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.

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=

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

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.

Michigan Home Price Update

By Martin Lavelle

A recently released home price index(1 suggests that the trend of climbing Michigan home prices continues. According to the latest FHFA Home Price Index (HPI) release looking at updated home transactions through the third quarter of 2014, home prices continued to grow at a faster rate in Michigan than in the U.S. and Seventh District(2.

Chart 1: Year-over-year Percentage Change in FHFA All-Transaction HPI: Michigan, U.S., Seventh District(3, 2007-present
Michigan HPI - Chart 1 Source: Author’s calculations using data from Federal Housing Finance Agency (FHFA).

Chart 1 shows that Michigan home values are about 8% higher than last year. Home values also appear to have appreciated at a slightly faster rate in 2014 than last year. The same holds true in the U.S., with home values about 6% higher than last year. However, as was the case in Michigan, the national rate of home value appreciation appears to have slowed slightly between the second and third quarters of this year. In the Seventh District, home values are about 4% higher than last year and have continued to appreciate at a faster rate than last year.

As chart 1 shows, home values in the U.S., Seventh District, and Michigan have increased year-over-year since 2012. However, not all regions have attained pre-recession HPI levels. Based on the most recent HPI data, U.S. home values overall are 8.5% below their pre-recession HPI peak, while prices in the Seventh District are 7.0% below their pre-recession HPI peak. Michigan’s gap between current and pre-recession HPI levels is 15.2%(4. Chart 2 shows the larger gap Michigan faces relative to the U.S. and Seventh District. On the positive side, those who have purchased homes in Michigan following the financial crisis could stand to realize significant gains in home value if Michigan home prices ever return to their previous peak.

Chart 2: Annual FHFA All-Transaction HPI Index levels, 2003=100: Michigan, U.S., Seventh District(5 , 2003-present(6
Michigan HPI - Chart 2 Source: Author’s calculations using data from Federal Housing Finance Agency (FHFA).

1) The Federal Housing Finance Agency (FHFA) publishes an all-transaction House Price Index (HPI), based on transactions involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. The HPI is a weighted sales index that tracks average price changes on sales or refinancing of mortgages purchased or securitized by Fannie Mae or Freddie Mac since January 1975. The all-transaction HPI, published quarterly, includes prices from appraisal data obtained from Fannie Mae or Freddie Mac. It examines national, state, and metropolitan statistical area (MSA) data that is not seasonally adjusted.
2) The Seventh Federal Reserve District comprises all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin.
3) The Seventh District HPI was calculated by averaging each member state’s respective HPI.
4) Michigan’s all-transaction HPI peak came in the third quarter of 2005, while the U.S. and Midwest both hit their peak levels in the first quarter of 2007.
5) The Seventh District HPI was calculated by averaging the member states’ HPIs.
6) The annual averages were calculated by averaging the regions’ quarterly levels.

Michigan Economic Update – 2014:Q3

By Paul Traub

Michigan’s contribution to the economic wellbeing of the Seventh District increased in July to 0.11, its highest level since March 2013, according to the Federal Reserve Bank of Chicago’s Midwest Economic Index. However, positive contributions from services, manufacturing, and the consumer continue to be offset by slow growth in the construction sector. A reading above zero indicates that Michigan’s economy is expanding above its historical trend. The index is a weighted average of economic indicators from four broad sectors of the economy; manufacturing, construction and mining, services, and consumer spending.

Real per capita income in Michigan registered continued improvement in Q1:2014, up 1.4% on a year-over-year basis versus 1.6% for the nation as a whole. Since hitting its recessionary bottom in Q1:2010, Michigan’s real per capita income has increased by a total of 8.9% compared with 5.3% for the nation over the same period.

Other key indicators include:
• Michigan’s unemployment rate declined to 7.4% in August versus 6.1% for the nation.
• Michigan home prices increased 7.7% in Q2:2014 on a year-over-year basis and have finally surpassed their calendar year 2000 level.
• U.S. light vehicle sales recovered to their highest level since January 2006 on a seasonally adjusted annual rate basis.
• Michigan light vehicle production fell 3.5% August year-to-date compared with the same period last year, as Michigan’s share of total North American production dropped to 13.9% versus 15.2% in 2013.

For a more detailed look into the numbers behind Michigan’s economic performance, follow the link to Chicago Fed’s Michigan Economic Update – 2014 Q3.

What Do the Latest Labor and Migration Statistics Say about Michigan’s Economy and Its Prospects?

By Martin Lavelle

Employment levels in Michigan have recently shown signs of improvement. In fact, since the end of the Great Recession in mid-2009, Michigan’s household employment has increased 2.6%, matching the national gain. However, these recent improvements belie Michigan’s poor employment conditions stemming from a long period of subpar economic growth. Indeed, Michigan experienced a “one-state recession” for most, if not all, of the first decade of the twenty-first century.
Facing job eliminations and poor employment prospects, many Michiganders have become discouraged in their job searches, some abandoning them temporarily and others retiring early. Those who are no longer seeking employment are no longer counted as being in the labor force. The chart below illustrates those who remain in the Michigan labor force—which comprises those who are employed along with those who are unemployed but actively looking for work. Since 2001, Michigan’s work force has declined by 10%, while the U.S. work force has grown by almost 10%.

Chart 1: Labor Force: U.S. vs. Michigan, 1990—present
US & MI Labor ForceSource: Author’s calculations based on data from the U.S. Bureau of Labor Statistics.

Some part of this gap has come about as hundreds of thousands of Michiganders have left the state in search of better labor market conditions (or have decided to retire out of state). Moreover, since 2000, Michigan’s population decreased 0.7%. In stark contrast, according to the U.S. Census Bureau’s population estimates, the U.S. population grew 11.3%.

The U.S. Census Bureau’s American Community Survey (ACS) looks at annual migration flows. Table 1 shows both the top five states and the bottom five states by domestic net migration rates over the period 2001–10. One can see that Michigan had one of the highest domestic out-migration flows among the 50 states during that decade.
Source: Author’s calculations based on data from the U.S. Census Bureau, American Community Survey, from Haver Analytics.

Even with the ongoing rebound of the auto industry and other manufacturing subsectors, Michigan continues to experience a large out-migration rate; see Table 2, which features the top five states and the bottom six states by domestic net migration rates in 2011–12. Despite the increase in job openings in Michigan, many employers continue to experience difficulty in trying to persuade workers to accept positions there because of the state’s reputation for having a challenging labor market environment.
Source: Author’s calculations based on data from the U.S. Census Bureau, American Community Survey, from Haver Analytics.

Table 3 shows the top ten destinations for Michigan residents. As one would expect, Michiganders are moving to nearby states—such as Illinois, Indiana, and Ohio. Indiana and Ohio have recently passed legislation that could be described as being more business-friendly: Indiana became a right-to-work state (meaning that the state bars union contracts from requiring nonunion members to pay fees for representation), and Ohio lowered its business taxes. Illinois and Ohio are viewed as more attractive destinations for recent college graduates; large cities in both states have seen rising employment in occupations that typically require a college or post-college degree in part because they are viewed as attractive places for younger college graduates.
Source: Author’s calculations based on data from the U.S. Census Bureau, American Community Survey.

Another emerging pattern that one might anticipate over the next few years is the movement to warm-climate locations for retirement. Such locales include Sun Belt states, such as Florida and Georgia, and southwestern states, such as California and Arizona. The 2010 U.S. Census data indicate that Michigan has one of the older populations in the nation: Michiganders have a median age of 38.9, which is the 12th highest among all 50 states. Of Michigan’s total population, baby boomers (those aged 45–64) make up 27.9%—tied (with Wyoming) for ninth highest state share of this demographic. Over the next few years, one could expect more population movements out of Michigan to locations popular with retirees.

Table 4 shows some of the top destinations for Michigan residents based on the ACS five-year survey of domestic migration between 2005 and 2009.
Source: Author’s calculations based on data from the U.S. Census Bureau, American Community Survey.

Many of the counties listed above either border Michigan or contain large metropolitan areas—two types of endpoints that one might expect to see when analyzing population movements. The border counties mentioned include cities such as Toledo, South Bend, and Elkhart. The large metropolitan areas found in the counties referenced above include Houston, Fort Worth, Chicago, Indianapolis, Los Angeles, San Diego, Phoenix, Atlanta, Charlotte, Memphis, and Nashville. The only counties that don’t directly fall under either category are Hidalgo County, Texas (which borders Mexico) and the Florida counties. The Florida counties mentioned include areas surrounding the “I-4 Corridor,” which runs through Tampa, Orlando, and Daytona Beach. These counties are prominent locations for retirees and feature easy access to recreation.
Restoring population and work force growth in Michigan will be a challenge given the forces at work inside and outside of the state. A number of public and private programs have been created to attempt to address these forces and attract people back to Michigan. After taking office, Governor Rick Snyder created the Office of Urban and Metropolitan Initiatives, which aims to draw more young graduates, especially those who attended Michigan’s many colleges and universities, to Michigan’s cities. The Michigan Economic Development Corporation replaced the state’s tax credits to clean up and revitalize brownfields (abandoned or underused industrial and commercial facilities) with a community revitalization program that offers grants and loans for individual urban projects. Private investors, such as Dan Gilbert, have moved their offices into downtown areas to try and regenerate urban consumer and business activity. But with the lingering effects of Michigan’s lengthy recession still present in much of the state, Michigan could face a difficult time replenishing its population and work force lost over the past decade.

1.The share of the working age population counted in the labor force—that is, both the employed and unemployed (who are actively seeking work)—is referred to as the labor force participation rate. For 2012, Michigan’s labor force participation rate averaged 59.8%—slightly below the nation’s rate of 63.7% that year.

2. Natural population growth has also slowed because of out-migration of women of child-bearing age and possibly because of declines in voluntary fertility.

Employment growth continues slowly

Each year at the end of January, the U.S. Bureau of Labor Statistics updates its monthly seasonal factors and revises its nonfarm payroll employment numbers. This year, the revised employment numbers indicate that job growth in the United States may have been stronger than previously estimated. Chart 1 below shows monthly nonfarm employment from January 2010 through December 2012 before and after the latest revisions.


According to the latest revision, there were some 647,000 more nonfarm payroll jobs created since January 2010 than originally estimated, with more than half of them created during calendar year 2012.

While this is good news, the unemployment rate in the United States in January 2013 remained at 7.9 percent; and the fact remains that there are fewer people working today than at the start of the recession. In fact, since the start of the recession in December 2007, we have lost over 9.0 million jobs. Through January 2013, only 5.8 million new jobs have been created. This means that nonfarm payroll employment levels are still running 3.2 million behind where they were when the recession began. Chart 2 shows U.S. nonfarm payroll jobs gained and lost by sector since January 2008, when U.S. nonfarm payroll employment peaked.


In the private sector, the industries that have been the slowest to recover include manufacturing, construction, trade and transportation, information technology, and financial activities. In total, these sectors are still down a total of 5.2 million employees. The public sector is still down by 512,000 employees, with local governments accounting for 89% of those job losses. It is no surprise that local governments have been the hardest hit, given the impact falling real estate price have had on revenue generation in many local communities and school districts throughout the country.

On the plus side, the biggest employment gains can be seen in the education and health services, leisure and hospitality, and mining and logging sectors. Health services alone has added 1.6 million jobs, accounting for half of all jobs created since the start of the 2008 recession. In fact, that sector has added jobs in every month since December 2007. This is a pretty remarkable feat, given the severity of the recession.

How has Michigan fared? Unlike the U.S., in Michigan nonfarm payroll employment actually peaked in April 2000 at 4,691,100 jobs. Michigan continued to lose jobs from then through the start of the 2008 recession. By January 2008, Michigan’s total nonfarm payroll employment had fallen by 450,000 jobs. After the 2008 recession started, Michigan lost an additional 413,300 jobs before bottoming out in July 2009 at 3,827,800 jobs. This is a total job decline from peak to trough of 863,300 jobs or 18.4% of all nonfarm payroll employment in the state.  In December 2012, Michigan’s nonfarm payroll employment was reported to be 3,973,300, which is an increase of 145,500 jobs since July 2009. However, from peak to trough, Michigan is still down 717,800 nonfarm payroll jobs.

Chart 3 shows Michigan’s nonfarm payroll jobs gained and lost by sector since the start of the 2008 recession. Since the recession began, Michigan is still down 267,800 payroll jobs.


Even with the recent job gains in the auto industry, Michigan’s manufacturing employment is still down 76,900 jobs from the start of the recession. However like the nation as a whole, Michigan has seen fairly steady job growth in the education and health services sectors. The good news is that, relative to the nation’s, Michigan’s job recovery has been somewhat stronger, albeit from a much lower base. Charts 4 and 5 show the percentage change in nonfarm payroll employment for the United States and Michigan by major category and by sector from the start of the recovery through December 2012.


As these data indicate, Michigan has seen stronger total growth than the nation since the start of the recovery, with private sector job growth overshadowing losses in the public sector. The auto recovery also shows up better in these charts, as Michigan is shown posting an 18.8% increase in manufacturing jobs compared with only 2.5% for the nation. The question is whether this trend will continue. Chart 6 shows total U.S. manufacturing employment by month from January 1960 to January 2013.


Here we see that, even taking into account the cyclicality of the 1960s and 1970s, manufacturing employment remained fairly stable through the end of the 20th century. However, since the beginning of the 21st century, manufacturing employment has fallen by about 5.3 million jobs. More recently there has been talk about a manufacturing resurgence in the United States. This discussion started following the Japanese earthquake and tsunami when supply chains for some industries experienced major disruptions to production throughout the world. The debate centered on the need to minimize risk, even if it meant higher prices for some commodities and component parts. More recently, new technologies for extracting natural gas and petroleum products from shale rock have led some to argue that the availability of low-cost energy could make the U.S. more competitive and lead to the return of some manufacturing jobs. This debate is ongoing.

On April 8–9, 2013, the Chicago Fed’s Detroit Branch will host an event to discuss the impact of enhanced domestic recovery of natural gas and other fuels on industries and regional economies. The conference will focus on the shifting markets, development opportunities, and economic outcomes resulting from increasing shale gas and oil extraction in the United States.

For further details on the conference, including a complete agenda and information on registration, location, and accommodation, please visits our conference webpage.  







[1] Michigan’s employment data will be revised on March 16. We do not expect significant changes, but I will provide a review of the revisions in a subsequent blog.