Seeking Economic Sustainability: The Outlook for Michigan July 25, 2008 Donald R. Grimes University of Michigan Michigan Community College Association

Seeking Economic Sustainability:

The Outlook for Michigan

July 25, 2008

Donald R. GrimesUniversity of Michigan

Michigan Community College Association(MCCA)

Traverse City

The Economic Outlook for Michigan

through 2009

Supported bythe State of Michiganand the University of Michigan

– 6%

– 4%

– 2%

0%

2%

4%

6%

’71 ’75’77 ’81

’83’85 ’89

’91 ’95’97 ’01

’03 ’07

Michigan Employment

National Employment

’69 ’73’79 ’87

’93’99

’05

Employment Growth, Michigan and National1969 – 2007

Michigan Per Capita IncomeDeviation from National Average

5.3

– 3.3

1.1

– 2.9

1.9

–1.2

– 9.1–10%

– 5%

0%

5%

10%

’69’71

’73'75

’77’79

’81’83

’85’87

’89’91

’93’95

’97’99

’01’03

’05’07

Wages and Salaries per Job Deviation from National Average

6.8

2.5

7.4

6.3

13.1

– 5%

0%

5%

10%

15%

’69’71

’73'75

’77’79

’81’83

’85’87

’89’91

’93’95

’97’99

’01’03

’05’07

1.8

– 4.0

Michigan Job Change, 2000q2 – 2007q4

CumulativeJob Change(Thousands)

JobChange

Ratio

AverageWage2006

Wage & salary employment – 461.8 –1 in 10.2 $42,157

Manufacturing – 307.3 –1 in 3.0 $58,070

Transportation equip-ment manufacturing

– 157.5 –1 in 2.3 $72,505

Construction – 50.3 –1 in 4.2 $46,561

Education & healthservices

98.0 +1 in 5.1 $38,543

Job Growth in Michiganby Educational Composition

2000 – 2007

Number of Jobs

Total nonfarm 4,262,000 – 1.3

Above-average-education industries

1,830,600 + 0.1

Below-average-

education industries2,431,400 – 2.3

% Job ChangePer Year

2000 – 20072000 2007

4,676,900

1,814,300

2,862,600

Labor Force Statistics for Michiganby Educational Attainment, 2006

IncomeBelow

PovertyLine (%)

Labor ForceParticipation

Rate (%)Unemployment

Rate (%)Annual

Earnings

23.9 $19,029 55.3 17.1Less than high school

12.5 25,710 71.9 10.1High school graduate

8.3 31,717 79.6 6.9Associate’s degreeor some college

2.9 61,645 N.A. N.A.Graduate degree

3.9 45,808 N.A. N.A.Bachelor’s degree

Educational Level

N.A. N.A. 84.4 3.4Bachelor’s or more

Age 25 and older Age 25 to 64

8

9

10

11

12

50%

55%

60%

65%

70%

75%

Salesin millionsof units

Marketshare

’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07

Detroit Three: Sales of Light Vehiclesand Market Share of Total Sales

United States, 1991–2007

50.4

72.6Market share Sales

Employment Location Quotients by IndustryMichigan, 2006

Location QuotientIndustry

Automobile, light truck, and partsmanufacturing

7.15

Detroit Three vehicle and partsmanufacturing (end of 2005)

12.29

Manufacturing except autos and parts 1.05

Private nonmanufacturing 0.95

Wages and Salaries per Job Deviation from National Average and

Detroit Three Share Market Share

’79’81

’83’85

’87’89

’91’93

’95’97

’99’01

’03’05

– 6%

0%

6%

12%

50%

60%

70%

80%Detroit Three ShareWages & Salaries per Job

’07

Millionsof units

National Light Vehicle SalesTotal vs. Detroit Three

0

5

10

15

20

2006 2007 2008 2009

15.114.916.116.5

Total

7.28.17.1

8.7

Detroit Three

Annual % Detroit Threemarket share shown in box.

53.050.4

48.147.5

Michigan Building Permits, 1963 – 2009

RSQE: May 2008

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

'63

'65 '69

'71 '75

'77 '81

'83 '87 '91

'93

'95 '99

'01 '05

'07'67

'73

'79

'85 '89 '97

'03

'09

Thousands

Job Growth in Michigan, 1991–2010

–112.2

–76.9 –70.9

–16.7–9.1

– 63.1– 66.0 – 65.4– 40.1

27.3

88.0

–150–120– 90– 60– 30

0306090

120

AverageAnnual

JobGrowth

’91–’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10

RSQE Forecast – State Revenues by Fiscal Year (Millions of dollars)

RSQE: May 2008

GFGP Revenue

(% change)

Actual Forecast2007 2008 2009

8,318 9,299 9,054

( 0.6) (11.8) (– 2.6)

Earmarked State SAF Revenue

(% change)

11,153 11,386 11,753

(0.6) (2.1) (3.2)

GFGP RevenueFiscal 1995 – 2009

0

2

4

6

8

10

12

’95 ’97 ’99 ’01 ’03 ’05 ’07 ’09

1995 $Current $

’96 ’98 ’00 ’02 ’04 ’06 ’08

Billions $

The Economic and Demographic Outlook

for Michigan and Its Counties to 2035

Supported by theMichigan Department of Transportation

Background on the Forecasts

Included are demographic and economic forecasts for:●

County results can be added to form any region.●

1. Every county in Michigan

2. The state as a whole (a summation of the county results)

Long-term forecasts are intended to identify economictrends

●

— NOT to predict business cycle movements

Forecasts are unable to capture major one-time events●

— unless there is prior knowledge of the event and external information is directly introduced into the forecast

General Observations on theState and County Forecasts for 2005 –2035

• Some counties have special circumstances that cause them to deviate from the general trends—for example, a county with a large college-age population.

General Observations on theState and County Forecasts for 2005 –2035

• The long-term outlook for regions is governed by:

1. Prospects at the national level

2. Trends in productivity growth

3. The mix of industries within regions (e.g., growing service sector, declining goods-producing sector)

4. Demographic trends

Fundamental Drivers in Michigan’sLong-Term Outlook

1. The consequences of profound changes in the auto industry

2. The level of investment in other activities that show promise for future growth and prosperity, and for which the region has supporting assets

3. The impact of the aging of the “baby-boomer” generation, and the migration patterns of the younger and well-educated populace

Forecasts of Population for Michigan

9.6

9.8

10.0

10.2

10.4

10.6

10.8

11.0

11.2

’00 ’05 ’10 ’15 ’20 ’25 ’30 ’35

Millions

Actual

Michigan Population, 2000 – 2035

Long-term forecast

Short-term forecast

per+ 0.23%

yearper

– 0.10%

yearper

+ 0.35%

year

*

2014 exceeds 2005population level

– 600

– 400

– 200

0

200

400

600

800

1000

=+ + =+ +

2000 – 2005 2005 – 2010 2010 – 2035

Components of Population Changein Michigan

Net domestic migration

Net international migration

Natural change in population

Total change in population

Thousands

=+ +

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 to 24 25 to 44 45 to 64 65 plus

Population Distribution by Age GroupMichigan, 2005 and 2035

34.6

29.327.5

24.2 25.523.1

2005 2035

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 to 24 25 to 44 45 to 64 65 plus

Population Distribution by Age GroupMichigan, 2005 and 2035

12.4

23.4

2005 2035

We are getting much older. By 2035, more than23 percent of Michigan’s residents will be 65 orolder.

●

Compare this with the situation in Florida today.In the state known as “God’s waiting room,”17 percent of the residents are 65 or older.

●

According to an informal survey, the retiree wishlist includes:

1. Warm climate

2. Proximity to water

3. Access to good health care

4. Cultural activities

5. Recreational activities

6. Good restaurants

7. Elder-friendly housing

Retiree Wish List

Forecasts of Employment for Michigan

Short-term forecast based on the Bureau of LaborStatistics definition of wage and salary employment.

●

Long-term forecast based on the Bureau of EconomicAnalysis definition, including self-employed,agricultural workers, and military.

●

CAUTION

Thus, employment numbers are not strictly comparableacross forecasts.

●

5.305.355.405.455.505.555.605.655.705.755.80 Actual Long-term forecast

’00 ’05 ’10 ’15 ’20 ’25 ’30 ’35

Millions

Total Employment in Michigan, 2000 – 2035(BEA definition—includes self-employed, farm, military)

Short-term forecast

per– 0.40%

year

5.85

per– 0.24%

yearper

+ 0.26%

year

*2022 exceeds 2000employment level

Total Employment in Michigan

1985 –2010 2010 –2035

6.6%28.1%

25-Year Growth Rate

Industry Employment Forecasts

for Michigan

High-Education Industries% of U.S.

Employmentwith Bachelor’sor More, 2000

Average for all industries 27.2%

Private education services 61.2%

Professional & technical services 58.0%

Management of companies 49.1%

Information 39.1%

Financial activities 36.0%

Government 33.4%

Health care, social assistance 32.7%

Average, all high-education industries

$42,157

30,111

68,828

91,798

54,625

49,693

43,403

39,530

MichiganAverage

Wage2006

48,216

High-Education Industries in Michigan

Private education svcs.

Prof. & tech. svcs.

Management of companies

Information

Financial activities

Government

Health care, social assistance

2001

High-education industries

73,183

366,306

68,848

87,123

375,624

699,496

551,775

2,222,355

2001– 05

19,105

– 2,267

– 1,558

– 6,409

48,933

– 12,367

53,656

99,093

19,170

123,108

770

– 6,101

26,649

– 41,821

232,054

353,829

2005 – 35

Employment Change

Low-Education Industries

Average for all industries 27.2%

Arts, entertainment, recreation 26.4%Other services (repair, personal, civic) 19.5%

Manufacturing 19.2%Trade, transportation, & utilities 16.4%Administrative services 15.5%Farm, natural resources, mining 13.7%Construction 9.7%Accommodation, food services 8.7%

Average, all low-education industries

% of U.S.Employment

with Bachelor’sor More, 2000

$42,157

37,807

26,135

25,700

58,070

35,638

31,241

29,436

46,561

12,664

MichiganAverage

Wage2006

Low-Education Industries in Michigan

Arts, entertainment, recreation

Other services

Manufacturing

Trade, trans., utilities

Admin. services

Farm, natural resources, mining

Construction

Accommodation, food

Low-education industries

100,369

285,445

843,743

1,007,145

322,152

104,019

304,276

350,383

3,317,532

6,406

13,638

– 142,839

– 37,912

33,941

– 3,658

– 2,923

13,314

– 120,033

34,018

12,879

– 228,794

– 62,690

124,911

– 27,869

– 8,886

95,894

– 60,537

2001 2001– 05 2005 – 35

Employment Change

Forecasts of Households

for Michigan

Number of Households in Michigan2005 – 2035

2005–2035% Change

Total population 8.7%

Group quarters 32.3%

Population inhouseholds

8.2%

2005

10,100,833

224,190

9,876,643

2010

10,057,256

227,781

9,829,475

2035

10,982,682

296,548

10,686,134

Households 20.0%

Average household size

3,863,662

2.56 NA

3,981,427

2.47

4,635,109

2.31

Distribution of Michigan Householdsby Size, 2005 and 2035

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 2 3 4 5+

Number of persons in household

2035200526.4

30.433.8

36.0

16.014.1 13.811.3 10.0

8.2

County Population and

Employment Forecasts

Change in Populationby Michigan County

2005–2035

Growth statewide average

Growth < statewide average

Decline

Change in Employmentby Michigan County

2005–2035


Growth < statewide average

Decline

The fastest-growing counties in Michigan are clusteredin four geographic areas:

●

The tourist-oriented and retiree-friendly northwesternlower peninsula, particularly the Traverse City area

—


2005–2035



●


—

The urban and suburban Grand Rapids area: moreconcentrated in the growing industries, including tourism

—


2005–2035



●


—


—

The suburban Lansing area: more concentrated inthe growing industries

—


2005–2035



●


—


—

The suburban Lansing area: more concentrated inthe growing industries

—

The area most concentrated in high-educationindustries, comprising the counties of Oakland,Livingston, and Washtenaw counties

—


2005–2035


Although the slowest-growing counties in Michigan arescattered throughout the state, there are three generalareas of greater concentration:

●

The rural areas of the Upper Peninsula—


2005–2035

Decline


●


The area along the shores of Lake Huron—


2005–2035

Decline


●



The strip of counties along the state’s southernborder

—


2005–2035

Decline


●



The strip of counties along the state’s southernborder

—

These areas tend to have an older population and anunfavorable industry mix.

●

Summary and Conclusions

The knowledge-based economy, and the educated workers who fuel it, are the fulcrum of futureprosperity in Michigan.

●

Michigan and its communities need to invest in programsto provide the education and training essential for theeconomy of the future.

●

Opportunities for Economic Developmentin Michigan

Bill Gates observed that for knowledge-basedenterprises, educational attainment trumps everythingwhen they’re deciding where to invest.

●

Among activities with fewer educational requirements, the hospitality industry shows promise for the future,providing services to visitors as well as to a growingnumber of older people.

●

Support personnel for industries with the most favorablegrowth prospects—health care and professional/technical services—require skills but often notprofessional degrees.

●

Other actions may show promise for the economicwell-being of the state, but none is more compellingthan investing in workforce development.

●

Opportunities for Economic Developmentin Michigan

Assets matter●

Consider whether a region has the underlyingassets to promote and sustain promisingindustries.

●

Don’t just chase after what is “hot” elsewhere.●

Key assets that are linked to industries that showpromise:

Premier system of higher education+ the knowledge-based economy

●

Great Lakes+ the tourist-oriented economy

●

Nationally prominent health system+ the health care economy

●

Short-Term Risks to the Economy

Oil prices●

Credit crisis●

Local housing market●

Long-Term Risks to the Economy

Severe labor shortages●

Not attracting knowledge-based and elder-friendly businesses

●

What Can Local Public and Private Leaders Do?

Short-term risks? ●

Longer-term risks?●

Build strong health care system►

Improve recreational and cultural amenities►

Attract emerging industries, consistent withassets

►

Increase technological collaboration►

Emphasize education and training►

Almost nothing.

UNIVERSITY OF MICHIGANUNIVERSITY OF MICHIGAN

www.ilir.umich.edu/lmr/

Documents

Seeking Economic Sustainability: The Outlook for Michigan July 25, 2008 Donald R. Grimes University of Michigan Michigan Community College Association