The 2016–2017 Employment Forecast for Holland-Ottawa County Area

Randall EbertsBrian Pittelko

W.E. Upjohn Institute for Employment Research

January 12, 2016

Can it get any better than this?

A Special Thanks to …

2

for its support of this presentation…

and to

…for sponsoring this event.

Why am I here…and not this guy?

3

The answer…

Retirement and…

…a new grandson 4

"Investors have started the new year in panic mode," said Ed Yardeni,

Most of the blame goes to China

HAPPY NEW YEAR!!??

Investors are also alarmed by the decline in China’s currency

Crude oil continues to nosedive. Crude plunged as much as 4% to $32.10 a barrel, the lowest level since late 2003.

5

Others think stocks will rebound from the China fears, which is exactly what happened last summer.

"There isn't really some new structural smoking gun for the economy and markets like mortgages were back in 2008," Kopp said.

This bull market will celebrate its seventh anniversary in early March.

6

The news last week wasn’t new—slowing Chinese economy and another bad week for China’s stock market…

7

2015-12-21

2015-12-22

2015-12-23

2015-12-24

2015-12-25

2015-12-26

2015-12-27

2015-12-28

2015-12-29

2015-12-30

2015-12-31

2016-01-01

2016-01-02

2016-01-03

2016-01-04

2016-01-05

2016-01-06

2016-01-07

2016-01-081800

1850

1900

1950

2000

2050

2100

S&P5

00 In

dex

But once again the U.S. stock market reacted to the “news.”

6% declinein the first week

8

But let’s put last week behind us and look at why 2016 should not be 2008

• China stock market problems do not equal a global financial meltdown

• Strong fundamentals…at least GDP and employment• Growing consumer confidence and solid balance sheet• No apparent bubbles; housing coming backTempered by…• Weak international economies• Continued strong stimuli in US• Strong dollar (good for low inflation and imports/bad for

exports)• Mental fatigue (whatever that means)

9

What’s on the docket this morning…

• National view of what the economy looks like today compared to 2007

• Turn to the state economy to take its pulse and see how it might affect Ottawa County’s economy in 2016

• Focus on the Ottawa County’s economy and what may lie ahead

• Which all leads up to …

10

2016-2017 Employment Forecast

National

11

GDP is still relatively strong and expected to keep chugging along through 2016

-7 -6 -5 -4 -3 -2 -1 0 1 2 3 4-10

-8

-6

-4

-2

0

2

4

6

8 qtrs before now 8 qtrs before recession

Consensus forecast

Q1 2016

Q1 2008

12

-24 -23 -22 -21 -20 -19 -18 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1

-100

0

100

200

300

400

500

2014-2015 2006-2007

Months since January 2016

Mon

thly

cha

nge

in e

mpl

oym

ent

24-month average2014-2015 of 240,000

24-month average2006-2007 of134,000

Employment growth is quite strong…last three months it was above the 24-month average of 240,000 and above the 63-month average of 205,000 per month

13

The consensus forecast sees employment growth continuing at an average monthly increase of 197,000 …whereas 2008 was a blood bath, losing close to 1 million jobs

-6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12-1000

-800

-600

-400

-200

0

200

400

2016 forecasts 2008 actual

Months from January of 2008 or January 2016

Mon

thly

chan

ge in

em

ploy

men

t

Consensus forecast

14

Forecasts look for continued employment growth in the next two years

Source: University of Michigan RSQE & Upjohn Institute

2014 2015 2016 20170

0.5

1

1.5

2

2.5

3

3.5Consensus Forecast

Annu

al e

mpl

oym

ent c

hang

e (m

illio

ns)

RSQE (U of M) Forecast

258,000/ mth

221,000/mth197,000/mth

133,000/mth

15

Demand for workers is strong…number of job seekers per opening is back to pre-recession levels

2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

1,000

2,000

3,000

4,000

5,000

6,000

0

1

2

3

4

5

6

7

8

U.S. Job Openings and New Hires

Thou

sand

s (00

0s)

Unem

ploy

ed /

job

open

ings

Job seekers per opening

Job openings at end of month

16Source: BLS Job Opening and Labor Turnover.

Question is whether supply can keep up…

Employment growth depends upon:• Population growth, primarily immigration• Labor force participation growth• Employment per labor force (flip side of natural rate of

unemployment)Over the long-run, many analysts believe that the trends are

moving in the wrong direction:– Population growth is slowing from 1.2 percent to less than

1 percent, unless immigration picks up.– As the workforce ages and young people postpone

entering the workforce, LF participation continues to fall

17

Facing possible skills shortage of those in the labor force…but has not caused wages to increase

20052005

20062006

20072007

20082008

20092009

20102010

20112011

20122012

20132013

20142014

20150.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Year-over-Year Change in Total Compensation of Private Industry Workers

Source: BLS.18

In the past five years, consumer confidence has risen and so has household debt, but not where it was in 2008—135% of disposable income v. 103% now

2010 2011 2012 2013 2014 2015-15-10

-505

101520253035

0

20

40

60

80

100

120

Consumer Confidence and Change in Consumer Debt

Consumer debt Consumer confidence

Billi

ons (

$)

Inde

x: 1

995

= 10

0

Source: New York Federal Reserve and Conference Board.19

Consumers are not spending beyond their means…rate falling as more people are working

1991 1994 1997 2000 2003 2006 2009 2012 201576%

78%

80%

82%

84%

86%

88%

Personal Outlays as a Percent of Personal Income

Source: BEA.20

What about possible bubbles?

21

A housing bubble? No, home prices have recovered and are back to about where they were before the recession

1991 1996 2001 2006 2011 20160

50

100

150

200

250

Housing Price Index 1991=100

Source: Federal Housing Finance Agency.22

Stock market bubble? No, price-to-earnings ratio slightly below average since 2001

1998.011999.032000.052001.072002.092003.112005.012006.032007.052008.072009.092010.112012.012013.032014.052015.070.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

S&P5

00 P

rice

Earn

ings

Rati

o

2001-2015 average=27

That’s a bubble

23

Is there a bubble in the auto industry? No, sales have been gradually moving upward…

2010 2011 2012 2013 2014 201502468

101214161820

0

200

400

600

800

1000

1200

1400

1600

U.S. Light Vehicle Sales and Inventories

Total light vehicle sales Unit inventory

Seas

onal

ly a

djus

ted

annu

alize

d sa

les (

mill

ions

)

Unit

inve

ntor

ies (

000s

)

Source: New York Federal Reserve and Conference Board.24

…and in the long-term it looks like we’re just returning to “Normal”

2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011 2012 2013 20140

2

4

6

8

10

12

14

16

18

20

22

24

Annualized Rate of U.S. Light Vehicle Sales (in millions)

Annu

al ra

te o

f sal

es (i

n m

illio

ns)

8Source: BEA.

Car Industry Fundamentals

• In 2014, the average age of a vehicle on the road was 11.4 years. Come on people get with the program.

• With low gas prices, CUVs, SUVs, and pick-ups are back

• According to the BLS, auto prices are trending with the prices of all goods

• U of M is forecasting car sales to reach 18 million units in 2016 and 2017. Wow!

• Imports may be on the rise as higher dollar value makes imports cheaper

26

Other Bubbles?

• Oil? No, current OPEC policies appear aimed at keeping new oil reserves off line, by keeping prices low. If it raises its price, supply will likely increase.

• Housing prices in major cities? No. • Yet, you may never see what hits you

27

Concerns: Sluggish international economies, with some teetering on the edge of another recession and China losing steam

2010 2011 2012 2013 2014 2015-4

-2

0

2

4

6

8

10

12Percent Change in GDP over the Previous Year

JapanOECD Europe

China

U.S

Source: OECD.28

2014

Even though China continues to be a larger player in the world economy, it’s share of the world equity market is quite small

Brazil1%

China3%

Japan7%

Germany3%

France3%

UK6%

US52%

other26%

Share of World Equity Market

Brazil3%

China13%

Japan6%

Germany5%

France4%UK

4%

US22%

other43%

Share of World Economy ($US)

29

Stimulus is still present: Even with the recent Fed Funds hike, short-term interest rates are close to zero…

2010 2011 2012 2013 2014 2015-1

0

1

2

3

4

5

6

Interest Rates and Inflation

3 month T-Bill New home mortgages10 year T-Bill CPI-U 12-month change

Annu

al p

erce

ntag

e ra

te

Source: New York Federal Reserve and BLS CPI.6

The Banking Situation Looks Calm

2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1-30

-20

-10

0

10

20

30

40

Federal Reserve Senior Loan Officers Survey:Demand and Lending Standards for Commercial and Industrial

Loans by Medium-to-Large Firms

Reporting stronger loan demand Reporting tightening standards

Source: BEA and Federal Reserve. 31

One reason the Fed has been reluctant to raise rates is the low inflation rate: below the Fed’s target of 2%.

1990 1995 2000 2005 2010 2015-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%Year-Over-Year Change in the PCE Price Index

Source: BEA PCE Price Index.32

The value of the dollar has skyrocketed in recent months…helps to keep down inflation but could be trouble for manufacturing and other export-heavy sectors

2010 2011 2012 2013 2014 2015-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

50556065707580859095

U.S. Trade Balance and Nominal Index of the Value of the Dollar against Seven Major Currencies

Trade balance Major currencies' dollar index

Trad

e Ba

lanc

e

Inde

x

Source: BEA and Federal Reserve.

Biggest rally in 40 years

33

Is the economy getting tired? Only 4 business cycles have ever lasted longer than our current cycle of 96 months…and all but one occurred since 1960

Q1 Q3 Q5 Q7 Q9Q11

Q13Q15

Q17Q19

Q21Q23

Q25Q27

Q29Q31

Q33Q35

Q37Q39

Q41Q43

90

100

110

120

130

140

150

160Real GDP Index

2007-present

2001-2007

1981-1990

1991-2001

1960-1969

34

M1 M11 M21 M31 M41 M51 M61 M71 M81 M91 M101 M111 M1219095

100105110115120125130135

Employment Index1960-1969

1991-2001

2007-present

2001-2007

1981-1990

If we could replicate the 1990s, we could enjoy another 3 yearsof expansion before we’re the longest in US history

35

At this stage of the business cycle, interest rates were considerably higher, which means those expansions were sustainable without the extra stimulus this one is still receiving

M1 M11 M21 M31 M41 M51 M61 M71 M81 M91 M101 M111 M12102468

101214161820

Interest Rates

1960 Peak 1981 Peak 1991 Peak 2001 Peak 2007 Peak36

Summing up the national scene

• It is hard to find a cause for a recession in 2016—strong fundamentals: GDP, jobs, confidence, debt

• However, there are some headwinds – Sluggish international markets, particularly China’s slowing

growth rate– High value of the dollar could slow manufacturing and other

exports even more– High value of the dollar will moderate inflation but that could

prevent the Fed from raising interest rates, which may be good now but not good if we head into another recession

– Labor and skills shortages (perceived or actual)

37

Michigan

38

Michigan Employment Trends

• From 3rd Quarter 2014 to 3rd Quarter 2015, employment increased by 90,000 jobs – Manufacturers added 24,000 jobs during the

four quarters; US added only 126,000– Michigan’s GDP grew 4.5% in Q2, 13th best in US– If you are willing to assume an employment

multiplier for manufacturing of 3.8, all of the state’s employment growth during the period was due—directly and indirectly—to its manufacturers

39Source: University of Michigan.

Manufacturing clearly stands above the other sectors

-10

-5

0

5

10

15

20

25

30

Series3

Wholesale

Retail trade

Transport., util.

Real estate

Prof., tech. Admin. and support

Educ. services

Health care

Arts, ent., rec.

Other serv.

Employment Change, Q3 2014 to Q3 2015

Job

chan

ge (0

00s)

Source: BLS CES.40

Again, possible skills shortages are not reflected in higher wages

2007200720082008200920092010201120112012201220132014201420150

5

10

15

20

25

30

Average Hourly Wage in Michigan, 2015 dollars

Hour

ly w

age

($)

Source: BLS CES.41

Latest University of Michigan Employment Forecast shows continued growth

Employment forecast 4th quarter to 4th quarter:

2015 89,100 jobs2016 61,100 jobs2017 64,800 jobs

42Source: University of Michigan RSQE Nov, 2015.

Michigan employment forecasted to grow over the next 2 years but at a slightly slower pace than nation

2015 2016 20170.0

0.5

1.0

1.5

2.0

2.5

2.1

1.7 1.6

2.2

1.4 1.5

Employment Forecast

United States Michigan

Annu

al p

ct ch

ange

Source: University of Michigan RSQE & Upjohn Institute43

The state’s unemployment rate continues to decline and stands close to the nation’s: 5.1 v. 5.0

2000 2001 2002 20032005 2006 200720082010 2011 2012 201320150

2

4

6

8

10

12

14

16

Unemployment Rate

Perc

ent o

f lab

or fo

rce

44Source: BLS LAUS.

45

Ottawa County

Commute into Ottawa County 50,956

Commute out of Ottawa County 63,973

Live and work in Ottawa County 55,840

Ottawa County’s employment patterns are pretty well balanced…with most commuters heading east and northeast

46

Manufacturing continues to dominate employment in Ottawa County…has created more jobs than the other sectors

-1,000

-500

0

500

1,000

1,500

2,000

2,500

Series3

Employment Change Q2 2014 to Q2 2015

Source: BLS CES47

Ottawa County’s unemployment rate is almost 2 points lower than the nation’s, yet it wasn’t spared during the recession

20002001200220032004200520062007200820092010201120122013201420150

2

4

6

8

10

12

14

16

Unemployment Rate for Ottawa County

Source: BLS LAUS and Upjohn Institute.48

The decline in the area’s unemployment rate is a healthy combination of an increase in employment and more people coming into the labor forceYear Labor Force Change Employment

ChangeUnemployment

Change2011 728 3,751 -3,4042012 1,761 3,229 -1,6532013 3,722 4,005 -3332014 4,274 6,140 -2,1162015 4,412 5,364 -1,112

Source: MI Labor Market Indicators, Local Area Unemployment Statistics49

While following the state down during the depression, Ottawa County has generated 10% more jobs since the last peak

14014014080

85

90

95

100

105

110

Total Employment Index(2004=100)

U.S. Michigan Ottawa Co.50

Source: BLS LAUS and Upjohn Institute.

Service employment growth follows the state and national trends…

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201480

85

90

95

100

105

110

115

120

Private Services Index(2004=100)

U.S. Michigan Ottawa Co.51

Source: BLS LAUS and Upjohn Institute.

…as the growth rate in manufacturing far exceeds the US rate and outpaced the state

1401401406065707580859095

100105110

Manufacturing Index(2004=100)

U.S. Michigan Ottawa Co.52

Source: BLS LAUS and Upjohn Institute.

But what about the area’s core industries? How did they weather the storm?

• Time period of the analysis: 2004 to 2014• Definition of the core: An industry that is at

least twice as concentrated in the Ottawa County than nationwide

• The question: Did these industries outperform their national rivals?

53

List of Core Industries

• Food manufacturing• Plastics and rubber manufacturing• Primary metal manufacturing• Fabricated metal manufacturing• Machinery manufacturing• Computer and electronic manufacturing• Transportation equipment manufacturing• Furniture manufacturing

54

During the period, the area’s core industries added 5,700 jobs due to their competitiveness

Core IndustriesJob change due only to the area’s firms outperforming their national rivals

Food 1,080Plastics 1,087Primary metal -203Fabricated metal 1,079Machinery -45Computer and electronic 3,100Transportation equipment -2,562Furniture 2,174

55

Production wages have been flat if not slightly declining for most ranges, even the highest

10th Percentile

25th Percentile

Median

75th Percentile

90th Percentile

0102030405060708090

Full-Time Production Wages in Ottawa County

2007 2008 2009 2010 2011 2012 2013 2014

Annu

al In

com

e ($

000s

)

Source: IPUMS USA56

Holland exceeds the state and nation with the percentage of prime-age workers with Associate’s degrees

Holland Michigan United States0

2

4

6

8

10

12

Associate’s Degrees

25 to 34 35 to 44 44 to 64 65 and Over

Source: Census ACS 201457

Holland also does better with Bachelor’s degrees or higher for the 25 to 44 year range

Holland Michigan United States0

510

15

202530

35

4045

Bachelor’s Degrees or Higher

25 to 34 35 to 44 44 to 64 65 and Over

Source: Census ACS 201458

In Holland, those with graduate degrees earn nearly twice those with Bachelor’s degrees

Less

than HS

High Sc

hool

Some Colle

ge

Associa

tes

Bachelors

Graduate

0102030405060708090

Annual Income by Educational Attainment

Inco

me

($00

0’s)

Source: IPUMS USA 201359

Better able to find a job with a diploma in hand, even only a high school diploma

Less

than HS

High Sc

hool

Some Colle

ge

Associa

tes

Bachelors

Graduate

02468

1012141618

Unemployment by Educational Attainment

Unem

ploy

men

t Rat

e

Source: IPUMS USA 201360

Even with a highly educated labor force, Ottawa County’s demand for skills may outstrip the supply

49%

8%

38%

5%

Education Requirements of Postings

Less than HS High school or cert.

8%

51%10%

21%

11%

Educational Attainment of Employed

Assoc. Bach. Grad.

Source: IPUMS USA 2014 & BurningGlass 201561

So What Is Our 2016 and 2017 Employment Forecast for Ottawa County?

But wait, how did we do last year?

62

Review of Last Year’s Forecast:Didn’t expect the big jump in goods-producing employment

Total Goods producing Service providing Government-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

3.4%

6.2%

2.6%

-1.6%

2.4% 2.5% 2.8%

-0.2%

Annual Percent Change in Employment

2015 actual 2015 forecast

Perc

ent c

hang

e in

em

ploy

men

t

63

Drum roll please . . .

64

But before that…what did we consider in deriving the forecast?

65

Construction is growing at a modest pace

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

50100150200250300350400450500

Number of Dwelling Units Put Under Contract for Construction (SAAR*)

New dwelling units 12-month moving average

66*Seasonally adjusted annual rateSource: Dodge Data and Analytics.

Building permits for single family houses tapered off in 2014

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

500

1,000

1,500

2,000

2,500

Building Permits Ottawa County

Total Units Single Family Houses

Source: BLS LAUS and Upjohn Institute.67

Real wages are flat since 2000

20002000

20012002

20032003

20042005

20062006

20072008

20092009

20102011

20122012

20132014

20150

200

400

600

800

1,000

1,200

1,400

Total Nonfarm Wages (2015 Dollars)

Michigan Moving average (Michigan)Ottawa County Moving average (Ottawa County)

Aver

age

wee

kly

wag

e ($

)

Source: Michigan LMI and BLS CPI.68

… and wages in manufacturing are holding steady if not ticking up slightly

20002000

20012002

20032003

20042005

20062006

20072008

20092009

20102011

20122012

20132014

20150

200400600800

1,0001,2001,4001,6001,800

Total Manufacturing Wages (2015 Dollars)

Michigan Moving average (Michigan)Ottawa County Moving average (Ottawa County)

Aver

age

wee

kly

wag

e ($

)

54Source: Michigan LMI and BLS CPI.

Brian Long’s PMI has hiccupped a little after remaining steady for a while

2008 2009 2010 2011 2012 2013 2014 20150

10

20

30

40

50

60

70

80

Purchasing Managers Index

Purchasing Managers Index 12-month moving average70

Source: National Association of Purchasing Management.

Michael Dunlap’s Survey continues to show moderate strength in the area’s office furniture industry

2010 2011 2012 2013 2014 201546

48

50

52

54

56

58

60

85

90

95

100

105

110

115

120

MADA Office Furniture Industry Index and Index of West Michigan Furniture Industry Employment

MADA indexIndex of Grand Rapids metro furniture employment

MAD

A In

dex

Inde

x of

Em

ploy

men

t (20

00=1

00)

Source: BEA and Federal Reserve. 71

And now…at last…the forecast

72

Ottawa County2016–2017 Employment Forecast

Total Goods producing Service providing Government-2.0%

-1.0%0.0%

1.0%

2.0%3.0%

4.0%5.0%

6.0%7.0%

3.4%

6.2%

2.6%

-1.6%

2.0%2.4%

2.0%

0.6%

1.9% 1.9% 2.1%

0.8%

Annual Percent Change in Employment

2015 2016 2017

Perc

ent c

hang

e in

em

ploy

men

t

73

For all three years, Ottawa County is forecasted to outpace the state and the nation

2015 2016 20170.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2.11.7 1.6

2.2

1.4 1.5

3.4

2.0 1.9

Employment Forecast

United States Michigan Ottawa County

Annu

al p

ct ch

ange

Source: University of Michigan RSQE & Upjohn Institute74

Parting Thoughts

• US, Michigan, and Ottawa County are in a good position with strong fundamentals

• It is highly unlikely that the economy will turn negative in 2016. However, it could slow due to:– Sluggish international markets– Dramatic drop in consumer confidence– Continued obsession with China– Fiscal austerity: lessons from Europe– Unforeseen events

• Of course, 2016 is an election year and …

75

The 2016–2017 Employment Forecast for Holland-Ottawa County Area

Randall EbertsBrian Pittelko

W.E. Upjohn Institute for Employment Research

January 12, 2016

Can it get any better than this?