MARSHFIELD AREA
ECONOMIC INDICATORS
College of Professional Studies
Annual Report
2010
Presented by:
Central Wisconsin Economic Research Bureau
Marshall & Ilsley Bank
Randy F. Cray, Ph.D.
Professor of Economics, CWERB Director
Presented
April
23, 2010Ph.D.
Scott Wallace,
Associate Professor of Economics, CWERB Research Associate
James P. Draxler
Research Assistant
Brittany J. Melby
Research Assistant
Featuring:
Measuring Entrepreneurial Activity
Special Report:
Debts & Deficits: How Big is Too Big?
Marshfield Area Chamber Of
Commerce & Industry
Marshfield Economic
Development Association
Dr. Jason R. Davis, Ph.D.
Associate Professor of Economics
University of Wisconsin-Stevens Point
1
TABLE OF CONTENTS
National and Regional Outlook .............................................................................................. 3
Table 1: National Economic Statistics.......................................................................... 5
Central Wisconsin................................................................................................................... 6
Table 2: Unemployment in Central Wisconsin ............................................................ 6
Table 3: Employment in Central Wisconsin................................................................. 6
Table 4: Central Wisconsin Employment Change by Sector........................................ 7
Table 5: County Sales Tax Distribution ........................................................................ 8
Table 6: Business Confidence in Central Wisconsin .................................................... 8
Figures 1-7 .................................................................................................................... 9
Marshfield Area .................................................................................................................... 10
Table 8: Retailer Confidence in Marshfield ............................................................... 10
Table 9: Help Wanted in Marshfield.......................................................................... 10
Table 10: Public Assistance Claims in Marshfield ...................................................... 11
Table 11: Unemployment Claims in Marshfield ........................................................ 11
Table 12: Residential Construction in Marshfield Area ............................................. 11
Table 13: Nonresidential Construction in Marshfield Area ....................................... 12
Table 15: Clark County Employment Statistics .......................................................... 12
Figures 8-11 ................................................................................................................ 13
Housing Market Information
Table 1: National Median Home Prices ................................................................... 14
Table 2: National Existing Home Sales..................................................................... 14
Table 3: National Inventory ..................................................................................... 15
Table 4: National Affordability Index ....................................................................... 15
Table 5: Local Area Median Price ............................................................................ 16
Table 6: Local Units Sold .......................................................................................... 16
Table 7: Local Median Days on Market ................................................................... 17
Table 8: Sales Price/Listing Price ............................................................................. 17
Measuring Entrepreneurial Activity ..................................................................................... 18
Special Report ...................................................................................................................... 24
Debts & Deficits: How Big is Too Big?
Association for University
Business and Economic
Research
CWERB - Division of Business and Economics
University of Wisconsin-Stevens Point
Stevens Point, WI 54481
715/346-3774 715/346-2537
www.uwsp.edu/business/CWERB
2
Outlook
A colleague of my mine told me about an ancient Chinese curse that translates into English as
“May you live in interesting times.” That seems to be an appropriate statement given recent
events in the world and at home. The earthquake in Japan and the resulting tsunami is
estimated to have caused over $300 billion worth of damage and will be the most costly natural
disaster in the history. No one knows what the impact will be on the world economy, but some
things do come to mind. The disruption of supply chains is a major concern. Japanese
companies are major suppliers of all manner of things especially in the area of electronics.
Companies as diverse as Apple Computer and BMW have expressed concerns about that
availability of sub-assemblies. In addition the nuclear power industry in the US and the rest of
the world is likely to face greater opposition to any expansion plans. Nuclear power accounts
for about twenty percent of the electricity generated in the US. Any conversation about
curtailing this important power source would have to weigh its impact on the economy with the
potential cost of an accident on people and the environment. A more immediate concern for
the US is that Japan will likely have to look to other sources of energy like coal and natural gas
to replace its lost nuclear capacity. This could cause a ripple effect in the world’s energy
markets and drive up energy prices. If there is a silver lining in the disaster, it is that history has
taught us that there will be a massive rebuilding effort in Japan. The rebound in activity will
help the Japanese and world economy to recover from this black swan event. Some analysts say
it will take at least five years and a massive spending campaign to accomplish the rebuilding.
The unrest rest in the Middle East also interjects more uncertainty into the economy. Witness
the sharp rise in oil prices. What will be the eventual outcome of the civil unrest taking place in
the Mideast and North Africa? Will the new governments be friendly to US interests in the
region or will we eventually face governments that are more hostile to the US and Israeli? The
economic and political impact to the US is unknown at this time. The strategic nature of the
region in terms of oil production is undisputed; if a country like Saudi Arabia fell in to the hands
of extremist this could have a major impact on our economy. US presidents since Nixon have all
talked about having a national policy that reduces our dependence on international sources of
energy. To date nothing of substance has achieved that goal. To underscore this point, one half
of all US imports result directly from the importation of oil! Thus, cutting our reliance on
imported oil would have a strategic benefit and would improve our trade balance as well.
Another issue making life interesting is the political theater surrounding the balancing of the
Wisconsin State budget and the impact this will have on the economy. The magnitude of the
deficit (approximately $3.5 billion) and complexity of the impending cuts means that no one
knows exactly how this will reshuffling of the economic deck will play out. However,
macroeconomic theory strongly suggests that borrowing money is a two edge sword.
Borrowing money in the short run bolsters consumption spending on goods and services and
props up employment, which is what Wisconsin has been doing for over a decade. In the long
run, the ever growing deficits hurt the economy as larger and larger shares of revenues are
used to pay back interest and principal. At some point, the situation becomes unsustainable.
Sooner or later the accounting gimmicks run out and the structural imbalance must be dealt
with by cutting spending and/or raising taxes and fees. The state has taken the approach of
3
dramatically cutting spending. The problem with cutting spending (as rapidly as what the state
has proposed) is that it takes a large amount of spending out of the economy and this spending
cannot be easily replaced by other sectors of the economy. Some would argue that a more
gradual measured approach to balancing the budget would be less disruptive to the economy.
Make no mistake about it, the cuts in spending are real and will create an economic drag on the
state economy. Many business firms in the state will notice a drop in the demand for their
goods and services. Some hope that the private sector will make up the lost spending and the
jobs lost from the rapid cutting of the deficit. I hope this is true because the Wisconsin
economy is very fragile at this stage of the recovery and the elimination of this much spending
from the economy will hamper the recovery.
I would now like to turn our attention to the economic indicators and to see what they portend
for the economy in 2011. The Leading Indicators Composite Index is comprised of ten very
important economic data series. The purpose of the index is to give insight into the future
direction of the economy. The LICI has been rising steadily since early 2009 when it bottomed
out at about 98. The LICI has been expanding since then and in December 2011 the index
reached 112.2. Thus the LICI is signaling that the economy will continue to expand into 2011.
As I have said in previous reports the index does not address the strength of the expansion. In
addition, the LICI is not that useful when unexpected events impact the economy. The
University of Michigan and the Conference Board’s Survey’s of Consumer Sentiment and
Confidence shows households in the US are becoming increasingly more optimistic about the
economic recovery. This is very note worthy because households account for approximately 70
percent of all economic activity in the US.
In addition, Real Gross Domestic Product expanded at a revised 3.1 percent in fourth quarter
2010 and marks the sixth straight quarter of the economy has expanded its production of goods
and services. Nonfarm payrolls added a very modest 152 thousand jobs in December. The
recovery is still characterized as being one of very slow job growth. With over 8 million jobs lost
in the recession, a full recovery in employment could be years away. The unemployment rate
dropped to 8.9 percent in February. The prerecession unemployment rate was around 4.5
percent. Due to structural changes in the economy, it is going to take long time before we can
achieve the pre-recession unemployment rate. Inflation remains abated if we look at the core
CPI figures. For December 2010 the annualized rate was just 0.8 percent. However, the overall
CPI which includes food and energy costs rose by a more threatening rate of 3.2 percent. The
Federal Reserve needs to keep a close on these numbers, and if inflation appears to be trending
out of its target range, then it needs to be ready to drain liquidity from the economy. Lastly,
corporate profits remain very strong and reached a record $1.7 trillion toward the end of 2010.
A major contributor to the record profits can be attributed to business operations outside the
country in the faster growing regions of the world like China, India, and South America. This is a
major reason in explaining how firms have become so profitable without needing to expand US
payrolls.
4
TABLE 1
NATIONAL ECONOMIC STATISTICS
2009
2010 Percent
Fourth Quarter Fourth Quarter Change
Nominal Gross Domestic Product (Billions)
$14,277.3
$14,870.4
+4.2
Real Gross Domestic Product (Billions of 2000 $)
$13,019.0
$13,382.6
+2.8
100.3
94.9
-5.4
Industrial Production (2002 = 100)
Three Month U.S. Treasury Bill Rate
0.11%
Consumer Price Index(1982-84 = 100)
215.9
5
0.18% +63.6
218.2
+1.1
Central Wisconsin
For the second consecutive quarter, unemployment rates fell in the reporting areas (see Table
2). In December 2010 Portage, Marathon, and Wood counties saw their unemployment rates
fall to 5.8, 7.0, and 7.1 percent respectively. The labor force weighted unemployment rate for
Central Wisconsin declined from 8.1 to 6.7 percent. Similarly Wisconsin’s unemployment rate
went from 8.3
TABLE 2
percent to 7.0
UNEMPLOYMENT RATE Unemployment Rate Unemployment Rate Percent
percent and the
CENTRAL WISCONSIN
December 2009
December 2010 Change
United States
unemployment rate
Portage County
6.7%
5.8%
-13.6
from 9.7 percent to
9.1 percent. Thus,
City of Stevens Point
8.1%
7.0%
-13.6
over the course of
the past year we saw
Marathon County
8.9%
7.1%
-20.3
an improvement in
the unemployment
Wood County
8.2%
7.1%
-13.3
numbers. In addition,
Central Wisconsin
8.1%
6.7%
-17.3
with the increasing
employment
Wisconsin
8.3%
7.0%
-15.4
numbers, this is a
very promising sign
United States
9.7%
9.1%
-5.3
for the area economy.
Employment figures in Table 3 are based on household data. Given the economic turmoil of
the past years, it was a welcome bit of news that Portage County employment rose by 1.9
percent over the course of the year. Likewise Marathon and Wood County payrolls expanded
by 0.3 percent and
TABLE 3
Total Employment Total Employment Percent 2.6 percent
EMPLOYMENT
December 2009
December 2010 Change respectively over
the same period.
CENTRAL WISCONSIN
(Thousands)
(Thousands)
Central Wisconsin
Portage County
40.0
40.7
+1.9
experienced
employment
City of Stevens Point
14.4
14.4
+0.4
growth of
approximately
Marathon County
67.8
68.0
+0.3
1,900 positions
over the past
Wood County
38.0
39.0
+2.6
twelve months.
Central Wisconsin
145.8
147.7
+1.3
Employment in the
three counties area
Wisconsin
2,762.8
2,827.7
+2.3
rose from 145.8 to
147.7 thousand or
United States
137,953
139,159
+0.9
by a modest 1.3
* Percent change figures reflect data before rounding
percent. The
6
number of jobs in the state of Wisconsin increased 2.3 percent while the nation gained almost
0.9 percent or an about 1.2 million jobs over the year. Thus, the amount of employment
generation has been averaging about 100,000 per month, a very weak rate of job creation over
the past twelve months.
Table 4 gives the firm based employment numbers for Wisconsin. Information from the state
was not available at the time of the report for the non-metro counties of Wisconsin. Over the
course of the past twelve months, Wisconsin’s total nonfarm employment rose ever so slightly
from 2.743 million to 2.747 million or by 0.1 percent. This represents a gain of 3,400 jobs
during the past year. The sectors of the economy to experience job growth were the
manufacturing, professional and business services, educational and health services, leisure and
hospitality, and other services. Good news for the state is the manufacturing sector, after
many months of contraction, expanded by about 9 thousand positions or by 2.1 percent.
However, the employment results for the rest of the industrial sectors were disappointing. The
natural resources and mining, construction, trade, transportation and utilities, information,
financial activities, and government sectors all experienced declines.
TABLE 4:
WISCONSIN EMPLOYMENT
CHANGE BY SECTOR
Employment
Employment
December 2009 December 2010 Percent
(Thousands)
(Thousands)
Change
Total Nonfarm
2743.8
2747.2
+0.1
Total Private
2312.0
2318.9
+0.3
Natural Resources and Mining
2.8
2.7
-3.6
Construction
94.3
83.7
-11.2
Manufacturing
424.6
433.7
+2.1
Trade, Transportation, and Utilities
524.6
523.9
-0.1
Information
47.6
47.0
-1.3
Financial Activities
159.7
155.1
-2.9
Professional and Business Services
262.9
268.3
+2.1
Educational and Health Services
418.2
422.5
+1.0
Leisure and Hospitality
239.6
242.0
+1.0
Other Services, exc Public
137.7
140.0
+1.7
Government
431.8
428.3
-0.8
7
County sales tax distributions were generally higher than the totals of a year ago, (Table 5).
Portage County sales tax distributions rose from $1.118 million to $1.227 million, an increase of
nearly 10 percent. Likewise, Marathon experienced a positive change in its sales tax
distributions, rising from $2.319 million to $2.375 million or by 2.4 percent. Wood County’s tax
TABLE 5
COUNTY SALES TAX DISTRIBUTION
2009 Sales Tax
Fourth Quarter
(Thousands)
2010 Sales Tax
Fourth Quarter
(Thousands)
Percent
Change
Portage County
$1,118.3
$1,226.6
+9.7
Marathon County
$2,319.4
$2,375.7
+2.4
Wood County
$1,160.8
$1,100.1
-5.2
* Percent change figures reflect data before rounding
revenues contracted from $1.161 million to $1.100 million or by about 5.2 percent over the
course of the past year. These data clearly shows the lingering effects of the recession on retail
activity in Wood County.
The CWERB’s survey of area business executives is reported in Table 6. This group believes that
recent economic changes at the national level have led to marked improvement in economic
conditions. In addition they believe the local business climate has improved over the past year.
When they were asked to forecast the future, they expect economic activity to be noticeably
better in 2011. They also expressed a higher degree of optimism for the local economy and for
their particular industry
TABLE 6
Index Value
in 2011. Table 6 also
BUSINESS CONFIDENCE
September 2010 December 2010
shows that the level of
optimism was generally
Recent Change in National
46
60
higher in December
Economic Conditions
2010 than in September
2010, a marked
Recent Change in
46
58
turnaround. Perhaps the
Local Economic Conditions
tremendous amount
Expected Change in
52
65
negative political
advertising in
National Economic Conditions
September influenced
Expected Change in
54
65
their earlier assessment
Local Economic Conditions
of the economy.
Expected Change in
Industry Conditions
50
100 = Substantially Better
50 = Same
8
62
0 = Substantially Worse
Figures 1 thru 7 give a historic overview of how the economy in Wisconsin has performed
during the 2006-2010 time period. Figure 5 shows the dramatic decline in Wisconsin
manufacturing. In 2006 about 508 thousand were employed in manufacturing and at the end
of 2010 the number of jobs declined to approximately 430 thousand; thus about 80 thousand
jobs have been lost in this sector. Figure 7 shows the steep decline in the number of people
employed in leisure & hospitality; from about 262 thousand in 2007 to 250 thousand at the
middle of 2010. Thus about 12 thousand jobs have been lost over the past three years in this
sector.
Figure 1: Employment Level: WI
Figure 2: Unemployment Level: WI
3000
2975
2950
2925
2900
2875
2850
2825
2800
2775
2750
2006
11
10
9
8
7
6
5
4
3
325
300
275
250
225
200
175
150
125
100
2007
2008
2009
2010
2011
Figure 3: Unemployment Rate: WI
2006
2007
2008
2009
2010
2011
2006
2008
2009
Figure 4: Labor Force: WI
3175
3150
3125
3100
3075
3050
3025
3000
2006 2007 2008 2009
Figure 5: Manufacturing: WI
2010
2010
2011
2011
Figure 6: Education and Health Services: WI
510
500
490
480
470
460
450
440
430
420
425
420
415
410
405
400
395
390
385
2006
2007
2008
2009
2010
2011
2006
Figure 7: Leisure and Hospitality: WI
265.0
262.5
260.0
257.5
255.0
252.5
250.0
247.5
2007
2006
2007
2008
2009
2010
2011
9
2007
2008
2009
2010
2011
Marshfield
Table 7 usually gives employer based estimates of industrial sector employment in Wood
County for December 2010. However, please note at the time the report was written, the data
for December were not available from the Wisconsin Department of Workforce Development.
Hopefully the data will be available in on a timely basis in the future and will be included in the
report.
The CWERB’s survey of area retailers indicates that merchants became a bit more pessimistic in
December 2010 as compared to September 2010. Retailers feel that store traffic and store sales
were modestly improved when comparing September 2010 to September of 2009. However, it
appears that by December 2010, the assessment of retail activity was marginally weaker than in
December 2009. This group also feels that retail activity in the first part of 2011 will be better
than in 2010. The significance of the survey is the optimism expressed for future retail activity
in spring.
TABLE 8:
Index Value
RETAILER CONFIDENCE IN MARSHFIELD September 2010 December 2010
Total Sales Compared
to Previous Year
57
45
Store Traffic Compared
to Previous Year
54
45
Expected Sales Three
Months From Now
58
63
Expected Store Traffic
Three Months From Now
56
61
100 = Substantially Better
50 = Same
0 = Substantially Worse
* Data collected by UW Marshfield-Wood County
TABLE 9:
Index Value
Help wanted advertising is a barometer of local
HELP WANTED ADVERTISING 2009
2010
labor market conditions. The index for
Marshfield at the end of December 2010 was
Marshfield
18
16
about the same as the level of December 2009,
(December)
strongly suggesting that the past year
1980=100
represented a bad period for area job seekers.
U.S.
10
10
The information in Table 9 also suggests that
(November)
2010 was a very rough year for the U.S labor
1987=100
market. Perhaps 2011 will be a stronger year
for people seeking a job. Please note in the very near future the CWERB will be unveiling a new
help wanted advertising measure that will be based on job advertising on the web.
10
Table 10 and 11 give
TABLE 10:
2009
2010
Percent
valuable insight into how
PUBLIC ASSISTANCE
Fourth Quarter Fourth Quarter Change
local family financial distress
fared in Wood County over
CLAIMS IN MARSHFIELD (Monthly Avg.) (Monthly Avg.)
the past year. The total
Total Caseload
83
105
+26.5
caseload for public
assistance expanded from
83 to 105 or by 26.5
TABLE 11
2009
2010
percent over the year.
UNEMPLOYMENT CLAIMS Fourth Quarter Fourth Quarter Percent
Table 11 gives
IN MARSHFIELD
(Weekly Avg.)
(Weekly Avg.)
Change
information on
unemployment
New Claims
460
387
-15.9
compensation for the
Total Claims
3106
2853
-8.1
October-December time
frame. The number of
new claims fell from 460 to 387 on a weekly average basis or a decline of 15.9 percent. Similarly,
the number of total claims dropped from 3,106 to 2,853, which represents a contraction of 8.1
percent.
Table 12 presents the residential construction numbers for the Marshfield area. In our yearly
comparison, the number of permits issued in Fourth Quarter 2010 was 3 with an estimated
value of $497.6 thousand. Last year, the number was 3 and $420 thousand. The number of
housing units totaled 5 this year and just 3 last year. When comparing Fourth Quarter 2009 to
that of 2010, the residential alteration activity contracted from 26 permits to zero permits with
the value of this type of activity dropping from $332.3 thousand to zero. The difficult economy
is clearly playing a major role in this outcome.
TABLE 12: RESIDENTIAL CONSTRUCTION 2009
2010
Percent
IN MARSHFIELD AREA
Fourth Quarter Fourth Quarter Change
Residential Permits Issued
3
3
0
Estimated Value of
New Homes
$420.0
(thousands)
$497.6
(thousands)
+18.5
Number of Housing Units
3
5
+66.7
Residential Alteration
Permits Issued
26
0
-100.0
Estimated Value
of Alterations
332.3
(thousands)
0
(thousands)
-100.0
* Data collected by UW Marshfield-Wood County
11
The Fourth Quarter 2010 nonresidential construction figures in Table 13 are as follows. The
number of permits issued was just three with an estimated value of $437 thousand, a large
decline from the 2009 figure. Last year the value was $5.08 million. The number of business
alteration permits was 19 in 2010 compared to 15 in 2009. The estimated value of alteration
activity was $1.35 million in 2010 compared to the 2009 figure of $210.8 thousand. In sum the
activity this year was off the pace of the prior year’s figures for new nonresidential activity and
above the pace for business alteration activity.
TABLE 13: NONRESIDENTIAL CONSTRUCTION 2009
2010
IN MARSHFIELD AREA
Fourth Quarter Fourth Quarter
Number of Permits Issued
2
3
Estimated Value of
New Structures
$5,081.7
(thousands)
$437.0
(thousands)
Number of Business Alteration Permits
15
19
Estimated Value
of Business Alterations
$210.8
(thousands)
$1,355.7
(thousands)
* Data collected by UW Marshfield-Wood County
Table 15 presents Clark county economic data. This is included in the report because Clark is an
important market for Marshfield area businesses. The unemployment rate in Clark fell from
10.2 percent to 8.5 percent over the year. Total employment contracted by about one hundred
positions, from 15,874 to 15,759. Meanwhile the number of people unemployed went down
from 1,796 to 1,471, a drop of 18 percent. Lastly the labor force also went down by 2.5 percent.
Usually we would also give employer based estimates of industrial sector employment in Clark
County for December 2010. However, at the time the report was written the non-metro county
data for December were not available from the Wisconsin Department of Workforce
Development.
TABLE 15: CLARK COUNTY December 2009 December 2010 Percent Change
Hopefully for
EMPLOYMENT STATISTICS
future reports the
Unemployment Rate
10.2%
8.5%
-16.0
data will be
available for
Total Employed
15,874
15,759
-0.7
inclusion in the
report.
Total Unemployed
1796.0
1471.0
-18.1
Labor Force
17,670
17,230
-2.5
12
Figures 8 thru 11 give a history lesson as to how the employment level, the unemployment level,
the unemployment rate, and the labor force have trended over the past five years in Wood
County. The figures clearly show the influence of the great recession on the area local economy
and the figures also help to put data into a context so the magnitude of the events can be
judged more properly.
Figure 8: Employment Level: Wood
Figure 9: Unemployment Level: Wood
41000
40500
40000
39500
39000
38500
38000
37500
37000
36500
2006
4500
4000
3500
3000
2500
2000
2007
2008
2009
2010
Figure 10: Unemployment Rate: Wood
11
10
9
8
7
6
5
4
3
2006 2007
2008 2009 2010
2011
1500
2006
43.0
42.5
2007
2008
2009
2010
2011
Figure 11: Civilian Labor Force: Wood
42.0
41.5
41.0
40.5
2011
40.0
39.5
2006
13
2007
2008
2009
2010
2011
Housing Market Information
The following eight tables contain information on the national, regional, and local housing
market. We believe the reader will gain valuable insight into housing markets conditions and
greater insight into the local economy. The CWERB would like to acknowledge and thank Dr.
David Schalow of the University of Wisconsin – Stevens Point School of Business and Economics
for the collection of these data.
TABLE 1
NATIONAL MEDIAN
HOME PRICES
U.S
THIRD QUARTER 2010
NORTHEAST
MIDWEST
SOUTH
WEST
2006
$221,900
$271,900
$167,800
$183,700
$342,700
2007
219,000
279,100
165,100
179,300
335,000
2008
198,100
266,400
154,100
169,200
271,500
2009
172,500
240,500
144,100
153,000
211,100
2010
173,000
243,500
141,699
150,100
215,100
0.3%
1.2%
-1.7%
-1.90%
1.9%
SOUTH
WEST
VS. LAST YEAR
TABLE 2
NATIONAL EXISTING
HOME SALES
U.S
THIRD QUARTER 2010
NORTHEAST
MIDWEST
2006
6,478,000
1,086,000
1,483,000
2,563,000
1,346,000
2007
5,652,000
1,006,000
1,327,000
2,235,000
1,084,000
2008
4,913,000
849,000
1,129,000
1,865,000
1,070,000
2009
5,156,000
868,000
1,163,000
1,914,000
1,211,000
2010
4,908,000
817,000
1,076,000
1,861,000
1,154,000
-4.8%
-5.9%
-7.5%
-2.8%
-4.7%
VS. LAST YEAR
14
TABLE 3
NATIONAL
INVENTORY
THIRD QUARTER 2010
INVENTORY MONTH SUPPLY
2006
3,450,000
6.5
2007
3,974,000
8.9
2008
3,700,000
10.4
2009
3,283,000
8.8
2010
3,560,000
9.4
8.4%
6.8%
VS. LAST YEAR
TABLE 4
NATIONAL
AFFORDABILITY INDEX
THIRD QUARTER 2010
MEDIAN PRICED
MONTHLY PAYMENT MEDIAN
EXISTING SINGLE MORTGAGE
P&I
AS A %
FAMILY QUALIFYING
FAMILY HOME
RATE
PAYMENT OF INCOME INCOME
INCOME COMPOSITE
2007 r
217,900
6.52
1,104
21.7
61,173
52,992
115.4
2008 r
196,600
6.15
958
18.1
63,366
45,984
137.8
2009 r
172,100
5.14
751
14.6
61,845
36,048
171.6
2010
173,200
4.89
735
14.3
61,583
35,280
174.6
P&I = Principal and interest
Composite = measures affordability. For example for the year 2010, the index of 168.3 means a family earning the median family income has 168.3 percent of the income necessary
to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home.
15
TABLE 5
LOCAL AREA
MEDIAN PRICE
THIRD QUARTER 2010
MARSHFIELD STEVENS POINT
WAUSAU
WIS RAPIDS
2006
$105,000
$132,250
$129,000
$85,000
2007
111,000
134,700
129,900
94,950
2008
110,000
135,000
125,000
84,450
2009
114,900
130,000
129,450
87,000
2010 (Sept)
111,500
132,750
119,450
87,500
TABLE 6
LOCAL
UNITS SOLD
THIRD QUARTER 2010
MARSHFIELD STEVENS POINT
WAUSAU
WIS RAPIDS
2006
535
687
1,587
546
2007
569
656
1,511
482
2008
516
504
1,244
366
2009
530
528
1,164
430
2010 (Sept)
339
357
886
311
16
TABLE 7
LOCAL MEDIAN
THIRD QUARTER 2010
DAYS ON MARKET MARSHFIELD STEVENS POINT
WAUSAU
WIS RAPIDS
2006
107
99
104
107
2007
119
97
102
95
2008
105
105
104
107
2009
115
99
116
131
2010 (Sept)
122
97
114
115
TABLE 8
SALES PRICE/
LISTING PRICE
THIRD QUARTER 2010
MARSHFIELD STEVENS POINT
WAUSAU
WIS RAPIDS
2006
96
97
98
95
2007
94
98
97
96
2008
93
96
96
98
2009
94
96
93
92
2010 (Sept)
94
96
96
97
17
Measuring Entrepreneurial Activity as Potential Measure of Job Growth
UWSP Small Business Development Center
Vicki Lobermeier, SBDC Director of Entrepreneurship Activities
Mary Wescott, SBDC Counseling Manager
According to a March, 2011 release from the Ewing Marion Kauffmann Foundation report on
the index of entrepreneurial activity, during the recent recession, more Americans chose
entrepreneurship than any time in the previous 15 years. The economy and high
unemployment rates may have led individuals to start businesses, but most of them started
non-employer entities, these are companies that do not hire employees.
According to the "Kauffman Index of Entrepreneurial Activity," a leading indicator of new
business creation in the United States, 0.34 percent of American adults created a business per
month in 2010, or 565,000 new businesses, a rate that remained consistent with 2009 and
represents the highest level of entrepreneurship over the past decade and a half. In contrast,
however, the quarterly employer firm rate has dropped from 0.13 percent in 2007 to 0.10
percent in 2010.
Why is it important to measure Entrepreneurial Activity? According to Tom Still, president of
the Wisconsin Technology Council and the Wisconsin Innovation Network as quoted in the
Milwaukee Journal Sentinel, it's vital to the ongoing discussion about job growth. Many studies
indicate that entrepreneurs and startup companies are the source of most new jobs in the
United States.
Among the attributes to record and measure, the Kauffmann Index of Entrepreneurial Activity
suggests measuring
 New Business Development – New incorporations and LLC formations
 Access to Capital – US Small Business Administration Loans
 Intellectual Property Creation - Patents issued to individuals and companies
We’ll use these measures to show entrepreneurial activity in the Portage, Marathon and Wood
Counties for the first quarter (1Q) of 2010 compared to 2011. In future reports we’ll continue
to benchmark these measures that Kauffmann suggests are one measure of Entrepreneurial
Activity.
Please note that New Business Development includes only separate legal entities of LLC and
Incorporations and does not include formations of sole proprietors.
Additional reports available are reports from Economic Modeling Specialists, EMSI, which
projects job growth by industry and impacts of job loss by industry.
18
New Business Development
st
2010 1 Quarter Incorporations 24 LLC Formations 224 248 total business starts
st
2011 1 Quarter Incorporations 19 LLC Formations 220 239 total business starts
Formal LCC and Inc Starts
100
80
60
40
Formal Starts
20
0
Total LLC and Inc Starts
250
240
230
Total Starts
220
210
200
2010
2011
Access to Capital
According to SBA reports, Wisconsin banks issued $58.6 million in government-backed smallbusiness loans in March - down from $74 million in February but above any of the five previous
March totals. 185 loans were issued in March in Wisconsin. 10 were issued in our three-county
area. In our 3-county region, SBA Total Loan Amounts for 1st quarter 2011 were $622,400
higher than the first quarter of 2010 while the total number of loans decreased from 27 to 20.
2010 $4,315,100
2011 $4,937,500
19
Total Loan Amount/Month
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
Jan '10
Jan '11
Feb '10
Feb '11
March
'10
March
'11
Total Number of SBA Loans
12
10
8
6
4
2
0
Jan '10
Jan '11
Feb '10
Feb '11
March '10 March '11
Overall Total SBA Loan Amount 1 Q
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
2010
2011
20
Intellectual Property Creation
During the first quarter of 2011, 419 patents were issued in Wisconsin. Of those, 3 were
assigned to companies in the three-county area of Portage, Marathon and Wood. Another 3
patents were created by local inventors, but assigned to WI companies outside of our area.
Industries Projected for Growth 2010 - 2015
Description
Agriculture, natural resources, and mining
Construction
Education and health services
Financial activities
Government
Information
Leisure and hospitality
Manufacturing
Other services
Professional and business services
Trade, transportation, and utilities
Total
2010
2015
Jobs
jobs
Growth
%
7,484
6,992
-492 -7
7,260
7,708
448
6
27,327
31,052
3,725 14
17,235
18,979
1,744 10
18,816
18,899
83
0
2,320
2,421
101
4
13,091
13,864
773
6
24,739
22,408
-2,331 -9
9,058
9,487
429
5
11,986
13,511
1,525 13
37,529
38,186
657
2
176,844 183,507
6,663
4
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2010 Jobs
2015 jobs
21
Industries Projected for Growth 2005 – 2015
Description
Agriculture, natural resources, and
mining
Construction
Education and health services
Financial activities
Government
Information
Leisure and hospitality
Manufacturing
Other services
Professional and business services
Trade, transportation, and utilities
Total
2005
jobs
2015
jobs
7,591
8,920
24,579
15,832
18,394
2,480
13,125
30,307
8,808
11,789
40,851
182,675
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
6,992
7,708
31,052
18,979
18,899
2,421
13,864
22,408
9,487
13,511
38,186
183,507
growth
-599
-1,212
6,473
3,147
505
-59
739
-7,899
679
1,722
-2,665
832
%
-8
-14
26
20
3
-2
6
-26
8
15
-7
0
2005 jobs
2015 jobs
22
Benchmarking Entrepreneurship
Fashioned after the Kauffman Index of Entrepreneurial Activity
2011 First Quarter, January – March
Summary Data for Marathon, Portage and Wood Counties
New Business Development
First quarter 2010 there were a total of 248 new business entities created with 224 new LLCs
formed and 24 new incorporations. The numbers of sole proprietorships created during any
period is unknown. First quarter 2011 there were a total of 239 new business entities created
with 220 new LLCs formed and 19 new incorporations. This is just slightly fewer than 2010.
Access to Capital
Nearly 5M in SBA loans were issued in 2011 compared to 4.3M in 2010. The number of loans
was fewer in 2011, but the overall capital infusion amount into the marketplace was greater.
Intellectual Property Creation
During the first quarter of 2011, 419 patents were issued in Wisconsin. Of those, 3 were
assigned to companies in the three-county area of Portage, Marathon and Wood. Another 3
patents were created by local inventors, but assigned to WI companies outside of our area. The
patents assigned to local companies were vehicle, equipment, or agricultural related.
Industries Projected for Job Growth
According to EMSI software data compilations, the total number of jobs in the three county
areas will rise by 832 positions between 2005 and 2015. Growth is projected for education and
health services, professional and business services, and leisure and hospitality.
23
Debt and Deficits: How Big is Too Big?
Jason R. Davis, Ph.D.
Associate Professor of Economics
University of Wisconsin – Stevens Point
INTRODUCTION
“We will continue along the path toward a balanced budget in a balanced economy.”
-President Lyndon Johnson, January 4, 1965
“We must balance our federal budget so that American families will have a better chance to
balance their family budgets.”
-President Richard Nixon, January 22, 1970
“We can achieve a balanced budget by 1979 if we have the courage and the wisdom to continue
to reduce the growth of Federal spending.”
-President Gerald Ford, January 15, 1975
With careful planning, efficient management, and proper restraint on spending, we can move
rapidly toward a balanced budget, and we will.”
-President Jimmy Carter, January 29, 1978
“[This budget plan] will ensure a steady decline in deficits, aiming toward a balanced budget by
the end of the decade.”
-President Ronald Reagan, January 25, 1983
“[This budget plan] brings the deficit down further and balances the budget by 1993.”
-President George H. W. Bush, January 31, 1990
“[This budget plan] puts in place on of the biggest deficit reductions…in the history of this
country.”
-President William Clinton, February 17, 1993
“Unrestrained government spending is a dangerous road to deficits, so we must take a different
path.”
-President George W. Bush, February 27, 2001
“We need to take responsibility for our deficit, and reform our government.”
-President Barak Obama, January 25, 2011
The above quotes, all taken from Presidential State of the Union addresses, show that deficit
reduction has been a common goal of presidents regardless of their differences in political
party or economic policies. While the goal may be common, the reality is that government
deficits have been trending upward over most of this timeframe and are currently at record
levels. This paper aims to explore the trends in deficits and debt, if and when the federal
government should engage in deficit spending, and the potential impacts of debts and deficits
on the economy as a whole.
24
RATIONALES FOR DEFICIT SPENDING
Are there good reasons for the government to engage in deficit spending, or is this simply
irresponsible behavior? While this is a fairly complicated question, we can gain some insights
be examining when household borrowing is considered to be appropriate.
Using Deficits to Smooth Business Cycles
From a personal finance perspective, households should plan their budget so that they are able
to pay routine expenses out of their current income. One of the goals of financial planning is to
smooth consumption over fluctuations in income that might occur due to changes in
employment and retirement. Households are thus expected to save part of their income during
their working years to provide for retirement, and to save during years with above-average
income to offset years with below-average income.
Because the government does not face the same lifetime constraints, the government does not
need to save for retirement purposes. However, business cycle fluctuations naturally affect the
government’s balance sheet. During economic downturns, reductions in national income result
in reduced tax revenue to the government. In addition, more households qualify for
unemployment insurance payments and public assistance programs causing government
spending to naturally increase. If the government had expected a balanced budget, they would
now be facing a deficit due to reduced tax revenue and increased spending. During periods of
rapid growth, the opposite effect occurs, leading to increased tax revenues and reduced
government spending. If the government had planned a balanced budget, this would naturally
result in a government surplus.
As a result, the government should respond to these fluctuations much like households who
smooth their budgets over the long term. This implies that if the government truly desires a
balanced budget over the long term, they should plan for a balanced budget assuming that the
economy will grow at the average of 2-3% each year. This is typically referred to as a
structurally balanced budget. During years when the economy grows faster than average, the
government will experience a cyclical surplus; during years where the economy grows slower
than average, or even declines, the government will experience a cyclical deficit1.
If the government plans for a structurally balanced budget, the impact of business-cycle
fluctuations can be smoothed over the long run by saving surpluses during upturns to offset the
need for deficit spending during downturns.
Using Deficits to Finance Infrastructure Projects
Turning again to personal finance, it is generally accepted that while households should not
normally borrow to cover routine expenses; borrowing is appropriate to finance purchases that
provide long-term value to the household. In this case, borrowing allows the household to
1
Cyclical surpluses/deficits are defined as the part of the actual surplus/deficit attributed to business-cycle
fluctuations, rather than planned government revenues and spending.
25
spread the cost of the purchase over the years when benefits are reaped. Examples would
include mortgages for owner-occupied housing and loans to finance education and vehicle
purchases.
The same argument can be made for government budgeting. Borrowing is warranted to fund
capital investments such as government buildings, new roadways, and other types of
infrastructure projects.
Using Deficits to Steer the Macroeconomy
A third argument for deficit spending is to help stimulate the economy to reduce the duration
and severity of recessions. Because this is looking at a collective, rather than individual,
outcome, there is no clear analogy that relates to personal finance. In response to recession,
the government can encourage growth in spending, either directly through increased
government purchases, or indirectly through tax cuts which allows for greater spending by
taxpayers. Either of these options will cause an increase in deficits in order to boost spending
in the economy. These increases in spending result in higher incomes which cause total
spending to grow further. The end result is that the total growth in the economy exceeds the
initial boost provided by deficit spending.
As discussed earlier, recessions will naturally lead to reduced tax revenues and increased
spending because of the structure of the tax code, unemployment insurance and public
assistance programs. These responses do not require any new action by Congress and are thus
often referred to as ‘automatic stabilizers.’ During a deep recession, though, the government
may want to further stimulate the economy beyond the impact of automatic stabilizers. This
was the argument behind stimulus spending packages introduced under both the Bush and
Obama administrations. While the purpose of the stimulus packages was motivated by steering
the economy back on course, the use of stimulus funds was fairly consistent with the previous
topics discussed; much of it was geared toward infrastructure building, extending
unemployment insurance benefits, and alleviating state burdens associated with extended high
case-loads in public assistance programs.
The big question is whether such stimulus spending actually works? Unfortunately, there is no
clear answer to this question. Opponents of stimulus spending point to the slow, stagnant
recovery and claim that these actions have not, in fact, worked to adequately stimulate the
economy. Proponents reply that the recession would be deeper and longer without stimulus
spending. Economists are fairly divided between these two arguments with no clear consensus
on which view is correct.
NEGATIVE IMPACTS OF DEFICITS AND DEBT
As stated previously, governments don’t face a specific lifetime constraint for debt repayment;
stable governments then have a seemingly infinite time horizon for paying back debt, making it
easier to justify government borrowing. However, increased government borrowing is not
without consequences and there are potential costs that should be considered.
26
Reductions in Private Borrowing
One of the main consequences of government borrowing is that it reduces the level of private
borrowing to finance business expansions of buildings and equipment. As the government
increases their borrowing, the increased competition for loanable funds drives up interest rates
making private borrowing more costly. As a result of reduced loanable funds and higher
interest rates, less private business borrowing takes place. This causes a reduction in the
capital stock which ultimately limits future growth potential.
International Leakages
In a global economy, the impact of government borrowing on the availability of loanable funds
and interest rates may be very small due to the availability of loanable funds from other
countries. While this avoids the previous problem of reduced capital stock and limited growth
potential, it creates new problems in the economy. If either government or private borrowing
are financed through foreign sources, then payments on that debt flows outside of the country,
rather than recirculating through the economy as increased income and spending. This, too,
will limit the growth potential of the U.S. economy into the future. As of January 2011,
approximately 47% of the U.S. debt held by the public was foreign-owned, meaning about half
of the interest payments are currently flowing to foreign sources (Department of the Treasury,
2011; Congressional Budget Office, 2011).
EMPIRICAL TRENDS IN DEFICITS AND DEBT
Chart 1 shows government revenue and spending trends, as a percentage of GDP, from 1970 to
2010. From 1970 to 1990, the trends show persistent deficits indicating that the budget suffers
from structural deficits. The cyclical impact can also be seen as the deficits deepen during
recessionary times and are reduced during periods of expansion.
The 1990’s, though appear to be different. Unusually strong economic growth in the 1990’s
obviously followed the cyclical pattern of not only reducing the deficit, but actually creating a
surplus. While a large part of this is simply due to a favorable business cycle, at least part of
this impact is due to pay-as-you-go (PAYGO) financing established by the 1990 Budget
Enforcement Act. PAYGO resulted in discretionary spending caps that required reductions in
real spending during the 1990’s. PAYGO also required that any tax cuts or increased spending
on entitlement programs (the largest being Social Security, Medicare and Medicaid) must be
accompanied by spending cuts to offset any projected deficits during the next six years. The
PAYGO legislation expired in 2002 which, coupled with economic recession, resulted in sharply
increased deficits in the 2009 and 2010.
Deficits and surpluses identify only one-year gaps between revenues and spending, while debt
measures the accumulated borrowing of the federal government. Chart 2 shows the debt
totals from 1970 to 2010. This basically shows the same trends as the annual deficit data. The
growing deficits of the 1980’s resulted in higher overall debt. The budget surpluses in the
27
1990’s allowed for debt reduction. The recent high deficits, though, have pushed the overall
debt to record levels.
HOW BIG IS TOO BIG?
Unfortunately, there is no clear answer to this question. Economists generally agree that
government borrowing results in slower future economic growth and that these inefficiencies
grow at an increasing rate. In other words, doubling the government borrowing does more
than double the damage to future growth. While there is no clear consensus on when
government borrowing becomes excessive, economists generally agree that the current levels
of debt and deficits are not sustainable in the long run.
Data on government deficits and debts as a percentage of GDP are shown in charts 3 and 4,
respectively. These charts include data from the members of the Organization for Economic
Co-operation and Development (OECD) countries as well as the average across these countries.
The current U.S. deficits are above average, and second only to Ireland. This implies that our
debt is currently growing faster than our peers. In terms of overall debt, though, the U.S. is
approximately at the average of OECD countries. While this does not imply that our debt levels
are of no concern, perhaps we can take comfort that we are not alone in this struggle.
WHAT SHOULD BE DONE TO REDUCE GOVERNMENT BORROWING?
Pay-As-You-Go Legislation
PAYGO legislation was reenacted in February 2010. This legislation demonstrated success in
providing fiscal restraint through the 1990’s and should have a similar effect into the future. As
the economy recovers, the cyclical component of the deficit should decline; PAYGO legislation
will support this response by keeping the structural deficit from growing during the recovery.
However, the PAYGO legislation essentially locks in any existing structural deficits in the
absence of further adjustments. Thus, while PAYGO will provide fiscal restraint, it will not
directly move the government toward a structurally balanced budget.
Spending Cuts
One option for reducing structural deficits is to reduce the level of government spending. The
big question is where cuts should be made. Historically, elected officials have been hesitant to
propose large cuts to Social Security, Medicare, or Medicaid. These three programs account for
most of what the Congressional Budget Office defines as ‘mandatory spending’ which
accounted for 55% of total government spending in 2010. The other major spending categories
are discretionary defense spending (20%), discretionary non-defense spending (19%) and
interest expense (6%) (Congressional Budget Office, 2011b). The aging of the baby-boomers,
along with rising health care costs, will cause mandatory spending to continue growing based
on current legislation for these programs. Thus, if we are going to address deficit and debt
reduction seriously, it must include cost-saving reforms for these programs as part of the
28
solution. Such reforms are also necessary to improve the financial solvency over the long run,
regardless of the current debates on deficits and debt.
Tax Increases?
The other option for reducing structural deficits is to increase tax revenues. The current
political debate is centered on tax cuts, which would be contrary to deficit reduction in the
short-run2. While tax cuts are politically popular, they are perhaps receiving too much
attention given the growing debt and deficits. As Chart 1 shows, government revenues are at
historically low levels already suggesting that further cuts may not be warranted.
While the political climate currently makes tax increases unlikely, they would provide additional
tools to alleviate the deficit. It is my opinion that all options should be at least considered if we
are to seriously address the deficit.
Policy Changes should be Implemented Slowly
Efforts to reduce deficit spending will require spending cuts and/or tax increases, both of which
cause contractions in the macroeconomy in the short run. If successful, they will reap the
benefits of future growth by eliminating the negative impacts on private borrowing and reliance
on foreign borrowing. Sudden or drastic changes often create overreactions which could send
the economy into another deep recession. In order to minimize the short run disruptions to the
economy, any changes should be implemented slowly and deliberately, allowing consumers and
firms time to adjust to changing economic conditions.
Shifting Focus to Long-Run Stability
The final problem that should be addressed is to learn from the recent macroeconomic
volatility. If we can achieve a structurally balanced budget, the key to sustaining that balance
over the long run is to build up reserves during years with stronger-than-normal growth to
offset deficits experienced in slower-than-normal growth years. The natural problem is that we
tend to be over exuberant during periods of rapid growth. During the rapid growth in the
1990’s, federal and state governments used those cyclical surpluses to fund tax cuts and
spending increases that were simply unsustainable. The prevailing attitude was that we were
experiencing a new era of growth to which the old rules did not apply. The cyclical surpluses
were mistaken for structural surpluses, based on the erroneous assumption that average
annual growth rates had jumped above historical levels.
Thus, to maintain a balanced budget over the long run, we have to resist the urge to increase
spending and cut or rebate taxes during years of strong growth. Such restraint is, of course,
politically difficult but necessary if we are to smooth out the government budget.
2
There is considerable debate on whether tax cuts can stimulate job creating to the point that lower tax rates
eventually cause an increase in tax revenue due to income growth. In the short term, such cuts necessarily
increase deficits. The empirical evidence on the long-run impact is inconclusive.
29
REFERENCES
Congressional Budget Office, 2011a. “Budget and Economic Outlook: Historical Data.”
Available at: http://www.cbo.gov/ftpdocs/120xx/doc12039/HistoricalTables[1].pdf, last
accessed: 4/7/2011.
Congressional Budget Office, 2011b. “Reducing the Deficit, Spending and Revenue Options.”
Available at: http://www.cbo.gov/ftpdocs/120xx/doc12085/03-10-ReducingTheDeficit.pdf, last
accessed: 4/7/2011.
Department of the Treasury, 2011. “Major Foreign Holders of Treasury Securities.” Available at:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt, last
accessed: 4/7/2011.
OECD, 2010. “OECD Economic Outlook No. 88 Annex Tables,” Available at:
http://www.oecd.org/document/61/0,3746,en_2649_37443_2483901_1_1_1_37443,00.html,
last accessed: 4/7/2011.
Axis Title
Chart 1: US Government Revenues, Spending,
and Deficits/Surpluses as % of GDP
30.0
25.0
20.0
15.0
10.0
5.0
0.0
-5.0 1970
-10.0
-15.0
Revenues
Spending
Deficit/Surplus
1980
1990
2000
Source: Congressional Budget Office, 2011
30
2010
Chart 2: US Debt Held by the Public
as % of GDP
70.0
60.0
50.0
40.0
30.0
Debt
20.0
10.0
0.0
1970
1980
1990
2000
2010
Source: Congressional Budget Office, 2011
Chart 3: Government Deficits as % of GDP, 2010
15.0
10.0
5.0
Axis Title
-5.0
-10.0
-15.0
Australia
Austria
Belgium
Canada
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Korea
Luxembourg
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
United Kingdom
United States
Euro area
Total OECD
0.0
-20.0
-25.0
-30.0
-35.0
Source: OECD Economic Outlook, 2010
31
Australia
Austria
Belgium1
Canada
Czech Republic
Denmark
Finland
France
Germany2
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan3
Korea4
Luxembourg
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
United Kingdom
United States
Euro area
Total OECD
Chart 4: Government Debt as % of GDP, 2010
250.0
200.0
150.0
100.0
50.0
0.0
Source: OECD Economic Outlook, 2010
32