Wisconsin is Open for Business
Sizing Up
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Economy
Sizing up Today’s Economy
Wisconsin Economics Association
Dennis Winters
Chief, Office of Economic Advisors
Department of Workforce Development
November 9, 2012
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November 9, 2012
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ECONOMIC
OUTLOOK
November 9, 2012
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THE
ECONOMY
HAS
CHANGED
AND
SO MUST YOU
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November 9, 2012
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ECONOMIC RECOVERY
HOW IS THIS ONE NOT LIKE THE OTHER ONES
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Economy
Average Real GDP Growth First 9 Quarters of Recovery
7.0
6.0
Percent
5.0
4.0
3.0
2.0
1.0
0.0
-0
07
20
01
20
-9
90
19
-8
81
19
-7
73
19
-7
69
19
-6
60
19
-5
57
19
-5
53
19
9
1
2
5
0
1
8
4
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November 9, 2012
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JOBS RECOVERY
HOW IS THIS ONE NOT LIKE THE OTHER ONES
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WHY HAS THE
RECOVERY
BEEN
SO SLOW
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BUSINESS CYCLE SEVERE
IT TOOK NINE QUARTERS TO RECOVER
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Recovered
Source: BEA, OEA
November 9, 2012
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REAL EARNINGS
ARE FLAT
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Wisconsin Real Average Annual Wage
$38,000
$36,000
$34,000
$32,000
$30,000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
$28,000
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Billions
INTEREST INCOME
TAKE HIT WITH LOW INTEREST RATES
Personal Interest Income
$1,500
$1,400
$1,300
$1,200
$1,100
$1,000
$900
$800
Dec
07
Mar
08
Jun
08
Sep
08
Dec
08
Mar
09
Jun
09
Sep
09
Dec
09
Mar
10
Jun
10
Sep
10
Dec
10
Mar
11
Jun
11
Sep
11
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November 9, 2012
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HOUSEHOLD DEBT
DELEVERAGING
Percent
Household Debt as % of Disposable Income
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15
14
13
12
11
Source: Fed flow of Funds
November 9, 2012
Jan-10
Jan-08
Jan-06
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
Jan-88
Jan-86
Jan-84
Jan-82
Jan-80
10
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HOME EQUITY WAS USED FOR CONSUMPTION
NOW PART OF DELEVERAGING
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REVOLVING CREDIT WAS USED FOR CONSUMPTION
NOW PART OF DELEVERAGING
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100,000
80,000
Change over Prior Year $M
60,000
40,000
20,000
0
-20,000
-40,000
-60,000
-80,000
20
09
01
/0
1/
20
10
07
/0
1/
20
10
01
/0
1/
20
11
Ju
l1
1
20
09
20
08
Ja
n
1
Ju
l1
20
08
20
07
Ja
n
1
Ju
l1
20
07
20
06
Ja
n
Ju
l1
1
20
06
20
05
Ja
n
1
Ju
l1
20
05
20
04
Ja
n
Ju
l1
1
20
04
20
03
Ja
n
1
Ju
l1
20
03
20
02
Ja
n
1
Ju
l1
20
02
20
01
Ja
n
Ju
l1
1
20
01
20
00
Ja
n
1
Ja
n
Ju
l1
20
00
-100,000
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November 9, 2012
Source: Federal Reserve Board of Governors
Wisconsin is Open for Business
NO SAVINGS – WAS USED FOR CONSUMPTION
NOW PART OF DELEVERAGING
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Personal Savings, Billions of Dollars
800
700
600
500
400
300
200
100
-I
20 II
01
20 -I
01
-I
20 II
02
20 -I
02
-I
20 II
03
20 -I
03
-I
20 II
04
20 -I
04
-I
20 II
05
20 -I
05
-I
20 II
06
20 -I
06
-I
20 II
07
20 -I
07
-I
20 II
08
20 -I
08
-I
20 II
09
20 -I
09
-I
20 II
10
20 -I
10
-I
20 II
11
-I
00
20
20
00
-I
0
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It is difficult to increase consumption
when you:
1.
2.
3.
4.
5.
have stagnant income,
are losing wealth,
paying down debt,
increasing savings,
and are paying more for food and gas.
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CORPORATE PROFITS AT NEW RECORDS
MOSTLY DUE TO COST CUTTING
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CORPORATE PROFITS
BUILDING CASH HOARD
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100
Change In Investment From 2007 4 th Qtr
0
Billions of 2005 $
-100
-200
-300
Private investment
Residential
-400
-500
20
07
q4
20
08
q1
20
08
q2
20
08
q3
20
08
q4
20
09
q1
20
09
q2
20
09
q3
20
09
q4
20
10
q1
20
10
q2
20
10
q3
20
10
q4
20
11
q1
20
11
q2
20
11
q3
-600
16
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INVESTMENT GROWTH
IS IN PRODUCTIVITY, NOT EXPANSION
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Source: BEA, OEA
November 9, 2012
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MANAGING RISK
WHERE IS THE INCENTIVE TO EXPAND
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EXTENDING CREDIT
BANKS ARE RETICENT TO LEND FUNDS
Reserves of Depository Institutions
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(billions of dollars)
$2,000
$1,500
$1,000
Required Reserves
Total reserves
$500
$0
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
-$500
Source: Federal Reserve Board, Data Download Program
November 9, 2012
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IN CONCLUSION
CONTINUED RECOVERY
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 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.
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IN REVERSE ORDER
THE UGLY, THE BAD, AND THE GOOD
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BEGINNING WITH
THE UGLY
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 “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
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ADDING IN
THE BAD
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 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
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SLOW PROGRESS
THE GOOD
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 Housing markets finally moving higher
 Little happening in non-res construction
 Motor vehicle sales are moving higher
 Perpetuating sector growth
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WORKFORCE
OUTLOOK
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JOBS RECOVERY
OUR BEST ESTIMATES PUT THE BREACH AT MAY 2015
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Breach May 2015
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WORKFORCE PEAKED
NO RECOVERY AFTER RECESSION, NONE EXPECTED
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WISCONSIN’S WORKFORCE GROWTH
BECOMES FLAT
Wisconsin Population and Labor Force
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7,000
POPULATION
6,000
CIVILIAN LABOR FORCE
( x 1000 )
5,000
4,000
3,000
2,000
1,000
1960
1970
1980
Source: Bureau of Labor Statistics, OEA
November 9, 2012
1990
2000
2010
2020
2030
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WORKFORCE PARTICIPATION
TRENDS DWARF FLUCUATION
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POPULATION PARTICIPATION
FUNCTION OF RECESSION SEVERITY
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IT’S THE YOUNG THAT ARE DELAYING
ENTERING THE WORKFORCE
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CHANGING LFPR
GREATLY ALTERS WORKER AGE MIX
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WAIT, WHAT
HOW CAN YOU HAVE BOTH?!
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… 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 few
By Rick Barrett of the Journal Sentinel, June 16, 2012
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WHAT’S THE PROBLEM
NUMBER AND MIX OF JOBS NOT ALIGNED
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We have:
1. 223,600 people unemployed
2. 43,400 job openings on JCW
3. UI benefits running out
We also have:
 Lack of correct skills fit
 People looking for their old job
 Crust of chronically unemployed
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IS IT
CYCLICAL
OR
STRUCTURAL
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DOROTHY
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A little economic theory
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Theory Tells Us
More Pay Yields More Work
$200
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Supply
$150
$100
$50
$0
4 days
3 days
2 days
1 day
November 9, 2012
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$200
$100 per day yields 3 days work
(total earnings = $300)
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$150
$100
$50
Area = $300
$0
4 days
3 days
2 days
1 day
November 9, 2012
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Increased pay translates
into increased work
$200
(increased earnings)
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$150
$100
$50
$0
4 days
3 days
2 days
1 day
November 9, 2012
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Well, the guy only shows up for two days.
This gives what we call a backward-bending supply curve.
$200
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$150
$100
$50
$0
4 days
3 days
2 days
1 day
November 9, 2012
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$200
At new wage, it only take 2 days
to make $300
S`
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=
$150
$100
$50
$0
4 days
3 days
2 days
1 day
November 9, 2012
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THINGS HAVE CHANGED
BREAKING NEW GROUND
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 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.
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Questions ?
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CONTACT INFORMATION
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 Dennis Winters
 Phone: 608-267-3262
 Email: dennis.winters@dwd.wisconsin.gov
 Website: www.dwd.wisconsin.gov
 OEA website: www.dwd.wisconsin.gov/oea
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November 9, 2012