Outlook 2012: Will the Real Economic Recovery Finally Stand Up? Mark Partridge October 18, 2011...

Outlook 2012: Will the Real Economic Recovery Finally Stand

Up?

Outlook 2012: Will the Real Economic Recovery Finally Stand

Up?

Mark PartridgeOctober 18, 2011

Swank Chair in Rural-Urban Policy([email protected])

Department of Agricultural, Environmental & Development Economics

Ohio State University Extension

IntroductionIntroduction The title of my 2009 talk: The

Great Crisis: Will Economic Recovery Look More Like the Crisis? Even though I realized that we were entering recovery, my answer was Yes!, but I never thought Yes!!!!!!!!!! and then some…

So, a good question is when will have recovery and then what are our next challenges/issues.

10/18/2011 Policy & Oulook Program 2

Introduction—Continued Introduction—Continued I will first provide an overview of

where we are in the U.S. and Ohio to provide the context of today’s outlook.

Then I will discuss forecasts for the U.S. and try to put some context on that for Ohio and perhaps for the 2012 elections.

I will then conclude with a little about the economic impacts of Marcellus Shale and then inequality for the US.


Economic Recovery: Then and NowEconomic Recovery: Then and Now From WW II to 1990, recessions

tended to be cyclical. Orders slowed down. Inventories fell and pent-up-demand took hold.

Factories rehired workers—i.e., most jobs did not disappear.

10/18/20114Policy & Oulook Program

Economic Recovery: Then and NowEconomic Recovery: Then and Now Since 1990—recessions have

become structural as industries/firms downsize and the lost jobs permanently disappear. “Jobless recoveries”

Bubbles in the 1980s and 1990s took years to work off after recession.

This recovery also looks like the financial crisis recessions pre-Great Depression.10/18/2011 Policy & Oulook Program 5

National Non-farm Employment

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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8

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60 months after the onset of recession, seasonally adjusted

Ohio’s performance in recession and recoveriesOhio’s performance in recession and recoveries Ohio usually falls deeper in

recession than the nation as a whole. This time we actually fared about average (just a little below average).

Ohio recoveries tend to be drawn out.

10/18/20117Policy & Oulook Program

Ohio Non-farm EmploymentOhio Non-farm Employment

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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8

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Manufacturing and RecessionManufacturing and Recession Manufacturing’s share of the

economy is falling meaning that it has a smaller impact on growth.

This recession is actually slightly better for manufacturing than the 2001 recession and the jobless recovery.

910/18/2011 Policy & Oulook Program

Manufacturing Employment SharesManufacturing Employment Shares

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US Employment Share in manufacturingOH Employment Share in manufacturing

U.S. Manufacturing EmploymentU.S. Manufacturing Employment

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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8

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Ohio Manufacturing EmploymentOhio Manufacturing Employment

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Growth in the “Three C’s”Growth in the “Three C’s” The Three C’s performance also

illustrates that OH will likely recovery differently depending on what part of the state we are talking about.

A key reason for the economic differences across the 3 C’s is their relative manufacturing intensity, though each have their own culture.

Columbus is lagging the other 2 C’s. Cleveland continues to surprise.


Columbus Non-farm EmploymentColumbus Non-farm Employment

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Cincinnati Non-farm EmploymentCincinnati Non-farm Employment

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1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-2011.8

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Cleveland Non-farm EmploymentCleveland Non-farm Employment

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60 months after


U.S. ForecastU.S. Forecast I use the NABE September

Forecast. It reflects the average of 52 economists and does not have an agenda.

http://www.nabe.com/publib/macsum.html

NABE forecasts 1.7% GDP growth in 2011 and 2.3% in 2012 (about 1% lower than their May 2011 forecast.) A reasonable economic expansion should have > 4% growth for 2 years or so.

IMF’s U.S. forecast is 1.5% and 1.8%. Also revised down by about 1% since

June.


http://www.nabe.com/publib/macsum.html

US ForecastUS Forecast NABE sees a very weak labor

market Monthly Nonfarm payrolls are

expected to rise 124,100 per month in 2011 and 162,100 per month in 2012. At sustained monthly rate of at least 200,000+ is needed for a few years.

UR rate will still be 8.5% at end of 2012 US still 1 million jobs below 2000 level.

Most panelists don’t see labor market recovery to pre-recession levels until 2015 and some don’t see it until 2017.


U.S. ForecastU.S. Forecast On the positive side, NABE sees

Expansionary monetary policy (?) Growth in the rest of the world (?) Business investment and pent-up consumer demand (?)

On the negative side: Low consumer and business confidence

Uncertainty about future gov’t policies (?) I add uncertainty whether ‘Washington’

can do anything of consequence. Tepid housing market (2013 recovery?)


U.S. ForecastU.S. Forecast Negative Factors continued:

Financial headwinds caused by tight credit conditions and balance sheet restructuring

High federal deficits and the European debt (Greek) crisis weigh on the world economy

In this economic environment, while I do not see a recession, I have a difficult time seeing how a President could be reelected in this climate. 1968 and 2000 elections are exceptions where economy was not THE issue.


Ohio ContextOhio Context Ohio has added 1.6% jobs in the

last year US added 1%. Ohio Unemployment rate 9.1% in Aug

2011, 9.9% Aug 2010, and 8.6% in May 2011.

Columbus has lost about 0.6% jobs--local performance has been uneven.


Ohio ContextOhio Context Ohio’s strengths are (1) strong leadership direction

I am not saying good or bad direction.

Improved position on state taxes. (2) State budget is mostly

balanced on a structural basis. State avoided tax increases by pushing them down to local gov’t.

Yet, there is little uncertainty that the state budget is sustainable if we have another recession.


Ohio Utica (Marcellus) Shale: Game Changer?Ohio Utica (Marcellus) Shale: Game Changer? Commenting on shale energy

development: “This will be the biggest thing in the state of Ohio since the plow…This is truly extraordinary.” Aubrey McClendon CEO of Chesapeake Energy of Oklahoma.

Quoted in the Columbus Dispatch “Realism on Renewable Energy.” September 22, 2011, Pp. B1-B2.


Utica Shale: Game Changer?Utica Shale: Game Changer?1. Economists point out that ‘projects’

and policies should be judged on their net benefits and costs, and NOT net job creation. E.g., CO2 content of coal vs natural gas. E.g., lower energy costs or energy

security. 2. The best source of an industry’s actual

economic impact is NOT the industry itself, studies paid for by the industry, or sympathetic politicians and newspapers. This is not a surprise . In serious research, we use peer review to

weed out poor studies. We create counterfactuals.


Utica Shale: Game Changer?Utica Shale: Game Changer? A counterfactual is what would have

happened if there was no shale industry. The difference between the number of jobs that did happen and the counterfactual is the actual jobs CREATED.

3. So-called ‘impact studies’ that estimate direct and indirect effects are over-estimates of new job creation and serious regional economists have not viewed them as anywhere near best practice for decades. NOT COUNTERFACTUALS! At best, a well done impact study should

tell you how many jobs are ‘supported’ by an industry, not how many jobs it ‘created.’


Utica Shale: Game Changer?Utica Shale: Game Changer? #3 continued: The “Penn State Impact Study” funded by the

shale industry is a good example. It predicts 111,000 jobs in 2011 and 212,000 in 2020 using the IMPLAN software.

Such studies usually ignore displacement effects and do not compare development’s impact to the counterfactual. Also, it estimated 95% of shale industry purchases are in PA. (Mexican Restaurant/IA studies/no price

effects)4. We do a difference in difference

assessment of those with heavy mining vs similar counties w/o mining to get a better handle on the actual income and job creation.


2001 2002 2003 2004 2005 2006 2007 2008 2009 201070

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OH and PA Natural Gas Related Employment 2001=100

Source: U.S. Dept. of Labor QCEW http://data.bls.gov/pdq/querytool.jsp?survey=en Note: 21111-Oil and gas extraction 213111 - Drilling Oil and Gas Wells 213112 - Support Activities for Oil and Gas Operations 541360 - Geophysical Surveying and

Mapping Services 238912 - Nonresidential Site Preparation Contractors 333132 - Oil and Gas Field Machinery and Equipment Manufacturing 333911 - Pump and Pumping Equipment Manufacturing for natural gas wells 486210 - Pipeline Transportation of Natural Gas 237120 - Oil and Gas Pipeline Construction

2001 2002 2003 2004 2005 2006 2007 2008 2009 201010000

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OH and PA Natural Gas Related Employment

Source: U.S. Dept. of Labor QCEW http://data.bls.gov/pdq/querytool.jsp?survey=en Note: 21111-Oil and gas extraction 213111 - Drilling Oil and Gas Wells 213112 - Support Activities for Oil and Gas Operations 541360 - Geophysical Sur -veying and Mapping Services 238912 - Nonresidential Site Preparation Contractors 333132 - Oil and Gas Field Machinery and Equipment Manufacturing 333911 - Pump and Pumping Equipment Manufacturing for natural gas wells 486210 - Pipeline Transportation of Natural Gas 237120 - Oil and Gas Pipeline Construction

Source: U.S. Dept. of Labor QCEW http://data.bls.gov/pdq/querytool.jsp?survey=en and U.S. Bureau of Labor Statistics CES, Total Nonfarm Employment by state, www.bls.gov.Note: 21111-Oil and gas extraction 213111 - Drilling Oil and Gas Wells 213112 - Support Activities for Oil and Gas Operations 541360 - Geophysical Surveying and Mapping Services 238912 -

Nonresidential Site Preparation Contractors 333132 - Oil and Gas Field Machinery and Equipment Manufacturing 333911 - Pump and Pumping Equipment Manufacturing for natural gas wells 486210 - Pipeline Transportation of Natural Gas 237120 - Oil and Gas Pipeline Construction

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Percent Natural Gas Non-Farm Employment Share: OH and PA

http://www.bls.gov/


PA Counties considered in our simple difference in difference counterfactual

Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov

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Southern PA Matched Employment Pairs

Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.go

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Northeastern PA Matched Employment Pairs


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Southern PA Matched Per Capita Income Pairs


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Northeastern PA Matched Per Capita Income Pairs

Inequality, taxes and class warfareInequality, taxes and class warfare Growing inequality is likely to be a major

issue in future political discourse—eg Occupy Wall Street.

Greater inequality encourages growth, entrepreneurship, and innovation. Source: Partridge, 1997 AER; 2005 J. of Reg Sci.)

It is also associated with greater job growth and lower unemployment (Pre-2000 Europe vs U.S. comparisons)

Greater inequality comes at the expense of breakdown in social cohesion, lower educational attainment, worse health outcomes, etc.

The pro inequality incentive aspects would clearly breakdown if the benefits are not widely shared. (Welsch, 1999)

Some politicians say the wealthy should pay more taxes. “Buffet Rule” Other changes possible…


U.S. Income Growth by Household Percentile: 1973=100

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Incom

e L

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Slight decline in bottom 90%

Massive rise at very top

ConclusionsConclusions The economy continues to sputter.

I don’t see ‘normal’ growth until 2013 and full recovery until 2015-16.

In other words, 2012 will represent a continuation of the jobs recession.

Ohio is on a better budget footing. Utica shale should be evaluated

on costs vs. benefits, not on job creation.

The spectacle of high inequality is real and could approach a tipping point.


Mark PartridgeSwank Chair in Rural-Urban PolicyDept. Agricultural, Environmental &

Development EconomicsThe Ohio State UniversityGoogle “Partridge Swank” and you will get my website(614) 688-4907([email protected])


Individual County Graphs FollowIndividual County Graphs Follow


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Washington(Mining)

Washington-Cumberland Matched Employment Pair

Source: U.S. Bureau of Economic Analysis, REIS Data, Downloaded Oct. 7, 2011. www.bea.gov.


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Greene-Perry Matched Employment Pair


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Fayette-Franklin Matched Employment Pair


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Tioga-Union Matched Employment Pair


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Greene-Perry Matched Per Capita Income Pair


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Fayette(Mining)

Fayette-Franklin Matched Per Capita Income Pair


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Susquehanna(Mining)

Susquehanna-Carbon Matched Per Capita Income Pair


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Tioga(Mining) Union(Non-Mining)

Tioga-Union Matched Per Capita Income Pair


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Bradford(Mining)

Bradford-Columbia Matched Per Capita Income Pair

Outlook 2012: Will the Real Economic Recovery Finally Stand Up? Mark Partridge October 18, 2011...

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