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
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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
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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
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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
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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
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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
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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
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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.

Agriculture and the Economy: A View from the Chicago Fed

written by: Paul Traub

On Thursday, May 12, 2016, members of the Detroit Association for Business Economics (DABE) attended a presentation entitled “Agriculture and the Economy: A View from the Chicago Fed” by David Oppedahl, senior business economist, Federal Reserve Bank of Chicago. Oppedahl highlighted key trends in agriculture and their relationship to the broader economy. Farming and manufacturing of food and bioproducts comprise around 4% of the Seventh District’s economic activity in 2013. And this share has been growing in the past decade.

However, over the past century, agriculture has seen dramatic declines in terms of the number of farms and their workers. These trends have been mirrored more recently in the loss of manufacturing jobs. These changes have been difficult for the Midwest, which has a higher than average concentration in these sectors. Still, there also have been some economic advantages to the region as a result of booming productivity. For instance, corn and soybean yields per acre have about doubled in the past half century.

Productivity improvements have generated more than a doubling of agricultural output (given similar level inputs) since around 1950, meaning U.S. consumers have had to spend less and less on food—from 28% of spending in 1950 to 13% in 2015. At the same time, however, spending on health care has been rising, such that the total consumption of food and health care has remained fairly steady at roughly one-third of consumer spending. An argument can be made that as eating habits became less healthy in the second half of the twentieth century, there was a substitution into spending more on health care than food. So, today’s efforts to promote healthier eating in the U.S. and to grow farm income from local and organic foods in essence aim to turn back the clock on personal consumption patterns.

Another key aspect of agriculture is the role of exports as a vital boost to the income of U.S. producers. In 2015, 13% of the District states’ exports were of food and agricultural products (versus 8.5% for the nation). Until 2014, U.S. agricultural exports had been growing rapidly, in large part due to the expansion of markets in Asia. But in 2015 there was a decline in agricultural exports as the strength of the U.S. dollar and slower economic growth abroad contributed to a narrowing of the nation’s trade surplus in agricultural trade.

Not only has the slowdown in exports affected the profitability of agriculture, but there also has been a compression of profit margins as many prices for agricultural products have fallen more than input costs in the last two years. The USDA projects that net farm income for the sector will fall for a second consecutive year in 2016. This downturn has hit the Midwest hard, as seen in lower farmland values and cash rental rates (see latest issue of the Federal Reserve Bank of Chicago’s quarterly AgLetter). On November 29, 2016, the Federal Reserve Bank of Chicago will hold a conference to examine the agricultural downturn in the Midwest and discuss future directions for farming. Additional information about the conference will be released in the coming months on chicagofed.org.

To view Oppedahl’s slides from his Detroit presentation, please click here.

Are Businesses Returning to Detroit?

by Martin Lavelle, business economist

Introduction

Detroit’s population fell by almost 50% from its peak of 1.85 million in 1950 (1) to around 950,000 in 2000. Since 2000 (2), Detroit’s population has declined at a faster rate. The U.S. Census Bureau reports that Detroit’s population stood at 680,250 as of 2014 (3). As Detroit’s population migrated elsewhere, so did many of its businesses. How many businesses have left the Motor City since around the turn of the twenty-first century? And are new businesses replacing them in the aftermath of the Great Recession (which ended in mid-2009)?

In this blog entry, I will address these questions by using the County Business Patterns (CBP) data series from the U.S. Census Bureau. The CBP data series provide the number of business establishments (4) by county and zip code. The business establishments reported in the data are sorted by employment size classes. In addition, CBP data sets provide employment and payroll data. CBP data are collected on an annual basis, but with a two-year lag. Here I will analyze business patterns by geography and industry among Detroit zip codes (and elsewhere) between 1998 and 2013.

Analysis

Figure 1 shows a map of Detroit by zip code. The zip codes shown below were used to analyze the change in the number of business establishments in Detroit over the period 1998–2013 (5).

2016 0208 figure 1

Figure 1. Map of Detroit zip codes
Source: Lowell Boileau, available at http://www.atdetroit.net/forum/messages/107211/106465.jpg.

Table 1. Percent change in number of Detroit business establishments, by zip code, 1998–2013
2016 0208 table 1

Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

For each Detroit zip code area listed in table 1, I include the prominent neighborhoods and/or landmarks found within it.

Overall, the number of Detroit business establishments decreased 22.3% over the period 1998–2013, according to my calculations using CBP data. As of 2013, the city of Detroit was home to 8,817 business establishments. Approximately one-eighth of these establishments can be found in Downtown Detroit—which saw a similar share of its businesses depart as the city as a whole did over the sample period. Zip code areas that fared relatively better than the city in terms of business retention between 1998 and 2013 contain the Midtown/New Center area along Woodward Avenue, Eastern Market, some areas along East Jefferson Avenue parallel to the Detroit River, and southwest Detroit (including Corktown). These centers of commercial activity are now leading Detroit’s turnaround. Zip code areas that saw a larger percentage of their businesses leave relative to what the city as a whole experienced contain some of Detroit’s struggling neighborhoods—which include East English Village adjacent to Harper Woods and the Grosse Pointes, as well as areas near and around the old Packard plant in Detroit’s eastern industrial corridor (6).

Anyone familiar with Detroit’s narrative will likely be able to give several reasons why its business activity has declined over the past few decades. Besides the outward migration of the residential population, the downsizing and suburbanization of the local manufacturing industry, the deterioration of the city’s talent base as a result of the struggles of the Detroit Public Schools (DPS), government corruption, and the worsening condition of the city’s infrastructure are just some of the contributors to Detroit’s downward trend in business activity.

Given the narrative about Detroit, it is natural to wonder how its recent business losses compare with those of its surrounding areas. Table 2 shows the change in the number of establishments by selected areas in 1998 versus 2013. The national numbers are also given to provide another basis of comparison.

Table 2. Number of business establishments, 1998 versus 2013, and percent change in the number of business establishments, 1998–2013, by selected areas

2016 0208 table 2

Note: MSA stands for metropolitan statistical area; for further details on the Detroit MSA, see http://www.census.gov/population/estimates/metro-city/0312msa.txt.
Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

Table 2 shows that despite the 2001 and 2007–09 recessions, the number of business establishments in the nation as a whole increased over the period 1998–2013. However, the number of business establishments declined throughout most of Michigan during this time. Wayne County (including Detroit) and the Detroit metropolitan statistical area (MSA)—encompassing Macomb, Oakland, and Wayne counties—experienced less severe business losses than the city of Detroit. Nearby Washtenaw County, whose county seat is Ann Arbor (7), still saw a slight drop in the number of business establishments over the sample period, but fared much better relative to the city of Detroit.

When examining industry business patterns in the city of Detroit, it is not surprising to find that in percentage terms, manufacturing experienced the greatest loss of businesses over the period 1998–2013. Table 3 shows the change in the number of business establishments by industry during the sample period.

Table 3. Number of business establishments, 1998 versus 2013, and percent change in the number of business establishments, 1998–2013, in the city of Detroit, by industry

2016 0208 table 3

Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

One may be somewhat surprised by which subsectors of manufacturing experienced the greatest losses of business establishments (not shown). When analyzing the business pattern data by NAICS (8) code, I found that transportation equipment manufacturing—which includes motor vehicle and parts manufacturing—experienced a sizable drop in the number of establishments (41.5%); but this decline wasn’t the largest one. The manufacturing subsector that experienced the largest decline in establishments in percentage terms was printing and related support activities (–75.3%), followed by machinery manufacturing (–69.9%) (9). When just looking at the raw numbers of business losses among the manufacturing subsectors, I found that fabricated metal product manufacturing experienced the greatest losses: this subsector lost 86 establishments from 1998 through 2013 (almost a 50% contraction). Of the 26 zip codes I analyzed, 17 of them saw greater-than-50-percent declines in the number of manufacturing establishments.

Conclusion

During the 1998–2013 period, the city of Detroit lost business establishments every year. Detroit lost a higher percentage of establishments than its surrounding areas, the state of Michigan, and the United States. The most significant sectorial losses of businesses were from the goods-based side of the economy—most notably, from manufacturing. While the most severe manufacturing losses weren’t from direct transportation equipment manufacturing, they were in complementary industries, such as fabricated metal manufacturing, machinery manufacturing, and printing activities. Geographically speaking, establishments close to Detroit’s border with the Grosse Pointes and those around the former Packard automobile assembly plant shut down in greater proportions than those in other parts of the city.

Because the most recent data available are 2013 data, I am unable to provide any definitive insight into any possible changes in the trend of establishments leaving Detroit since the city exited bankruptcy in late 2014. By many anecdotal accounts, numerous new establishments have settled in the Downtown, Midtown, Corktown, and other select neighborhoods where the most significant public and private investment has occurred of late. As we receive more and newer data, it will be interesting to see whether new business establishments are sprouting up elsewhere in Detroit. Will business (and public) investment in Detroit remain concentrated in its high-activity areas or begin to noticeably branch out to the city’s relatively less active neighborhoods?

(1) See http://www.nytimes.com/interactive/2013/08/17/us/detroit-decline.html
(2) See http://censusviewer.com/city/MI/Detroit
(3) See http://www.freep.com/story/news/local/michigan/2015/05/21/census-estimates-michigan/27661485/
(4) See https://ask.census.gov/faq.php?id=5000&faqId=487 for what is considered a business establishment versus a business firm. In this blog entry, businesses refer to business establishments.
(5)Please note, however, that the 48203 zip code area also includes the city of Highland Park and the 48212 zip code area also includes the city of Hamtramck. The 48239 zip code area lies predominantly outside the city of Detroit, so it wasn’t included in the analysis.
(6) See http://archive.freep.com/interactive/article/20121202/NEWS01/120823062/The-Packard-Plant-Then-now-interactive-comparison-photos.
(7) See http://www.annarborusa.org/live-here/facts-rankings
(8) NAICS stands for North American Industry Classification System. For more details, see http://www.census.gov/eos/www/naics/ and http://www.bls.gov/bls/naics.htm.
(9) I only considered manufacturing subsectors with more than 50 establishments in 1998.

Recap of the Federal Reserve Bank of Chicago’s 29th Annual Economic Outlook Symposium

By Martin Lavelle

On December 4, 2015, the Federal Reserve Bank of Chicago hosted its 29th annual Economic Outlook Symposium (EOS). The EOS allows economists, business leaders, financial analysts, and other experts to gather and share their respective views on the U.S. economy and individual sectors especially important to the Midwest economy. Also, EOS participants are given the chance to submit their respective projections for the year ahead. These projections are subsequently used to come up with a consensus (median) forecast for real gross domestic product (GDP) and related items.
This blog entry is a summary of what was presented at the latest EOS. For a more in-depth look into what was presented, please click here to read the Chicago Fed Letter for the event. Most of the presentations that were delivered during the EOS can be found here.

• 2015 forecast review: Real GDP growth in 2015 was slightly weaker than expected in the consensus outlook from the previous EOS held in December 2014. Growth in real personal consumption expenditures was slightly higher than anticipated, partly because of stronger than expected growth in light vehicle sales. However, real business fixed investment grew at a significantly slower rate than predicted. New home construction just missed forecasted activity levels. The unemployment rate was lower than originally projected, while inflation (as measured by the Consumer Price Index) came in well below the predicted rate.

• Outlook for consumer spending: According to Scott Brown (Raymond James & Associates), consumer spending is forecasted to slightly decelerate in 2016 in part because of headwinds from rising energy prices (he expected oil prices to average around $50 per barrel by year-end). The pace of job growth has been strong, but is expected to moderate this year.

• Outlook for financial services: Brown also noted that credit conditions are fairly tight, but they should ease. The (then-anticipated) interest rate hike in December by the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary policymaking arm—shouldn’t dampen lending for a while, Brown said.

• Auto industry outlook: According to Yen Chen (Center for Automotive Research), U.S. light vehicle sales and production are expected to peak in 2018 (at around 18.6 million units and 12.2 million units, respectively) before falling slightly. Auto loan debt is expected to surpass student loan debt as the highest form of household debt, excluding mortgage and home equity debt, over the coming years. Meanwhile, Mexican light vehicle production capacity is expected to increase by over 2 million units in the next seven years largely because of lower labor costs (thereby reducing the U.S. share of North American production).

• Steel industry outlook: Robert DiCianni (ArcelorMittal USA) indicated that U.S. steel consumption is projected to modestly increase in 2016, based on his analysis of several steel-intensive sectors of the economy. For instance, the pace of growth in residential construction is expected to accelerate, while year-over-year growth in nonresidential construction is anticipated to level off. Moreover, both U.S. auto sales and North American auto production in 2016 should be similar to their respective levels in 2015. Global steel consumption is expected to increase slightly in 2016 after decreasing last year. The slowdown in Chinese steel consumption has been a major factor in the decelerating rate of global steel consumption in the past few years.

• Heavy machinery outlook: Glenn Zetek (Komatsu America Corp.) stated that U.S. demand for earth-moving equipment is at healthy levels, though demand has slowed significantly in states where energy production had been intense over the past few years. Equipment demand for single-family residential and transportation projects is expected to increase in 2016. But heavy machinery demand for nonresidential projects should moderate this year; the prospects for equipment demand to complete such projects look more promising over the next couple of years, as nonresidential fixed investment is expected to move up moderately and equipment usage is near its mid-2000s peak. Equipment usage for mining, energy, and rental needs are predicted to decrease.

• State and local government debt outlook: According to John Mousseau (Cumberland Advisors), municipal bond yields for the highest-rated securities with maturities greater than ten years are higher than comparable U.S. Treasury bonds—the opposite of what’s normal. Even with Detroit’s bankruptcy and other cities’ and states’ latest financial struggles, municipal bond quality generally remains higher than corporate bond quality. Interest rate increases won’t be terrible for issuers of municipal bonds because historically, municipal bond yield increases failed to match the size of federal funds rate increases.

Conclusion: 2016 economic outlook

According to the latest EOS consensus outlook, U.S. real GDP growth in 2016 is expected to increase slightly above its historical trend. Inventory levels are expected to rise at a slower pace. Residential investment is projected to rise at a strong pace, with slow and steady improvement predicted in new home construction. Growth in business fixed investment should continue at a decent pace, with moderate growth anticipated in industrial output. The dollar is estimated to slightly appreciate versus major currencies, which should increase the U.S. trade deficit to levels not seen in the past decade. Forecasters expect interest rates to rise, but remain at relatively historical lows. The unemployment rate is predicted to edge slightly below current levels. Inflation is expected to move up (closer to the FOMC’s inflation target) as oil prices strengthen slightly.

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.

References
(1)See p.5 of http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.199.4104&rep=rep1&type=pdf

Michigan Exports Lagging

By Martin Lavelle

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

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

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

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

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

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

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

Outlook for 2015

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

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

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

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

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

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.

Employment

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.

Conclusion

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.