed the average weekly wage ratios to what they were in 2000. For each of these two wage scenarios, I then calculated Michigan’s weighted average weekly wage for all the sectors. Chart 8 shows the results of these two scenarios compared with the 2013 average weekly wage in Michigan. The first wage scenario implies that if Michigan had the same employment structure by sector that it had in 2000, the total average weekly wage would have increased by 3.0% to $933 a week. Even with this increase, Michigan’s average weekly wage would still be below the national average of $958 per week by 2.6%. In the second wage scenario, the average weekly wage in Michigan increases by 9.3% to $990 per week. This scenario places Michigan’s average weekly wages above the national average but by only 3.3% versus the 5.0% premium that existed in 2000.

Chart 8

In summary, while Michigan’s employment has made significant improvement during this economic recovery, there is still a lot of work that needs to be done. Without question, one of the most positive events pertaining to Michigan employment and wages has been the steady and long-lasting growth in the education and health services sector. The education and health sector has not only helped to offset some of the jobs lost in manufacturing and construction, but also the sector’s higher than national average weekly wage has been an added bonus to the state. Other sectors that could provide added help to Michigan’s employment structure and wage picture going forward include the manufacturing and construction sectors. Given that these two sectors still command a small wage premium, any improvement in either of these sectors would surely help total average wages for the state. However, going back to the way it was in 2000 doesn’t seem to be the remedy.

Even if Michigan could go back in time by 14 years, its employment and wage situation wouldn’t be that much different than it is today. Although total nonfarm employment would be higher today if Michigan had the same percentages of U.S. employment by sector as it did in 2000, it would only be higher by 3.2%. That would equate to an average job growth of just 0.2% per year over a 14-year span. We also saw that total average weekly wages for Michigan would seem to look considerably better if Michigan still enjoyed the same wage premiums it had in 2000, but the changes in the structure of employment by sector that have taken place would diminish some of the total wage premium. What isn’t apparent at first glance is how much more important the structural change in employment was to total wages in Michigan. Table 1 shows an estimate of total weekly wages in Michigan by multiplying total nonfarm employment by the average weekly wage for 2013 for each of the two wage scenarios discussed above. What this shows is that if Michigan maintained the same percentage of national employment by sector in June, 2014 as it had in 2000, together with the average weekly wage this assumption implies, Michigan’s total weekly wages would be greater than if the state held the same wage premiums today as it did in 2000. So even if Michigan had the same wage premiums as in 2000 and the higher weekly wage this scenario implies, total weekly wages for the state would not be as great as if the employment structure were the same today as it was in 2000.

Table 1

That’s not to say that the erosion of Michigan’s wage position relative to the national average hasn’t has a significant impact on total average weekly wages in the state, but it does seem that the wage premium change wasn’t as significant as the shift in the employment structure between sectors when taking total weekly wages for Michigan into consideration.

——————————————
(1) Calculations are based on U.S. Department of Labor’s and include only covered employment.

Comparing Detroit’s Commuting Patterns with Other Cities’

By: Martin Lavelle and Emmanuel Ogbonna

According to the U.S. Census Bureau, the average one-way commute time for U.S. workers increased by almost three minutes between 1990 and 2000. However, since 2000, this commute time has fluctuated between 25 and 26 minutes, even with the numbers of drivers continuing to increase. Why hasn’t the average commute time increased further? For one, U.S. roadways have also expanded since 2000—which likely helped ease some traffic congestion. Moreover, changes in the mode of transportation—such as the greater use of public transportation and carpooling—may also have helped to relieve congestion. Other possible explanations are that workers relocated closer to jobs or that jobs relocated closer to workers. In this blog entry, I examine the commuting patterns of city of Detroit and compare them with those of other cities in Michigan and across the Midwest; I also look at Detroit’s commuting patterns in comparison with those of other Rust Belt cities and similar industrial cities in different parts of the country. I present these comparisons in the hope that they will lend some insight into the ongoing and forthcoming challenges Detroit faces, including those related to improving its transportation infrastructure and broadening its economic base. Such efforts are important to Detroit as it attempts to rival cities that have turned themselves around at least to some degree (e.g., Pittsburgh and Baltimore).

The city of Detroit typifies U.S. suburban and exurban sprawl, with some job holders in the area commuting as long as 75 minutes one way from Jackson and Lansing, Michigan, regularly.[1] By way of explanation, some analysts have attributed Detroit’s current commuting situation to the presence of the domestic auto industry headquarters and the absence of a suitable regional public transportation network. Indeed, the lack of a coordinated regional transit network—with the exception of a (somewhat unreliable) bus system—makes it difficult for Detroit’s job holders and residents to move inside and outside the city to their places of employment. The commuting conditions for Detroit workers and residents look even more challenging when compared with those of other major cities. The U.S. Census Bureau’s On The Map tool helps researchers analyze the commuting patterns of states, metropolitan areas, cities, and other places. I use this tool to generate the tables that follow. Table 1 presents where the jobs of Detroit residents employed in 2011 were located.

Table 1

Focusing first on the central city of Detroit, we can see that 37.7% of the job holders who lived in the city of Detroit also worked there in 2011 according to the work destination report, meaning that the remaining 62.3% of Detroiters who were employed that year commuted into Detroit’s suburbs (or farther afield) for work. The main pattern that can be discerned from the table is that if one draws arcs connecting the suburbs around the city of Detroit according to the degree to which Detroiters were employed there in 2011, the primary “ring” formed would contain Southfield, Livonia, and Dearborn and the secondary ring formed (a bit farther out from Detroit) would include Farmington Hills, Royal Oak, and Warren (see the map below).

Map

Table 2

Taking a different approach, we can examine where workers reside in the Detroit metro region. Table 2 presents information on where people who worked in the city of Detroit in 2011 lived. In 2011, 28.3% of the jobs in Detroit were occupied by workers who also lived there, meaning that 71.7% of workers employed in Detroit lived outside of the city. This 71.7% figure has most likely increased since 2011 because of the ongoing movements of people and businesses into Detroit’s Downtown and Midtown neighborhoods from outside the city.

How do these findings for the city of Detroit compare with those of other Michigan cities? Table 3 shows (employed) city residents by the share of them who work outside of their city of residence. As a rule of thumb, we might expect that larger cities to have lower shares of their residents working outside the city boundaries. But that does not necessarily hold true in Michigan. For instance, the largest city, Detroit, had 40% of its (employed) residents working within its own boundaries in 2011, leaving 60% of them working outside the city. In contrast, the much smaller Michigan city of Ann Arbor had almost 60% of its (employed) residents with jobs based within its city limits as of 2011.

Table 3

This finding is not all that surprising if we look more closely at Ann Arbor’s economic makeup. Many people are drawn to both live and work in Ann Arbor (rather than just live there) because it hosts the University of Michigan, Google, and Ann Arbor SPARK (an organization that assists local businesses and entrepreneurs) and features several attractive amenities (such a bustling downtown).

The shares of residents who were not employed where they lived largely held steady for the major cities of Michigan between 2002 and 2011. Detroit, Ann Arbor, Flint, and Grand Rapids only saw small changes in their shares, while Michigan’s capital city, Lansing, experienced a larger decline in its share, possibly because of the shrinking of state government, which forced labor force participants to look for job opportunities outside the city limits.

Table 4 presents the percentage of Michigan cities’ work forces commuting into these cities from outside their boundaries. The table shows that larger shares of workers with jobs in major Michigan cities commuted from outside the city limits in 2011 than in 2002. Urban business districts often offer more opportunities for high-skilled workers, and the Michigan cities compared below are no exception. In recent years, Detroit’s Downtown area has seen an influx of large businesses, including Quicken Loans, Blue Cross & Blue Shield, and Chrysler’s executive office, coming from the surrounding suburban areas; and several small businesses have established themselves in Detroit’s Midtown area. In addition, Ann Arbor has seen several venture capitalists and entrepreneurs, along with Google, locate their operations there, providing economic growth on top of that delivered by its mainstay, the flagship campus of the University of Michigan. Grand Rapids’ growing reputation as a conference destination has brought more economic activity to its downtown. Flint’s University of Michigan campus has expanded its downtown presence. And as the state capital, Lansing will always be a commuting destination.

Table 4

In the Michigan cities compared in Tables 3 and 4, the majority of each city’s own working residents were commuting outside of the city for work in 2011 (with the exception of Ann Arbor), while the majority of city-based employers had employees who lived outside of the city that year. These trends are in stark contrast with those of the mid-twentieth century—when city residents could find work easily inside their respective cities, often at one of the many manufacturing facilities. Nowadays, given the loss of manufacturing jobs and the deterioration of city residents’ job skills, residents must often look outside the city limits to find job opportunities and employers must be able to draw workers from outside the city in which they’re based.

For Detroit, Lansing, and Flint, Table 4’s results for both 2002 and 2011 most likely reflect people wanting to live outside the city because of a combination of negative housing conditions, poor public service delivery, low school quality, and overall low quality of life. But in Ann Arbor and Grand Rapids—two cities with more positive reputations—the results from Table 4 may reflect people having gained employment in these two cities but deciding to commute there from their residences outside the respective city limits.

Table 5

So, how does Michigan’s story compare with those of other major cities in the Seventh District? Of the major Seventh District cities featured in Table 5, only Chicago and Milwaukee have extensive mass transit systems (something in addition to buses). Seeing that more Indianapolis residents worked within the city in both 2002 and 2011 may be surprising, but the city encompasses most of Marion County, which has a large surface area. Over the past few years, Des Moines has seen an increase in commuter traffic from the city to its suburbs, particularly West Des Moines, as they become more popular for businesses and residents. The 10 percentage point increase in (employed) city residents not working where they live for Des Moines between 2002 and 2011 is likely reflected in this increase in commuter traffic. This percentage did not change as dramatically for the other Seventh District cities studied.

According to Table 6, 46% of people who worked in the city of Chicago in 2011 did not live there. Indianapolis’s suburbs such as Brownsburg, Zionsville, and Fishers have seen population increases over the past few years, which may explain why a higher share of its city work force lived outside of the city limits in 2011 than in 2002. All of the Seventh District’s major cities have the infrastructure to handle more inbound traffic from their suburbs—namely, extensive freeways systems—so the commuting patterns shown in Table 6 should not be all that surprising.

Table 6

Tables 7 and 8 compare Detroit with other cities that are looking to redefine (or have already redefined) themselves as places where high-skilled workers will want to not only work but live. Before going over the results of the tables, let me provide a little background for each city. Pittsburgh is arguably the U.S. city most discussed as a model of economic transformation—it went from being a city reliant on steel manufacturing to one that is strongly associated with the higher education and health care industries. Through this transformation, Pittsburgh has also achieved a high quality of life for its residents. Cleveland has begun its efforts to mirror Pittsburgh’s downtown revival by implementing a rapid bus transit system; the hope is that this system will connect its University Circle neighborhood—a center of innovation and a place with young demographics—with other parts of the city. Birmingham has been referred to as the “Pittsburgh of the South” on account of the steel industry’s presence there. Despite the presence of some regional banks and universities, Alabama’s Jefferson County, whose county seat is Birmingham, is currently involved in bankruptcy proceedings. Baltimore famously made over its downtown with a new baseball stadium and a new football stadium, attracting people, especially young professionals, back to its Inner Harbor area. Buffalo is attracting young people back by developing residential and commercial areas around its downtown medical campuses.

Table 7 shows that shares of (employed) residents who were not working where they lived held fairly steady for the cities sampled between 2002 and 2011. In 2011, Pittsburgh remained the only city in the sample that saw a majority of its residents with jobs not commuting outside of the city. The other cities listed in Table 7 saw more of their respective employed residents leave the city limits to go to work in 2011. As these cities became more decentralized in the last quarter of the twentieth century, suburban job clusters were created that remain popular places in which to work and live.[2] Detroit’s and Cleveland’s freeways are now lined with business centers, industrial parks, and suburban skyscrapers; such developments led to the creation of school districts that remain among the best in Michigan and Ohio, respectively.

Table 7

While each of these cities is seeing more of its work force commute from the suburbs (or farther afield), the recent pace of out-migration from Detroit to its suburbs becomes more evident in Table 8. Of the cities in Table 8, only Detroit and Birmingham have mass transit systems limited to traditional buses. Pittsburgh and Cleveland have recently expanded their mass transit systems, allowing more workers to commute into the city using light rail and rapid buses. The numbers in Table 8 may reflect the effect of years of population migration from the central cities to their respective suburbs.

Table 8

Conclusion
Detroit exhibits commuting inflow/outflow ratios that somewhat resemble those of other Seventh District and Rust Belt cities. Detroit’s ratios differ from other cities’ ratios mostly likely because of the following factors. The jobs found in the city of Detroit are more suitable for members of a high-skilled work force, who mostly live outside the city’s boundaries. Meanwhile, the population residing in the city of Detroit is mainly made up of low-skilled workers who must look outside the city limits for gainful employment. In all likelihood, Detroit residents will have a more difficult time finding gainful employment than residents of other decentralized manufacturing cities because of Detroit’s large geographical size and unreliable public transportation system.

If the city of Detroit were to see an increase in the percentage of its population both living and working within its boundaries, this would most likely come about because the city had diversified its economy and because it had become a more attractive place for young people to begin their careers—key achievements made by many other Rust Belt cities that have transformed themselves in recent years.

[1] This estimate is based on my personal experience and my talks with other Michigan residents who commute to Detroit. Also, according to the U.S. Census Bureau’s OnTheMap tool, almost 700 people travel from Grand Rapids, Michigan, to Detroit for work—a one-way commute of two-and-a-half to three hours.
[2] Decentralized manufacturing cities indicate cities where an urban population and the manufacturing industry have been largely redistributed to suburban areas.

2012 Michigan Employment Summary

By Martin Lavelle

The Bureau of Labor Statistics’ annual benchmark revisions indicate that Michigan’s labor market decelerated in 2012, adding 37,400 to total nonfarm payrolls while seeing its unemployment rate fall to 9.0% in March and rise to 9.3% during the summer, before falling again and settling at its current rate of 8.9%. As seen in chart 1, Michigan’s unemployment rate tracked somewhat the behavior of the national and Seventh District unemployment rates, though Michigan’s unemployment rate uptick was sharper. Despite the drop in the unemployment rate, Michigan’s labor force shrank for the sixth straight year. Over the past six years, Michigan’s labor force participation rate has fallen from 64% to 59% as population out-migration accelerated.

Chart 1: U.S., Seventh District, and Michigan Unemployment Rates

Picture1

As shown in chart 2, the state’s labor market expanded at a stronger and more consistent pace last year, adding 97,000 workers to nonfarm payrolls as the unemployment rate fell throughout the year. After revisions, Michigan nonfarm payroll employment over the past two years was revised upward by 51,500. In 2012, the largest job gains were recorded in manufacturing (+20,700) and professional & business services (+9,900). Construction and government were the two largest drags on employment growth, though construction employment picked up slightly toward the end of 2012.

Chart 2: Changes in Michigan Total Nonfarm Payroll Employment, Level vs. 3 Month Moving Average

Picture2

In 2012, Michigan’s nonfarm payroll employment increased 1.9%, slightly faster than the nation’s, which grew 1.7%. Michigan’s nonfarm payroll employment growth slightly decelerated from 2011 when growth was 2.3%. The state placed fourteenth in employment growth among all states in 2012 after placing second the previous year. During the second half of 2012, Michigan’s employment growth slowed to a rate slower than the nation’s.

Chart 3 compares employment levels in the fourth quarter of 2012 and the fourth quarter of 2011. Michigan’s employment grew at a slower rate than both the nation’s and the District’s. The only job category that expanded at a faster rate in Michigan was manufacturing. When comparing fourth quarter year-over-year employment levels, Michigan’s total nonfarm payroll employment expanded 1.1%, ranking 36th among the states. However, for the first quarter, year over year, Michigan’s total nonfarm payroll employment increased 2.6%, ranking fourth among the states.

Chart 3: Employment Growth by Sector, 4th quarter 2012 vs. 4th quarter 2011, U.S., Midwest, Michigan

Picture3

Where has the slowdown in Michigan employment growth taken place? Sector-wise, while still registering strong annual increases, growth in manufacturing employment has slowed considerably, especially in metals, plastics & rubber, and machinery-related occupations. Chemical manufacturing and transportation equipment growth rates flattened out, while declines took place in computers and electronic equipment.

Relative sector weaknesses emerged in retail trade and leisure & hospitality during the fourth quarter of 2012. Nationally, retail trade employment grew at a 1.5–2.0% annual rate during the holiday season. However, Michigan’s retail trade employment decreased at a –0.2–0.5% rate, with the most significant declines occurring at gas stations, grocery stores, and general merchandise stores. Leisure & hospitality employment in Michigan only grew at a 1.2% rate versus 2.7% growth nationally. A large divergence took place in the subsector of arts, entertainment & recreation, where nationally, employment grew at around a 2.5% annual pace while statewide employment fell at an annualized pace of –9.5%.

The rate of decline in metro area unemployment rates slowed from its 2011 pace. Western Michigan’s metros (Grand Rapids, Kalamazoo, and Holland) are seeing their unemployment rates fall faster than other parts of the state. Lansing and Detroit have seen slight increases in their respective unemployment rates. Payroll employment growth has also slowed, with decreases in Saginaw and continued stagnation in Lansing. Growth continues to be strongest in Grand Rapids and Holland, although the only major Michigan metro area that is seeing a significant acceleration in employment growth is Ann Arbor.