1. The Economic Outlook for Michigan MCCBOA George Erickcek Brian Pittelko March 1, 2012 W.E. Upjohn Institute for Employment Research 1

2. Outline National setting– It is looking better than just a couple of months ago; however, we still can’t get out of second gear. Michigan– Growth has returned thanks to the car industry but unemployment remains high. Concerns about the state’s future workforce 2

3. Nationwide, GDP grew by 3.0% in the fourth quarter, after inching up 1.8% during the third quarter. And, the forecast is pretty boring. Source: BEA, University of Michigan RSQE forecast. 3

4. Consumers are feeling better than 6 months ago. Source: Pollingreport.com. 4

5. Employment increased by 243,000 in January, after a 200,000 job gain in December. Thousands of jobs Source: Bureau of Labor Statistics (BLS). Quarterly Change in Total Employment Quarterly job increase required to employ new entrants. 5

6. The duration of unemployment has increased dramatically during the recession, and the longer people are out of work the harder it is to find a job. Source: BLS. 6

7. Now for some scary facts about housing from the Fed. More than $7 trillion in home equity—more than half of the aggregate home equity that existed in early 2006—has been lost. The decline in average home equity for middle- income homeowners was about 66 percent of the average income in 2007. Currently, about 12 million homeowners are underwater on their mortgages—more than 1 out of 5 homes with a mortgage. 7 Federal Reserve: The U.S. Housing Market: Current Conditions and Policy Considerations 1-4-2012.

8. Single-family housing starts remain flat. Source: U.S. Census. 8

9. Housing prices are still falling. Housing prices have dropped by 33% since their peak. 9 Source: Federal Housing and Finance Agency.

10. If the engine isn’t broken where is third gear? Consumers are in a better mood, but their “hearts” are just not into it yet. Federal policy is on hold until the 2012 election. However: –Corporations are holding a lot of cash. –Banks are also holding a lot of cash. –And interest rates are low. The stage could be set for a business investment expansion. 10

11. Credit: Banks are still holding more than a trillion dollars in excess reserves—but it is going down. Total and Required Reserves at the Federal Reserve Millions of Dollars Source: Federal Reserve. 11

12. Corporations are making money without hiring workers—a clear break from past years. 12 Source: BEA and BLS.

13. Where do you go from zero? 30-yr Fixed mortgage Source: Federal Reserve. 13

14. Turning to Michigan Employment has stabilized. During the fourth quarter, employment was up 1.5% from a year ago, an increase of 56,540 jobs. U of M’s Forecast is positive. 31,500 additional jobs in 2012 37,200 additional jobs in 2013 14

15. Auto deals are continuing to pick up. 15 Source: BEA.

16. Auto production in Michigan is coming back. 16 Source: Michigan Treasury.

17. U.S. Light Vehicles Sales and Trend Million of Units Automotive sales and production are highly volatile. Right now, sales and production are well below trend, presaging a significant and sustained rise in production and sales. Source: Bill Testa, Chicago Federal Reserve. 17

18. Employment in the state’s auto industry has clearly stabilized. Source: BLS. Auto suppliers Auto assembly Employment in Thousands 18

19. Is the state as auto dependent as before the recession? YES 19 Source: BLS CES.

20. How important are autos to the state? From Q3 09 to Q3 11—the approximate expansion—we estimate that auto assembly and parts manufacturers generated a total of 37,100 jobs in the state (a multiplier of 4) accounting for 39 percent of the job growth during the period. 20

21. What are the chances that we will return to 2000 levels? Source: BLS and Upjohn Institute. The state lost 750,000 jobs from 2000 to 2011 21

22. Private service employment is still down 7 percent from 2000 levels. Source: BLS and Upjohn Institute. Michigan has lost 210,000 service jobs since 2000 22

23. Michigan manufacturing workforce is only 55 percent of what it was in 2000. Source: BLS and Upjohn Institute. The state’s manufacturers eliminated 400,000 jobs since 2000. Nationwide, manufacturers have cut 30 percent of their workforce in the past 11 years. 23

24. The decline in educational achievement is apparent. However, the payoff to education still holds. Employers are not finding the workers they need even though the unemployment rate remains high. A look at Michigan’s workforce 24

25. What is wrong with the young adults? Source: U.S. Census Bureau ACS. 25

26. Education still matters in regards to average earnings. 26 Source: Ruggels et al, IPUMS USA.

27. Education still matters in regards to employment. 27 Source: Ruggels et al, IPUMS USA.

28. Community college enrollments and retention rates continue to rise 28

29. Labor Mismatch Currently 457,000 persons are unemployed in the state and more than 13 million nationwide. Yet, manufacturers claim they cannot find workers with the skills they need. 29

30. Here is the problem. Earning potential remains strong when holding education attainment constant. However, the employment situation in manufacturing is subject to swings in the business cycle and rapidly changing technology improvements. In short, it can be a tough sell to convince someone to pick a manufacturing occupation. 30

31. The Economic Outlook for Michigan MCCBOA George Erickcek Brian Pittelko March 1, 2012 W.E. Upjohn Institute for Employment Research 31