Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 1 Dennis Winters Chief,...

Wisconsin is Open for Business

November 9, 2012

1

Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

Dennis WintersChief, Office of Economic Advisors

Department of Workforce DevelopmentNovember 9, 2012

Sizing up Today’s EconomySizing up Today’s Economy

Wisconsin Economics Association

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November 9, 2012

Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

ECONOMICOUTLOOK

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

THE ECONOMY

HAS CHANGED

AND SO MUST YOU

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

Average Real GDP Growth First 9 Quarters of Recovery

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0Pe

rcent

4

ECONOMIC RECOVERYHOW IS THIS ONE NOT LIKE THE OTHER ONES

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

JOBS RECOVERYHOW IS THIS ONE NOT LIKE THE OTHER ONES

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy WHY HAS THERECOVERY

BEEN SO SLOW

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EconomyEconomy

Source: BEA, OEA

BUSINESS CYCLE SEVEREIT TOOK NINE QUARTERS TO RECOVER

Recovered

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

REAL EARNINGS ARE FLAT

Wisconsin Real Average Annual Wage

$28,000

$30,000

$32,000

$34,000

$36,000

$38,000

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

INTEREST INCOME TAKE HIT WITH LOW INTEREST RATES

Personal Interest Income

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

Dec07

Mar08

Jun08

Sep08

Dec08

Mar09

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

Sep11

Billi

ons

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

Household Debt as % of Disposable Income

10

11

12

13

14

15

Jan-

80

Jan-

82

Jan-

84

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

Jan-

10

Per

cent

HOUSEHOLD DEBT DELEVERAGING

Source: Fed flow of Funds

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

HOME EQUITY WAS USED FOR CONSUMPTIONNOW PART OF DELEVERAGING

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

1212

-100,000

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000Ch

ange

ove

r Pri

or Y

ear $

M

Source: Federal Reserve Board of Governors

REVOLVING CREDIT WAS USED FOR CONSUMPTIONNOW PART OF DELEVERAGING

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

1313

Personal Savings, Billions of Dollars

0

100

200

300

400

500

600

700

800

200

0-I

200

0-III

200

1-I

200

1-III

200

2-I

200

2-III

200

3-I

200

3-III

200

4-I

200

4-III

200

5-I

200

5-III

200

6-I

200

6-III

200

7-I

200

7-III

200

8-I

200

8-III

200

9-I

200

9-III

201

0-I

201

0-III

2011

-I

NO SAVINGS – WAS USED FOR CONSUMPTIONNOW PART OF DELEVERAGING

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomyIt is difficult to increase consumptionwhen you:

1. have stagnant income,2. are losing wealth,3. paying down debt,4. increasing savings,5. and are paying more for food and gas.

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EconomyEconomy

CORPORATE PROFITS AT NEW RECORDSMOSTLY DUE TO COST CUTTING

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

Change In Investment From 2007 4th Qtr

-600

-500

-400

-300

-200

-100

0

100Bil

lions

of 20

05 $

Private investmentResidential

16

CORPORATE PROFITSBUILDING CASH HOARD

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

INVESTMENT GROWTH IS IN PRODUCTIVITY, NOT EXPANSION

Source: BEA, OEA

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EconomyEconomy

MANAGING RISK WHERE IS THE INCENTIVE TO EXPAND

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

Source: Federal Reserve Board, Data Download Program

-$500

$0

$500

$1,000

$1,500

$2,000

Ja

n-0

8F

eb

-08

Ma

r-0

8A

pr-

08

Ma

y-0

8Ju

n-0

8Ju

l-08

Au

g-0

8S

ep

-08

Oc

t-08

No

v-0

8D

ec-0

8Ja

n-0

9F

eb

-09

Ma

r-0

9A

pr-

09

Ma

y-0

9Ju

n-0

9Ju

l-09

Au

g-0

9S

ep

-09

Oc

t-09

No

v-0

9D

ec-0

9Ja

n-1

0F

eb

-10

Ma

r-1

0A

pr-

10

Ma

y-1

0Ju

n-1

0Ju

l-10

Au

g-1

0S

ep

-10

Oc

t-10

No

v-1

0D

ec-1

0Ja

n-1

1F

eb

-11

Ma

r-1

1A

pr-

11

Ma

y-1

1Ju

n-1

1Ju

l-11

Au

g-1

1S

ep

-11

Oc

t-11

Reserves of Depository Institutions(billions of dollars)

Required Reserves

Total reserves

EXTENDING CREDITBANKS ARE RETICENT TO LEND FUNDS

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

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November 9, 2012

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy Recovery is self-sustaining. Employment breach in 2015. Strength of recovery subject to consumer income

and wealth uncertainty.

Risks High unemployment dampens income growth. Prolonged high gasoline prices sap consumption. European Union fiscal problems wash over the

global financial markets.

IN CONCLUSIONCONTINUED RECOVERY

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

IN REVERSE ORDERTHE UGLY, THE BAD, AND THE GOOD

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy “Fiscal Cliff” – $580 million in changes

Could decrease GDP growth by four percentage points Federal deficit and debt

Dampers on growth, current models not sustainable Entitlements – Medicare and Social Security

Not sustainable in the long run State and local benefits burden

Health care and pension liabilities European fiscal crisis – global affect

U.S. dollar affects, export demand, wealth lost

BEGINNING WITHTHE UGLY

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

Slow down in manufacturing Production, exports

Sub-par employment growth Job growth not keeping up with labor force growth

Macro tools having limited impact Low interest rates, fiscal stimulus, QEs, twist

ADDING INTHE BAD

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

Housing markets finally moving higher Little happening in non-res construction

Motor vehicle sales are moving higher Perpetuating sector growth

SLOW PROGRESSTHE GOOD

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WORKFORCEOUTLOOK

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EconomyEconomy

Breach May 2015

JOBS RECOVERYOUR BEST ESTIMATES PUT THE BREACH AT MAY 2015

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EconomyEconomy

WORKFORCE PEAKED NO RECOVERY AFTER RECESSION, NONE EXPECTED

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

WISCONSIN’S WORKFORCE GROWTHBECOMES FLAT

Source: Bureau of Labor Statistics, OEA

Wisconsin Population and Labor Force

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1960 1970 1980 1990 2000 2010 2020 2030

( x 1

000

)

POPULATION

CIVILIAN LABOR FORCE

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EconomyEconomy

WORKFORCE PARTICIPATION TRENDS DWARF FLUCUATION

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EconomyEconomy

POPULATION PARTICIPATION FUNCTION OF RECESSION SEVERITY

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EconomyEconomy

IT’S THE YOUNG THAT ARE DELAYING ENTERING THE WORKFORCE

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EconomyEconomy

CHANGING LFPR GREATLY ALTERS WORKER AGE MIX

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy… the number of unemployed persons (12.8 million) and the

unemployment rate (8.3 percent) … have shown little movement thus far in 2012. BLS, July 2012 employment report, August 3, 2012

US Employers post the most jobs in 4 years;by Christopher S. Rugaber, AP economics writer, Posted: Aug 07, 2012 9:42 AM CDT

State manufacturers have jobs, need workers; postcresent.com; by Holly Hartung, Grace Edquist and Matt Oleson, Wisconsin Center for

Investigative Journalism, August 1, 2012

Marinette Marine struggles to attract young workers,Training, dozens of positions available, but applicants are fewBy Rick Barrett of the Journal Sentinel, June 16, 2012

WAIT, WHAT HOW CAN YOU HAVE BOTH?!

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy We have:

1. 223,600 people unemployed2. 43,400 job openings on JCW3. UI benefits running out

We also have: Lack of correct skills fit People looking for their old job Crust of chronically unemployed

WHAT’S THE PROBLEM NUMBER AND MIX OF JOBS NOT ALIGNED

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy IS ITCYCLICAL

ORSTRUCTURAL

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EconomyEconomy

DOROTHY

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy

A little economic theory

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EconomyEconomy

$0

$50

$100

$150

$200

1 d

ay

2 d

ays

3 d

ays

4 d

ays

Supply

Theory Tells UsMore Pay Yields More Work

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EconomyEconomy

$0

$50

$100

$150

$200

1 d

ay

2 d

ays

3 d

ays

4 d

ays

$100 per day yields 3 days work(total earnings = $300)

Area = $300

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EconomyEconomy

$0

$50

$100

$150

$200

1 d

ay

2 d

ays

3 d

ays

4 d

ays

Increased pay translates into increased work

(increased earnings)

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EconomyEconomy

$0

$50

$100

$150

$200

1 d

ay

2 d

ays

3 d

ays

4 d

ays

Well, the guy only shows up for two days. This gives what we call a backward-bending supply curve.

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EconomyEconomy

$0

$50

$100

$150

$200

1 d

ay

2 d

ays

3 d

ays

4 d

ays

At new wage, it only take 2 daysto make $300

=

S`

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Sizing Up Sizing Up Today’s Today’s

EconomyEconomy We face a serious quantity challenge We face a serious quality challenge We need to break into the crust of the

chronically unemployed Many are not prepared technically or civilly Backward-bending supply curve for labor.

THINGS HAVE CHANGEDBREAKING NEW GROUND

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EconomyEconomy

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EconomyEconomy

Questions ?

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EconomyEconomy Dennis Winters

Phone: 608-267-3262

Email: dennis.winters@dwd.wisconsin.gov

Website: www.dwd.wisconsin.gov

OEA website: www.dwd.wisconsin.gov/oea

CONTACT INFORMATION