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.

The U.S. and Canadian Economies Continue to Improve Slowly

In an earlier blog entitled “What is Canada’s Role in the U.S. and Michigan Economies?,” I talked about the link between the economies of the United States and Canada and what role Canada might play in Michigan’s economic recovery. These topics were discussed in more detail at the Canada–United States Business Association’s (CUSBA) Economic Outlook for 2013. I was fortunate enough to be asked to speak at this event, along with Martin Schwerdtfeger, senior economist for Toronto-Dominion Bank. Here are some of the main points that were presented during the discussion.

I opened the discussion with a brief summary of the U.S. economy. The most recent data through December suggest that growth in U.S. economic activity has paused in recent months, in large part because of weather-related disruptions and other transitory factors. Employment has continued to expand at a moderate pace, but the unemployment rate remains elevated. On a positive note, the recently revised employment numbers indicate that total nonfarm payroll employment had increased by as much as 647,000 more than originally thought. Based on advanced estimates from the Bureau of Economic Analysis comparing the fourth quarter of 2011 with the same period in 2012, we see that total GDP grew by 2.2 percent, personal consumption expenditures increased by 1.9 percent, and gross private domestic investment advanced by 9.6 percent. Headwinds to this growth were net exports of goods and services (–0.7 percent) and government consumption expenditures and gross investment (–1.7 percent).

I then went on to discuss the U.S. consumer. When talking about the consumer, it is important to distinguish between the consumer’s ability and willingness to consume. On the ability side, the consumer has seen some recent improvements in real disposable income and an improved debt position evidenced by lower debt service ratios, low inflation rates, and low interest rates. However, on the willingness side, the consumer remains skeptical because of slow job creation, which has led to stubbornly high unemployment rates; and although the consumer’s household net worth has improved, home prices remain well below their previous peak. In addition, slower global growth expectations, higher payroll taxes, and potential fiscal spending cuts continue to add to uncertainty. Combined, these factors have kept consumer attitudes, as indicated by the University of Michigan’s Consumer Sentiment Index, at near recessionary lows since 2008.

One positive for Michigan and the Midwest economy has been the consumer’s increasing propensity to purchase automobiles. Light vehicles sales in the U.S. increased to 14.4 million units in 2012, which was an increase of 4.0 million units from the industry trough reached in 2010. According to analysts’ forecasts, auto sales are expected to continue to increase in 2013, reaching 15.0 million units, due to pent-up demand, an aging vehicle fleet, and the consumer’s desire to take advantage of the better fuel economy featured in some of the newer products on the market.
Transitioning to a discussion on the Canadian economy, Schwerdtfeger pointed out that Canada’s economy has long been closely tied to the economic health of the United States. According to Schwerdtfeger, Canada’s economy had outperformed the economies of other developed countries since 2007, led by growing consumer spending and a vibrant housing market. However, the housing markets in Canada appear to have peaked, and consumers are becoming more cautious about adding to their debt. Schwerdtfeger went on to say that, over the next few years, growing exports to the U.S. will likely help to sustain at least modest economic growth for Canada. But once the final figures are in for 2012, Canada’s almost seven-year run of outperforming the United States will likely come to an end.

On the international front, Schwerdtfeger warned that concerns over the U.S. fiscal outlook and a continued drag from the European recession will most likely negatively impact Canada’s economic performance in 2013. Fiscal consolidation in the U.S. alone could shave as much as 0.7 percentage points off Canadian economic growth through declining exports and knock-on-effects to other areas of the Canadian economy. Beyond mid-year, Schwerdtfeger suggested that U.S. economic growth could improve enough, based on stronger real estate activity, to support a modest increase in Canadian exports. Still, an overvalued Canadian dollar, elevated household debt, and government restraint will likely keep Canada’s overall pace of economic expansion in check. Schwerdtfeger saideconomic growth for Canada in 2013 and 2014 is forecasted at 1.7 percent and 2.5 percent, respectively. Faced with this continued sub-par performance of the economy in the near term, the Bank of Canada will be in no rush to raise interest rates earlier than 2014, unless growth at the end of this year exceeds current expectations.

Please use the links provided here to view Martin Schwerdtfeger’s presentation and Paul Traub’s presentation file.

Michigan Economic Update

I would like to open with a short introduction of myself and the newly created Michigan Economy blog. My name is Paul Traub and I am a Business Economist for the Federal Reserve Bank of Chicago.

In this spot, I will offer some insights into the ongoing performance of Michigan’s economy as well as some analysis of important public policy issues, manufacturing, construction, services, employment and of course the auto industry. I must be honest that I have never won a notable award in economics and I’ve yet to appear on a late night talk show. But, I have lived in Michigan my whole life and worked in the Detroit area my entire working career. My hope is to be able to use my knowledge of Michigan and my working experience together with my understanding of economics to provide an analysis of Michigan’s economy that is rooted in an understanding that only a true Michigander could possess. I hope to engage the reader in a way that we all learn more about this great state and its many opportunities.

I would not venture to engage in this endeavor without the support of a great amount of talent to back me up. The Chicago Fed has a number of very talented economists and researchers that I can and will call on for help. Some of them – such as William Testa, Thomas Klier, David Oppendahl, William Strauss and Martin Lavelle all offer a volume of expertise that would be difficult to match anywhere in the country. And of course, I would be remiss not to mention Scott Brave whose work on the Midwest Economic Index will help to make much of the analysis I will be sharing possible.

In addition, I will be posting some results from many of our local conferences, presentation materials from some of my public appearances, an occasional cross posting of articles from the Chicago Fed’s Midwest Economy blog as well as links to other data resources. As a regular feature, I will offer a monthly summary of Michigan’s economy. It will contain information about different sectors of the economy as well as data on things like employment, income, housing and the consumer. So if you are from Michigan or just interested in the economy of the Midwest, I’m confident you will find something here that will help you to understand Michigan’s complicated economy just a little better.

A summary of Michigan’s Economy

Michigan’s economic growth improved slightly in November, according to the Federal Reserve Bank of Chicago’s MEI Index for Michigan. The index remained below zero, indicating that growth is still below Michigan’s long-term average, but it increased to -0.04 in November from –0.09 in October. Manufacturing’s contribution to the index turned positive again following two months of decline. The most favorable change was the positive contribution from the construction sector, marking the first positive contribution to the index from construction since September 2005.

Michigan’s per capita income rose by 0.6% in the third quarter of 2012 on a year-over-year basis, although this increase was slightly smaller than in the second quarter. Based on data through the third quarter of 2012, Michigan’s GSP is estimated to be growing at a 0.8% pace relative to 2011. Most of this growth is due to positive contributions from manufacturing. Such positive developments should stimulate Michigan’s economic growth through the end of the year.

Other key indicators include:

•     Michigan’s unemployment rate declined to 8.9% in November from 9.1% in October;
•     Michigan’s housing market is showing some minor improvement, which may be an indication that the housing sector is on the mend; and
•     U.S. light vehicle sales remained strong in December, helping to drive Michigan’s light vehicle production for 2012 to its highest level in in five years.

For a more detailed look into the numbers behind Michigan’s current economic performance, follow the link to the Chicago Fed’s Michigan MEI – 201301.

An Analysis of State and Local Government Spending

Written by Martin Lavelle 

Starting in February 2012, the Federal Reserve Bank of Chicago, Detroit Branch, in partnership with the Michigan Council on Economic Education (MCEE) began hosting a series of educational workshops entitled, “Night at the Fed.” The purpose of these workshops is to give economics, history, and social studies teachers, as well as other financial or economic educators, the opportunity to enhance their knowledge of economics and personal finance. In addition, primary and secondary public school teachers may earn continuing education credits by attending these workshops. These workshops are held on a quarterly basis during the school year and will continue in early 2013.

The most recent “Night at the Fed” took place on Thursday, November 15, 2012, and focused on the distinction between monetary and fiscal policy. David Zin, chief economist of the Michigan Senate Fiscal Agency, presented information on the limitations and powers of fiscal policy. Zin discussed not only federal fiscal policy, but also state and local fiscal policy, in great detail. State and local fiscal policy has been somewhat ignored, with greater attention being placed on the approaching “fiscal cliff” facing the federal government. However, whatever proposals result from the ongoing “fiscal cliff” negotiations, state and local budgets will most likely be affected.

The largest sources of revenue for the state of Michigan and its local governments, as seen in Chart 1 below, are non-tax sources, such as school fees, state-provided services, licenses, permits not related to transportation, and lottery transfers to the School Aid Fund. The next largest revenue sources are intergovernmental revenues, corporate taxes, and income taxes, which when put together with non-taxable sources, comprise over 88% of the state of Michigan’s revenue and 96% of its local governments’ revenue.

Chart 1: State Revenue Sources: All States, Michigan

At the state government level, the two major state general purpose and restricted revenue funds are the General Fund/General Purpose Fund (GF/GP) and the School Aid Fund (SAF). The GF/GP covers all state appropriation, expenditure, and receipt transactions, except those for which special constitutional or statutory requirements demand separate fund accounting, such as the SAF.[1]  Chart 2 shows 63% of the GF/GP’s revenue comes from income tax collections. GF/GP revenues fell by almost half during the 2000s, mostly a recessionary decade for Michigan. Since the end of the national recession in mid-2009, nominal GF/GP revenues have slightly rebounded, though at rates about equal to inflation.

Chart 2:  Michigan General Fund Revenue Sources

Chart 3:  Michigan School Aid Fund Revenue Sources

As seen in Chart 3, the largest input into the SAF is state sales tax revenue, which makes up almost 47% of SAF revenue. SAF nominal revenues have remained flat since the beginning of the most recent national recession in December 2007; SAF real revenues have fallen slightly during the same period. Overall revenues (GF/GP + SAF) are expected to increase at 2% to 4% annual rates over a three-year period that includes the most recent fiscal year. After a slight decrease in net revenues during the most recent fiscal year, 1% to 3% increases in net revenues are expected from fiscal year 2012 to 2014.

Despite some increase in net revenues since the end of the recession, tax breaks have grown even faster. This gap may widen further because of the state’s failure to replace lost revenues due to changes in the state business and personal property tax codes, respectively.

The gap between tax expenditures and revenues based on current state policies takes on greater importance when analyzing state spending trends. At the state level, spending is dominated by intergovernmental grants, Medicaid, and other social services, areas of intensifying cost pressures. Those categories, plus insurance trusts, which include unemployment compensation funds, workers’ compensation, and employee retirement systems, constitute the majority of state government spending. When examining where all gross Michigan tax revenues are spent, more than 75% are spent on social services and education as seen in Chart 4.

Chart 4:  Where State of Michigan Tax Dollars Are Spent

Looking at spending that the state can control, which comes from the GF/GP, health services and education make up almost half of all appropriations, but another 20% is spent on corrections. When considering current fiscal year projections, gross spending has been relatively flat since 2008, while GF/GP spending has increased 5%. Most of the spending increases are occurring in the budget areas of community health and corrections. In the past decade, spending on community health in Michigan, which includes Medicaid, has increased 53% as Medicaid caseloads have increased by almost 47%. Spending on corrections has increased 21% in the past decade, yet the prison population has decreased by almost 15%. In contrast, higher education spending has fallen 29% over the last decade, in spite of an increase in enrollment of 8%.

Total  $8,944,202,300

Since the end of the Great Recession, Michigan has instituted budgetary reforms that have eliminated structural budget deficits present during the mid- to late 2000s. Also contributing to the elimination of these structural budget deficits has been above-trend economic growth, led by a resurgent domestic auto industry. However, more pressure will likely be placed on state and local budgets due to some of near-term challenges. These challenges include the potential establishment of health insurance exchanges and expansion of Medicaid through the Affordable Care Act, increasing state and local public pension fund liabilities, the slow housing market recovery, the taxable value cap on property values, and potential congressional action to avert the “fiscal cliff.” These challenges can be alleviated to some degree if Michigan’s economy keeps growing at a faster rate than the nation’s and more Michigan residents  opt to stay in the state rather than moving elsewhere, thereby supporting the state’s tax base.

[1] Michigan Senate Fiscal Agency, http://www.senate.michigan.gov/sfa/StateBudget/Glossary.html