U.S. Auto Industry Continues to Improve in Line with the Automotive Outlook Symposium Consensus Forecast

The Federal Reserve Bank of Chicago held its 20th annual Automotive Outlook Symposium (AOS) on May 30–31, 2013, at its Detroit Branch. Just a few days following the conference, light vehicle sales (i.e., car and light truck sales) for May were reported to be 15.2 million units at a seasonally adjusted annual rate. This selling rate was 9.6% higher than May 2012’s selling rate and was consistent with the AOS consensus forecast for 2013. As in past years, certain AOS participants were asked to submit their forecasts of gross domestic product (GDP) and related items, including, of course, light vehicles sales, ahead of the gathering. William Strauss, senior economist and economic advisor for the Federal Reserve Bank of Chicago, hosted the event and presented the consensus outlook. Table 1 shows the median forecast for some of the items.

AOS Table 1

Auto industry experts discussed a number of topics during this year’s two-day conference, and a few of them made formal presentations. Speakers provided a light vehicle sales outlook, a medium- and heavy-duty truck industry outlook, and automotive industry outlooks from the perspectives of the automotive parts suppliers and dealers. In addition to the economic and automotive outlooks, two speakers presented their research on financing the infrastructure necessary to support alternative fuel vehicles (i.e., vehicles running on compressed natural gas, ethanol, electricity, and hydrogen). To see a complete list of this year’s AOS speakers, as well as most of their presentations, go to http://www.chicagofed.org/webpages/events/2013/automotive_outlook_symposium.cfm#.

Of special note was a discussion on Mexico’s emergence as a global player in automotive production, which was held on the first day of the event. David Andrea, senior vice president, industry analysis and economics, for the Original Equipment Suppliers Association (OESA), presided over a panel of experts on Mexico’s growing role in North American automotive production and global automotive trade.
Chart 1 shows how automotive manufacturing capacity has grown consistently in Mexico since 2005, with the exception of a slight setback due to the 2008–09 recession. In contrast, over the period 2005–13, automotive manufacturing capacity for the United States and Canada combined fell by 21.6%. Given these two contrasting trends, it is not surprising that Mexico’s share of all light vehicles produced in North America was 19% in 2012—which was higher than Canada’s share (16%). By comparison, in 1990, only 6% of all light vehicles produced in North America were assembled in Mexico (versus Canada’s 16% share of production back then). So, clearly, automotive production in Mexico has taken great strides over the past two decades. In fact, Mexico has moved ahead of Canada in terms of the number of vehicles produced on an annual basis.

AOS Chart 1

According to projections by WardsAuto, in the years ahead Mexico will be getting most of the additional North American automotive production capacity that is planned (see Chart 2). In total, automotive manufacturing capacity for North America is projected to rise about 4.4% between 2013 and 2018, while automotive manufacturing capacity for Mexico is expected to increase by over 26.0%.

AOS Chart 2

The panel of experts that Andrea presided over at the AOS shared their analyses about Mexico’s growing importance to the North American automotive industry, which were in line with the WardsAuto data. For instance, Bill Cook, director of worldwide transportation and customs for Chrysler Group LLC, said that Mexico’s percentage of Chrysler’s total vehicle production increased over 280% from the start of negotiations for the North American Free Trade Agreement (NAFTA) in 1985 through 2012. (Of course, Mexico’s share of Chrysler’s overall vehicle production experienced its biggest gains after NAFTA was implemented in 1994.) Other topics discussed by the panel included such issues as Mexico’s role in the automotive supply chain and product and parts logistics. Thomas Klier, senior economist for the Federal Reserve Bank of Chicago, was also among this panel of experts; he shared many insights on Mexico’s growing role in the North American auto industry, which are reflected in a recent Midwest Economy blog entry and Chicago Fed Letter.

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.