the 2016–2017 employment forecast for the grand rapids ... · back • according the bls, auto...
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The 2016–2017 Employment Forecast for the Grand Rapids–Wyoming MSA
George A. ErickcekBrian Pittelko
W.E. Upjohn Institute for Employment Research
December 10, 2015
It may not get any better than this.
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A Special Thanks to
The Right Place for its continuous long-term support
andTo the fearless participants of this year’s Forecast Advisory Focus Group who accept none of the credit but all of the blame for our forecasts.
1
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Agenda
• Looking back at 2016, What went wrong?• The state economy continues to be driven by the
car industry• The competitive strength of the Grand Rapids
MSA cannot be denied– Its “core” industries outperform the nation– It beats its comparison group of MSAs
• 2016 and 2017 Employment Forecast• Final Thoughts for 2016
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-2,500
-2,000
-1,500
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-500
0
500
1,000
1,500
-2
-1
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10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1
Empl
oym
ent c
hang
e (0
00s)
Perc
enta
ge c
hang
e in
GDP
Gross Domestic Product and Nonfarm Employment
GDP Nonfarm employment
Forecast
The U.S. Economy Appears to be on Cruise Control Through 2016
Source: BLS, BEA, Philadelphia Federal Reserve.3
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Nationwide, the Number of Job Seekers Per Opening Is Back to Pre-recession Levels
0
1
2
3
4
5
6
7
8
0
1,000
2,000
3,000
4,000
5,000
6,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Une
mpl
oyed
/ jo
b op
enin
gs
Thou
sand
s (00
0s)
U.S. Job Openings and New Hires
Job seekers per opening
Job openings at end of month
4Source: BLS Job Opening and Labor Turnover.
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How did we miss the 2016 recession?
Two days before Thanksgiving – Tom Turkey saw nothing but bright days ahead.
Thought Exercise:
5
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We Did Not Foresee
• Growing Bubbles in Key Markets• The Federal Reserve Overreacting• The National Debt/Deficit Taking its Toll• International Recession• Consumer Confidence Falling off the Cliff• Labor Shortage Driving Up Costs • Income Inequality
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Is There a Bubble in the Auto Industry?
0
200
400
600
800
1,000
1,200
1,400
1,600
02468
101214161820
2010 2011 2012 2013 2014 2015
Uni
t inv
ento
ries (
000s
)
Seas
onal
ly a
djus
ted
annu
alize
d sa
les
(mill
ions
)
U.S. Light Vehicle Sales and Inventories
Total light vehicle sales Unit inventory
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In the Long-Term it Looks Like We Are Just Returning to “Normal”
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Annu
al ra
te o
f sal
es (i
n m
illio
ns)
Annualized Rate of U.S. Light Vehicle Sales (in millions)
8Source: BEA.
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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 the BLS, auto prices are trending with the prices of all goods
• From 2013 to 2015 model years: 114 new models were introduced, on top of 230 existing vehicles.
• U of M is forecasting car sales to reach 18 million units in 2016 and 2017. Wow!
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Stock Market Bubble: Earning-to-Price Ratio of the S&P 500 Looks Pleasantly Boring
0
20
40
60
80
100
120
140
1990 1995 2000 2005 2010 2015
10
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A Housing Bubble? Indeed, Homes Prices Have Recovered but Not Much More
0
50
100
150
200
250
1991 1996 2001 2006 2011 2016
Housing Price Index 1991=100
Source: Federal Housing Finance Agency.11
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Other Bubbles?
• Oil? 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 • You never see what hits you
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Why Would the Fed Want to Rock the Boat? Employment Is Strong and Interest Rates Are Low
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2010 2011 2012 2013 2014 2015
Annu
al p
erce
ntag
e ra
te
Interest Rates and Inflation
30-year mortgages10-year Treasury bills
3-month Treasury bills
12-month change in CPI-U
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Consumer Prices Are Still Below the Fed’s 2.0 Percent Target
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
1990 1995 2000 2005 2010 2015
Year-Over-Year Change in the PCE Price Index
Source: BEA PCE Price Index.14
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The Banking Situation Looks Calm
-100-80-60-40-20
020406080
100
2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1
Net
per
cent
age
of re
spon
dent
s
Federal Reserve Senior Loan Officers Survey:Demand and Lending Standards for Commercial and Industrial
Loans by Medium-to-Large Firms
Reporting tightening standards
Reporting stronger loan demand
Source: Federal Reserve.15
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However, the International Market Place Is Sluggish
-4
-2
0
2
4
6
8
10
12
2010 2011 2012 2013 2014 2015
Percent Change in GDP over the Previous Year
JapanOECD Europe
China
U.S
Source: OECD.16
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The Value of the Dollar is Not in Question
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95
-70,000
-60,000
-50,000
-40,000
-30,000
-20,000
-10,000
0
2010 2011 2012 2013 2014 2015
U.S. Trade Balance and Nominal Index of the Value of the Dollar against Seven Major Currencies
Major currencies' Dollar index
Trade balance
Source: BEA and Federal Reserve. 17
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In the Past Five Years, Consumer Confidence Has Risen and So Has Household Debt
Source: New York Federal Reserve and Conference Board.
0
20
40
60
80
100
120
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2010 2011 2012 2013 2014 2015
Inde
x: 1
995
= 10
0
Billi
ons (
$)
Consumer Confidence and Change in Consumer Debt
Consumer debt Consumer confidence18
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Consumers Are Not Spending Beyond Their Abilities
77%78%79%80%81%82%83%84%85%86%87%88%
1991 1996 2001 2006 2011 2016
Personal Outlays as a Percent of Personal Income
Source: BEA.19
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Possible Skill Shortages Have Not Caused Wage Increases, Nationwide
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2005 2006 2007 2009 2010 2011 2012 2014 2015
Year-over-Year Change in Total Compensation of Private Industry Workers
Source: BLS.20
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Income Inequality Has Always Been with Us, but It Is Growing
Year Lowestfifth
Secondfifth
Thirdfifth
Fourthfifth
Highestfifth
Top 5.0percent
1970 10,841 29,369 47,294 66,663 118,019 181,146
1980 11,794 29,354 48,438 71,362 127,235 190,139
1990 12,594 31,687 52,338 78,912 153,138 243,856
2000 13,963 34,863 58,058 90,254 195,578 346,975
2010 11,938 30,982 53,389 85,649 183,935 311,859
2014 11,676 31,087 54,041 87,834 194,053 332,347Chg 1970-2014 8% 6% 14% 32% 64% 83%
Mean Household Income in 2014 dollars
Source: https://www.census.gov/hhes/www/income/data/historical/inequality/ 21
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Summing up
• It is hard to find a cause for a recession in 2016
• However, sluggish international markets and the income inequality could slow growth
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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– 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
23Source: University of Michigan.
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Manufacturing Clearly Stands Above the Other Planets
Construction
Manufacturing
Wholesale
Retail trade
Transport., util.
Information
Finance
Real estate
Prof., tech.
Management
Admin. and support
Educ. services
Health care
Arts, ent., rec.
Hospitality
Other serv.
Government-15
-10
-5
0
5
10
15
20
25
30
Job
cha
nge
(000
s)
Employment Change, Q3 2014 to Q3 2015
Source: BLS CES.24
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Again, Possible Skills Shortages Are Not Reflected in Higher Wages
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2014 2015
Hour
ly w
age
($)
Average Hourly Wage in Michigan, 2015 dollars
Source: BLS CES.25
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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
26Source: University of Michigan RSQE Nov, 2015.
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The State’s Unemployment Rate Has Improved and Now Stands at 5.0 Percent
0
2
4
6
8
10
12
14
16
2000 2003 2006 2009 2012 2015
Perc
ent o
f lab
or fo
rce
Unemployment Rate
27Source: BLS LAUS.
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Grand Rapids–Wyoming MSA
• Employment is very robust• Core industries are competitive• Comparison areas cannot keep up• However, earnings remain flat
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-1 0 1 2 3 4 5 6
GovernmentOther services
Leisure & hospitalityEducation & health
Business & professionalFinancial
InformationTransportation & utilities
RetailWholesale
ManufacturingConstruction
Employment (in 000s)
Employment Change, Jan–Sep 2014 to Jan–Sep 2015
Source: Michigan Labor Market Information, CES.
Another Solid Year, with Employment Growth Reaching 18,600 Jobs
29
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The Current Unemployment Rate is 3.3 Percent with 18,500 Persons Unemployed
0
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10
12
14
2000 2002 2004 2006 2008 2010 2012 2014
Unemployment Rate for the Grand Rapids MSA
30Source: MILMI LAUS and Upjohn Institute.
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Unemployment Has Been Falling for the Right Reasons Since 2010
Year Labor Force Employment Unemployed Unemploymentrate
2009 -8,314 -29,902 23,933 12.6
2010 12,038 23,369 -12,915 9.8
2011 1,849 9,713 -8,755 8.1
2012 9,171 15,426 -6,925 6.6
2013 7,386 8,121 -844 6.3
2014 17,252 26,364 -9,954 4.3
2015 12,499 16,816 -4,712 3.4
Change in Individuals, October to October
Source: BLS LAUS and Upjohn Institute.31
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From the Start of the Great Recession (Dec 07) to Today, Grand Rapids Employment Has Increased by 9 Percent (44,250 jobs) Compared to Only 4 Percent Nationwide
80
85
90
95
100
105
110
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Nonfarm Employment Index (2000 = 100)
U.S. Michigan Grand Rapids MSA
Source: BLS and Upjohn Institute, seasonally adjusted.32
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Unlike the Nation, Manufacturing Employment Has Fully Recovered from the Recession —
Employment is up 7.2% or 7,200 Workers
45
55
65
75
85
95
105
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Manufacturing Employment Index (2000 = 100)
U.S. Michigan Grand Rapids MSA
Source: BLS and Upjohn Institute, seasonally adjusted.33
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Service Employment Has Grown Faster Than the Nation’s as Well
85
90
95
100
105
110
115
120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Services Employment Index (2000 = 100)
U.S. Michigan Grand Rapids MSA
Source: BLS and Upjohn Institute, seasonally adjusted.34
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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 Grand Rapids area than nationwide
• The question: Did these industries outperform their national rivals?
• Area is defined as Kent, Barry, Ionia, and Newaygo Counties
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List of Core Industries
• Plastics • Fabricated metals • Machinery manufacturing • Electrical equipment and appliance manufacturing• Transportation equipment • Furniture• Administrative and support services • Hospitals
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During the Period, the Area’s Core Industries Added 23,600 Jobs Due to Their Competitiveness
Core IndustriesJob change due only to the area’s firms outperforming their national rivals
Plastics 1,857Fabricated metals 1,034Machinery manufacturing -384Electrical equipment and appliances 613Transportation equipment 397Furniture 1,708Administrative and support services 13,759 Hospitals 4,604
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So Grand Rapids Is Better than Average
But if it is compared to other successful MSAs, will it look just as good?
The answer is yes.
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A New Comparison Analysis
• Birmingham-Hoover, AL• Charlotte-Concord-
Gastonia, NC-SC • Dallas-Fort Worth-
Arlington, TX• Greenville-Anderson-
Mauldin, SC• Knoxville, TN
• Louisville/Jefferson County, KY-IN Metro Area
• Portland-Vancouver-Hillsboro, OR-WA Metro Area
• Rochester, NY• Tulsa, OK
39
Comparison Areas:
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Comparison Criteria
• Population 20% above or 20% below theGrand Rapids–Wyoming MSA
• Not located on an oceanic coast• Not a state capital• Must have at least 10% of their overall GDP
generated from the manufacturing sector
40
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Grand Rapids Provides the Best Employment Conditions of the Lot
5.65.55.5
5.45.35.3
4.74.3
4.05.1
3.8
0 1 2 3 4 5 6
Greenville, SCCharlotte, NCKnoxville, TN
Birmingham, ALPortland, OR
Rochester, NYLouisville, KY
Tulsa, OKDallas, TX
Comparison averageGrand Rapids
Average Unemployment Rate, Jan–Oct 2015
Source: BLS LAUS.41
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It Has the Best Overall Employment Performance as Well
0.91.3
1.62.8
2.93.1
3.33.5
3.62.6
3.7
0 0.5 1 1.5 2 2.5 3 3.5 4
Tulsa, OKRochester, NY
Birmingham, ALKnoxville, TN
Greenville, SCLouisville, KYPortland, OR
Charlotte, NCDallas, TX
Comparison averageGrand Rapids
Employment percent change
Total Employment Change Jan–Oct 2014 to Jan–Oct 2015
Source: BLS CES.42
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Growth in Export Services Is a Challenge for Grand Rapids
1.41.6
1.72.72.7
3.43.43.4
4.12.7
3.1
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
Tulsa, OKRochester, NY
Birmingham, ALKnoxville, TNLouisville, KY
Charlotte, NCGreenville, SCPortland, OR
Dallas, TXComparison average
Grand Rapids
Employment percent change
Services Employment Change Jan–Oct 2014 to Jan–Oct 2015
Source: BLS CES.43
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The Other MSAs Are Choking in the Dust
-4.7-2.3
-1.2-0.4
0.82.22.2
2.83.7
0.34.8
-6 -4 -2 0 2 4 6
Tulsa, OKBirmingham, AL
Rochester, NYDallas, TX
Greenville, SCKnoxville, TNCharlotte, NCLouisville, KYPortland, OR
Comparison averageGrand Rapids
Employment percent change
Manufacturing Employment Change Jan–Oct 2014 to Jan–Oct 2015
Source: BLS CES.44
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OK, Portland Is Definitely a Cool City, but Tulsa?
14.215.8
17.318.018.4
19.420.0
23.227.8
19.321.2
0 5 10 15 20 25 30
Knoxville, TNRochester, NY
Dallas, TXCharlotte, NC
Birmingham, ALGreenville, SCLouisville, KY
Tulsa, OKPortland, OR
Comparison averageGrand Rapids
Employment percent change
Percent Self-Employed in Professional, Scientific, and Technical Services
Source: BLS CES.45
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Twenty Years Ago It Was a Different Story; Grand Rapids Has Made Great Strides in Attracting
Educated Young Adults
28.129.029.5
30.332.732.7
35.736.1
37.232.3
36.2
0 5 10 15 20 25 30 35 40
Knoxville, TNTulsa, OK
Greenville, SCBirmingham, AL
Louisville, KYDallas, TX
Charlotte, NCRochester, NY
Portland, ORComparison average
Grand Rapids
Employment percent change
Bachelor's Degree or Higher, Age 25–34
Source: BLS CES.46
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So What Is Our 2016 and 2017 Employment Forecast for Grand Rapids?
But wait, how did we do last year?
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Wait for it . . .
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Review of Last Year’s Forecast:Not bad, if we do say so ourselves
3.1%
5.1%
3.2%
-0.8%
3.2%
4.8%
3.2%
-0.2%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Total Goods producing Service providing Government
Perc
ent c
hang
e in
em
ploy
men
t
Annual Percent Change in Employment
Current estimate Forecasted49
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So What Did We Consider?
Besides the information from our forecast advisory group
50
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Construction May Be Tapering
0
200
400
600
800
1000
1200
2000 2002 2004 2006 2008 2010 2012 2014
Number of Dwelling Units Put Under Contract for Construction (SAAR*)
New dwelling units 12-month moving average
51*Seasonally adjusted annual rateSource: Dodge Data and Analytics.
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I See the Forming of a U, Do you?
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Construction Permits Issued, Grand Rapids MSA
Total, All Structure Types Single Family Houses
Source: Census Housing Starts. * Projection based on year-to-date, Oct 201552
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Wage Rates Appear to be Stable Despite Skilled Labor Shortages
0
200
400
600
800
1,000
1,200
Aver
age
wee
kly
wag
e ($
)
Total Nonfarm Wages (2015 Dollars)
Michigan Grand Rapids MSA
Source: Michigan LMI and BLS CPI.53
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In Fact, Wages in Manufacturing Appear to be Weakening
0200400600800
1,0001,2001,4001,6001,800
Aver
age
wee
kly
wag
e ($
)
Total Manufacturing Wages (2015 Dollars)
Michigan Grand Rapids MSA55
Source: Michigan LMI and BLS CPI.
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Brian Long’s PMI Is Stable, but There Are Signs of Slippage
0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 2012 2013 2014 2015
Purchasing Managers Index
Purchasing Managers Index 12-month moving average55
Source: National Association of Purchasing Management.
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Michael Dunlap’s Survey Continues to Show Moderate Strength in the Area’s
Office Furniture Industry
50
60
70
80
90
100
110
120
35
40
45
50
55
60
65
2010 2011 2012 2013 2014 2015
Inde
x of
em
ploy
men
t (20
10 =
100
)
MAD
A in
dex
MADA Office Furniture Industry Index and Index of West Michigan Furniture Industry Employment
Index of Grand Rapids metro furniture employment
MADA index
56
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Grand Rapids MSA 2016–2017 Employment Forecast
3.1%
5.1%
3.2%
-0.8%
2.4% 2.2%2.7%
0.1%
2.5% 2.4%2.7%
0.8%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Total Goods producing Service providing Government
Perc
ent c
hang
e in
em
ploy
men
t
Annual Percent Change in Employment
2015 2016 201757
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Final Thoughts
• It is highly unlikely that the economy will turn negative in 2016. However, it could slow due to:– Sluggish International Market– Insecurity– Income inequality
• Of course, 2016 is an election year and economists tend to hide for cover and stay away from policy debates. Politics trumps economic thinking every time.
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Final Thoughts
• HOWEVER, I am in a unique position and am willing to say – Neither the size of the federal government nor the
national deficit is the problem– The national deficit is best addressed through
economic growth: not tax cuts or reduced government spending
– We should learn from Europe; austerity is not working
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Final Thoughts
• Keeping demand up is key • Expanding the Earned Income Tax Credit• Infrastructure spending for our roads,
airports, public transportation, alternative energy
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The 2016–2017 Employment Forecast for the Grand Rapids–Wyoming MSA
George A. ErickcekBrian Pittelko
W.E. Upjohn Institute for Employment Research
December 10, 2015
It may not get any better than this.