Economic Indicators Report Indicator... · economy in Wisconsin has performed during the 2008-2013...

Economic Indicators ReportThird Quarter 2013: Stevens Point Area

Randy Cray, Ph.D., Chief EconomistScott Wallace, Ph.D., Research Associate

Central Wisconsin Economic Research Bureau

Special Report“Parsing the Politicians: The Wisconsin Economy

and State Finances” Todd A. Berry, Ph.D., president of the Wisconsin Taxpayers Alliance

CWERB Economic Indicators Report - Stevens Point 1

TABLE OF CONTENTS

Outlook: The Forecast for Wisconsin ............................................................................................................................2-3 Table 1: National Economic Statistics ..........................................................................................................................2

Central Wisconsin .............................................................................................................................................................3-5 Table 2: Unemployment Rate in Central Wisconsin ..................................................................................................3 Table 3: Employment in Central Wisconsin ................................................................................................................3 Table 4: Wisconsin Employment Change by Sector ...................................................................................................3 Table 5: County Sales Tax Distribution ........................................................................................................................3 Table6:BusinessConfidenceinCentralWisconsin ..................................................................................................4 Figures 1-7.....................................................................................................................................................................4-5

Stevens Point-Plover Area ...............................................................................................................................................5-7 Table8:RetailerConfidenceinStevensPoint-PloverArea ....................................................................................5 Table9:HelpWantedAdvertisinginPortageCounty ..............................................................................................5 Table 10: Portage County Location Quotients (LQ) ...................................................................................................5 Table11:PublicAssistancebyProgramType .............................................................................................................6 Table 12: Unemployment Claims in Portage County ................................................................................................6 Table13ResidentialConstructioninStevensPoint-PloverArea ..........................................................................6 Figures 8-11 ...................................................................................................................................................................6-7

Housing Market Information ........................................................................................................................................7-8 Table 14: National Median Home Prices .....................................................................................................................7 Table 15: National Existing Home Sales ......................................................................................................................7 Table 16: National Inventory .........................................................................................................................................7 Table17:NationalAffordabilityIndex ........................................................................................................................8 Table18:LocalAreaMedianPrice ...............................................................................................................................8 Table 19: Local Units Sold ..............................................................................................................................................8 Table 20: Local Median Price .........................................................................................................................................8 Table21:LocalNumberofHomeSales .......................................................................................................................8

Measuring Entrepreneurial Activity as Potential Measure of Job Growth ............................................................. 9

Special Report ...............................................................................................................................................................10-16Parsing the Politicians: The Wisconsin Economy and State Financesby Todd A. Berry, Ph.D., President, Wisconsin Taxpayers Alliance

Special Recognition: CarrieZhang,AssistantProfessorofEconomics,CWERBCoordinatorJeffreyDallman,ResearchAssistant,CWERB

CWERB-SchoolofBusiness&EconomicsUniversityofWisconsin-StevensPoint

Stevens Point, WI 54481715-346-3774 or 715-346-2537

www.uwsp.edu/business/cwerborfollowusonTwitter@uwspcwerb

Association for University

Business and Economic Research

2 CWERB Economic Indicators Report - Stevens Point

The OutlookThe state and national economy will continue to expand at a modest pace throughout the remainder ofthisyear.HISGlobalInsight’sforecastcitesanumberoffactorsinfluencingthestateandnationaleconomies.Whatarethesefactorsandhowaretheyaffectingthesituation?

The politics in Washington D. C. by most accounts hashadanegativeinfluenceontheeconomy.Theimmediate damage caused by the government shutdown has been estimated to be $24 billion. Closing the government disturbs economic relationships and increases business risk. Will the governmentinthefuturebeareliablebusinesspartner?WillU.S.honoritscontracts?WiththepossibilityoffuturedisagreementsinWashington,will households and businesses spend and invest at thesamelevelastheywouldintheabsenceofsuchrisk?Totheextentthereisaperceivedincreaseinrisk,patternsofeconomicbehaviorwillbealteredandtheeconomywillbeaffectedinanegativeway.

Alongthesamelinestheverynotionthatthedebtceiling would not be raised creates additional uncertainty and risk to the economy. The potential disruptionfromadefaultwouldhavebeenverydamagingtothenationandstate.Evenifadefaultdidnotmaterialize,thetrustinournation’spoliticalinstitutions is weakened by such actions.Theautomaticspendingcutscomingfromtheso-called sequester, have produced a drag on the economy. Cuts in spending reduce demand, income and employment. Most economists believe that the acrossthebroadcutshavealreadyreducedGDPgrowth.ThenonpartisanCongressionalBudgetOfficeforecaststhatRealGDPin2013willbe1.4percentlowerbecauseofthespendingcuts.Thereductionin spending was about $42 billion in 2013, and is projected to reach near $90 billion in 2014. Emergencyunemploymentcompensation,aformoffiscalstimulus,wasextendedintoto2013.However,this will be phased out in the coming years. The HIS Globalmodelsuggeststhisactionwillalsodampeneconomicactivitybytakingspendingoutoftheeconomy.Additionally,withamodestincreaseintheworldwidedemandforoil,oilpriceswillhoveraround $100 a barrel. This means that the simulative effectoffallingpetroleumpricesisunlikelytotakeplace.

The continued economic weakness in the Eurozone means that exports to this important trade partner will be less than it would be otherwise. The economic

malaise in the Eurozone has been caused in part by theturmoilresultingfromthegreatrecession.Inan attempt to deal with the problem, the European community adopted an austerity program to reduce budgetdeficits.Thistoohasreducedemandandcontributed to the slowdown in Europe.

EvenwiththesenegativeelementsaffectingtheeconomytheforecastisstillpositiveforWisconsinandthenationfor2014.Wisconsin’stotalnonfarmemploymentisexpectedtogrowfrom2.82millionin2013to2.9millionin2014,amodestincreaseof1.4percent.Theunemploymentrateisforecastedtodropfrom6.9percentin2013to6.5percentin2014.Further,Wisconsin’spersonalincomewillgrowby4.6percent in 2014 compared to 1.9 percent in 2013.

FortheU.S.,RealGDPispredictedtogrowby2.8percent in 2014. Payrolls will grow by 1.6 percent andtheunemploymentratewillfallbyfourtenthsofapointin2014,downto7.2percent.Personalincome will rise in the U.S. by 5.1 percent in 2014, to $14.5trillion.Corporateprofitswillgainmomentum,climbingfrom$1.9trillionin2013to$2.1trillionin2014,againof4.2percent.

ThejobsnumberforSeptemberwasdisappointingandlessthanforecastedfortheU.S.,cominginat148,000positions.Theforecastforinflationin2014callsfortheCPItoincreasebyjust1.6percent.TheFederalReserve,thenation’scentralbank,willmostlikelyconcludefromtheweakjobnumbers,thelowinflationprojection,andothereconomicdatathatitneedstocontinueitsprogramofquantitativeeasing.This means the Fed will pump more liquidity into the economy. It will do this by purchasing large quantitiesofU.S.debt,approximately$85billionpermonth. The Fed now holds a staggering $3.6 trillion in U.S. Treasury securities on its balance sheet. The continuationofthequantitativeeasingmeansthatinterest rates should remain low and stock prices will remain at elevated levels.

Finally, the consensus among economists is that the economyisimprovinginspiteoftheheadwinds


created by Washington. One can only imagine how muchmorerobusttherecoverywouldbeifthepolitical discord could be resolved.

Central WisconsinThe unemployment rate in each reporting areas is displayedinTable2.InAugust2013Marathon,Portage and Wood counties all experienced a decline intheirunemploymentrates’fromayearago.TherespectiveAugustratesforPortage,MarathonandWoodwere6.0,6.3and6.8percent.ThelaborforceweightedunemploymentrateforCentralWisconsinwas unchanged, was at 6.3 percent. Meanwhile Wisconsin’sunemploymentratedroppedfrom6.8to 6.2 percent and the United States unemployment ratefellfrom8.2percentto7.3percent.Thus,the unemployment rates were much improved throughout all reporting areas.

EmploymentfiguresinTable3arebasedonthegovernment’ssurveyofhouseholds.PortageCounty’stotalemploymentfigurecontractedby4.7percentandtotalemploymentinWoodCountyfellby1.3percent over the past year. Marathon County payrolls fellevenmore,contractingby2.4percentoverthepast twelve months. Central Wisconsin as a whole experiencedanemploymentdeclineofabout4,000positions.Jobsintheregionfellfrom146.4to142.4thousandorby2.7percent.ThesurveyofhouseholdsalsoshowsthatWisconsin’spayrollsincreasedby0.9percent, or by about 17,000 positions over the period.

The nation gained 0.8 percent or about 1,200,000 jobs over the same period.

Table 4 gives the most recent employer based payrolls numbersforWisconsin.Economistsbelievethenonfarmemploymentnumbersbasedonemployerprovideddata,giveamoreaccurateassessmentofthe labor market conditions than does the household surveydata.FromAugust2012toAugust2013Wisconsin’stotalnonfarmemploymentexpandedfrom2.804millionto2.853millionorbya1.7percent.Thisrepresentsagainofapproximately50,000thousandjobsduringthepastyear.Thesectorsoftheeconomy to experience job growth were construction, manufacturing,tradetransportationandutilities,professional&businessservices,leisure&hospitality,educational&healthservicesandgovernment.However,theemploymentresultsfornaturalresourcesandmining,information,andfinancialactivitiesweredisappointing.Thus,therateofjobgeneration continues to be very modest in the state as measured by this data set.

In Table 5, Portage County sales tax distributions rosefrom$1.33millionto$1.41million,anincreaseof7.8percent.Marathonexperiencedanincreaseinsalestaxdistributionsfromthestate.Marathonrosefrom$2.60millionto$2.79millionorby7.3percent.Similarly Wood County collections also expanded from$1.27millionto$1.38millionorbyabout8.1percentoverthecourseofthepastyear.Thedata


suggests there was some improvement in retail activity in Central Wisconsin.

TheCWERB’ssurveyofareabusinessexecutivesisreportedinTable6.ThepollwastakenbeforetheOctober turmoil in Washington. This group believes that recent events at the national level have led to an improvementinthecountry’seconomiccondition.In addition they believe the local business climate has improved over the past twelve months. When theywereaskedtoforecasteconomicconditionsatthe national level they were a lot more optimistic aboutthefuturedirectionoftheeconomythanintherecentpast.Also,theyexpressedsimilaroptimismforthelocaleconomyfortheirparticularindustry.Overall,Table6alsoshowsthatthelevelofoptimismexpressedfortheeconomywasgenerallyhigherinMarch 2013 than in September 2013.

Figures1thru7giveahistoricoverviewofhowtheeconomyinWisconsinhasperformedduringthe2008-2013 time period. For example Figure 5 shows thedramaticdeclineinWisconsinmanufacturingandthe gradual rebound taking place since 2010. In 2008 about500,000wereemployedinmanufacturingandattheendof2010thenumberofjobsbottomedoutat approximately 425,000; thus, the recession caused 75,000 jobs to be lost in this one sector alone. Since that time the rebound in activity has added about 30,000positionstothemanufacturingsector.Figure7showsthesteepdeclineandreboundinthenumberofpeopleemployedinleisure&hospitality,fromabout262,000in2008to277,000intheearlypartof2013.


Stevens Point – Plover AreaWe usually include Table 7 which gives employer basedestimatesofindustrialsectoremploymentinPortage County. However, please note at the time the reportwaswrittenthesedataforSeptemberwerenotavailablefromtheWisconsinDepartmentofWorkforceDevelopment.Hopefullythesedatawillbeavailableonatimelybasisinthefutureandwillbeincluded in the report.

InTable8theCWERB’sretailerconfidencesurveyfindsthatmerchantsfeelthatstoresalesarehigherthan they were one year ago. This is welcome news forthelocaleconomy.Inaddition,theirexpectationsaboutstoretrafficandsaleshavebecomestrongerthan they were in June 2013. When it comes to expectationsaboutthefutureitappearsthattheSeptember2013assessmentofretailactivitywasmarginallyhigherthaninJune2013.Thisgroupfeelsthatretailactivityinthelatterpartof2013willbeat

higherthanininthelatterpartof2012.Theoverallsignificanceofthesurveyisthatlocalmerchantsaresaying that there are some signs improvements taking place in the local retail sector.

Table9HelpWantedAdvertisingisabarometeroflocallabormarketconditionsandtheindexesforStevensPoint,Wausau,MarshfieldandWisconsinRapids are now based on job advertising on the internet.TheindexforStevensPointandWisconsinRapids rose by 12.7 percent and by 175 percent respectively when compared to a year ago. Further, Wausau experienced an expansion in the amount ofadvertisingtakingplace,about6.5percent.Marshfield’shelpwantedindexcontractedbyapproximately 0.2 percent. These data suggests that advertisinggrowthhasbeenveryuneveninthearea’slabor markets.

WehaveanewTable10forthisreport.LocationQuotients (LQ) allow economists to better understand thestructureofaneconomy,andidentifytheindustriesthatdrivealocaleconomy.AnLQgreaterthan 1.0 means a region is more specialized in an activity than the nation. The greater the LQ, the greateristheindustrialconcentrationofthatactivityin a region. For example, nonstore retailers (retailers whosellgoodsandservicesoutsidetheconfinesofaretailfacility)inPortageCountyhaveanLQof8.29. Meaning employment in this sector is 8.29 times more concentrated here, than it is at the national level.SomeofPortageCounty’sotherareasofhighspecialization include: insurance carriers 5.72, crop production 4.78, printing and related support activities 4.01, and truck transportation 3.46. These industries and others like education, help serve as the foundationforthelocaleconomy.


Anothermeasureofthelocaleconomyispresentedin Table 11. It shows that new unemployment claims contractedfrom166to132orby20.4percentovertheyear. Moreover total unemployment claims dropped from1,621to869orby46.4percentinouryearovercomparison. This signals that the local economy is improving.

Table 12 presents the residential construction numbers fortheStevensPoint-Ploverarea.InouryearlycomparisonthenumberofpermitsissuedinThirdQuarterwas36andtheyhadanestimatedvalueof$8.7millionandthenumberofhousingunitstotaled50.WhencomparingThirdQuarter2012tothatof2013residentialalterationactivitycontractedfrom243to237permits.Further,theestimatedvalueofthistypeofactivitywentdownfrom$1.706millionto $1,705 million. Overall, the 2013 construction data paintsamuchbrighterpictureoftheeconomythanlast year.

ThenonresidentialconstructionfiguresinTable13wereasfollowsforThirdQuarter2013.Thenumberofpermitsissuedwas7andtheestimatedvaluewas$6.8million.Theestimatedvalueofnewstructuresfigurebodeswellfortheareaeconomy.Thenumberofbusinessalterationpermitswas82in2013 compared to 83 in 2012. The estimated value ofalterationactivitywas$3.136millionin2013comparedtothe2012figureof$3.146million.Insum, the pace nonresidential construction activity is

pickingupinthearea.Further,thereareanumberoflarge constructions projects that have been recently completed or are under construction in the greater StevensPointArea.

Figures 8 thru 11 give an economic history lesson as to how the employment level, the unemployment level,theunemploymentrate,andthelaborforcehavetrendedoverthepastfiveyearsinPortageCounty.PleasenotethedataforthechartsrunsfromJanuary2008tomid-2013.Thefiguresclearlyshowtheinfluenceofthegreatrecessiononthearealocaleconomyandthefiguressupplementthereport’syear over year comparisons. This allows the short-termfluctuationsintheeconomytobejudgedmoreproperly.


Housing Market InformationThefollowingseventablescontaininformationonthe national, regional, and local housing market. Housingactivityisanincrediblyimportantaspectofthe economy. We believe the reader will gain valuable insight into housing markets conditions and greater insightintothelocaleconomyinthissectionofthereport.

Table14givesnationalmedianhomepricefortheU.S. and major regions in the U.S. Housing prices in the Midwest remain the lowest in the nation. The medianhomepriceinourpartofthecountryhasrosefrom$142,700in2012toanestimated$158,400in September 2013. In general housing prices are risingintheU.S.andarerisinginallofitsgeographicregions. The West has the highest medium housing prices at $286,300.

Table 15 National and the Midwest existing home sales data shows a substantial increase in sales activity over the past year. In the Midwest 1,250,000 homesareforecastedtobesoldin2013.FortheMidwest,thepreliminaryestimatefor2013isthat180,000 more homes will be sold than in 2012. In 2011 thenumberofhomesoldintheMidwestbottomedout at 910,000 units.

ThenationalinventoryofhomesisgiveninTable16.AsofSeptember2013theinventorybacklogisestimated to be 5 months. In 2008 the national supply ofhomeswas10.4months.Thus,agreatdealofimprovement has taken place in the housing market. Thestatisticsindicatethatthebacklogofunsoldhouseshasbeencutinhalf.

Table17presentsthenationalaffordabilityindex.Overtheyearsverylowinterestratesandfallinghomepriceshavegreatlyimprovedtheaffordabilityofhomes.However,in2013housingpricesandinterest rates are trending upwards. While still outstanding,thepreliminaryestimatefortheaffordabilityindexin2013is156.1,downfrom193.5in2012.Thelowertheindex,thelessaffordablehousingisbecomingforthetypicalfamily.Thismeans in 2013 a household earning the median incomehas156percentoftheincomenecessarytoqualifyforaconventionalloancovering80percentofamedium-pricedexistingsingle-familyhome.


Table 18 displays data on state and local area median prices. For the most part Wisconsin and local area home prices have been more stable than the U.S. as a whole. In Central Wisconsin the lowest median home price is in Wood County at $115,000. Portage Countyhasthehighestmediumpriceof$137,000andMarathonfallssomewherebetweenotherthetwocounties,withamediumhousepriceof$128,250.ThemediumpriceofahouseinWisconsinisabout$144,000.Inaddition,afteranumberofyearsofdecline,themediumpriceforahouseinourareaandstate are increasing

Table19givesthenumberoflocalhousingunitssold,from2010to2013.Thecountiesoftheregionhaveallanexperiencedincreaseinthenumberofunitssold.

Pleasenotethatthenumberofhomessoldlistedinthetablefor2013coverjustninemonthsofactivity.Tables 20 and 21 present the changes that have taken place in the local median prices and units sold, and compares Third Quarter 2012 to Third Quarter 2013. Here we see increases in local median home prices andthenumberofunitssoldinMarathonandWood.The lone exception being the 1.2 percent decline in units sold in Portage County.


Measuring Entrepreneurial Activity as Potential Measure of Job Growth

UWSP Small Business Development CenterVicki Lobermeier,

SBDC Director of Entrepreneurship ActivitiesMary Wescott, SBDC Counseling Manager

NoCostBusinessAssistanceforEntrepreneursEntrepreneurialactivity,asreflectedby2013Q1businessstartlegalformations,lookstobeincreasingfortheregion.InadditiontotheUW-StevensPointSmall Business Development Center (www.uwsp.edu/conted/sbdc), many no-cost resources are available to assist existing and startup entrepreneurs.

TheSmallBusinessAdministrationfeaturesanonlinelearningcenterthatoffersassistancewithawiderangeoftopicsincludingMarketinginToday’sEconomyandTipsforGovernmentContracting.(www.sba.gov/sba-learning-center).

Many entrepreneurs seek answers on what is involvedingettingabusinessloan.TheSBAoffersdetails on preparing loan applications (www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/how-prepare-your-loan-application).Thesitefeaturesinformationoncreditfactors,assessingthecurrentfinancialsituationandwhat to include in preparing a loan package.

The Wisconsin Economic Development Corporation (inwisconsin.com/start-your-business) provides informationforstartupandexistingbusinesses.Wisconsin, thru the online Business Wizard (ww2.wisconsin.gov/state/wizard/app/LoadIntro) providesinformationonlicensing,permittingandregulatoryrequirements,applicationforms,availablestate resources and links to other valuable business-relatedinformation

No cost templates and tools, mentoring and online workshopsareavailablefromCentralWisconsinSCORE (centralwisconsin.score.org). Community ActionProgramCAPservicesbusinessdevelopmentprogramoffersfreeservicestolow-incomeindividuals or to businesses that create living-wage jobsforlow-incomeindividuals(www.capserv.org).

ResourcesandqualityreferralsarealsoavailablethroughareachambersofcommerceandCentergy,TheCentralWisconsinAllianceforEconomicDevelopment (http://centergy.net).

Total Business Starts Compared Q3 2010, 2011, 2012, 2013

TotalNumberofSBALoansCompared 2010, 2011, 2012

TotalSBALoanAmountCompared2010, 2011, 2012


Ifrecurringfederalgovernmentshutdownsanddebtcrisesteachusanything,itisthatthewordsofcareerpoliticians,regardlessofparty,needtobeexaminedwith care: They need to be parsed. Debates among Badger State partisans over Wisconsin job trends and economic health, not to mention state budget and tax policy, have certainly required close examination.

Job Counting: Case Study in Partisan ObfuscationThe partisan clash over Wisconsin employment figuresisacaseinpoint.Thelaser-likefocusonjobcreationoverthepastthreeyearsarose,ofcourse,becauseGov.ScottWalker(R)promisedtocreate250,000 new jobs during his term. Had serious staffworkbeendoneontheideaduringthe2010campaign, it is unlikely that it would have been floated.Inreviewingthepasttwodecades,WISTAXresearcherscouldfindonlyonefour-yearperiodinwhich the state created that many jobs.

Regardless,thegovernor,fellowRepublicans,andDemocratic opponents all have been scouring employmentdataforfiguresthatconfirmtheparticular partisan story they want to tell. The rhetorichasbeenself-assuredonallsides—andoftenmisleading.

Theoriginoftheconfusionismultiplesourcesofemployment data. Preliminary job statistics are released monthly based on a small survey sample andrevisedannuallywhendatafromanall-employercensus are generated by the unemployment insurance system. The lag between survey and census reports is about six months.

Thedifferencebetweenthetwocanbestriking,asthefollowingtableillustrates.In2011,whenthe

bipartisan bickering began, the year started strong. Year-over-year, actual monthly employment growth inthefirstquarterrangedfrom1.5%to1.7%.WithWisconsin adding about 40,000 jobs per month, the 250,000 goal seemed in reach, and the governor embraced the numbers as they came out.

Then,withfall,thesamepreliminarysurveysshoweda sharp turnaround, with monthly job losses ranging from0.3%inOctoberto1.2%inDecember.ItwastheDemocrats turn to crow, as it appeared that the state had lost over 54,000 jobs in just three months. Months later, the more reliable employer census statistics were released. What had been a 54,000 job loss was actually a 62,000 job gain.

Neither party ended up with truth entirely on its side. Late-falljobexpansionwaspositive—notnegativeastheDemocratshadcharged.But,ithadslowedtohalfthefirst-quarterratethegovernorhadtouted.Theback-and-forthovertheeconomyhasbeennon-stopeversince.Everymonth,eachsidefindssomesourceofeconomicnewsthatportendsonlygood,oronlybad.Themediaareoftenleftconfused,sometimesreportingself-servingnumbersfromonesideortheotherwithoutofferingneededqualificationorcontext.

Assessing Job CreationHistoricalcontextisparticularlylacking.Ifjournalistsorpoliticiansweretostudyfinalmonthlyemploymentfiguresfromthelate1980son,asobering story emerges. Through the early- to mid-

Parsing the Politicians: The Wisconsin Economy and State Finances

by Todd A. Berry, Ph.D.President, Wisconsin Taxpayers Alliance

Job-Counting Confusion: How Preliminary (Survey) and Final (Census) Figures can Vary (BLS)

Monthly Employment Chgs. (US and WI), 1984-2013


90s, Wisconsin enjoyed 87 consecutive months when percentage job increases here surpassed the U.S. (see graphonpreviouspage).Then,fortherestofthe1990s, the economy boomed and state job creation more or less kept pace with the country.

From 2000 on, however, it has been an entirely differentstory.Inonlyaboutonemonthinfourhasstate employment growth exceeded the U.S. This is a period during which we have had Republicans in totalcontrolofstategovernment,Democratslikewisein charge, and various partisan power-sharing arrangements among the executive branch, the state senate, and the assembly.

The graph below displays the cumulative increase or decrease in Wisconsin and US employment more recently, since 2001 (2001=100). The state and nation moved together until 2006 when the gap between the two opened and has remained. U.S. job numbers did not surpass the 2001 level (100) until last year (2012). AsofMarch2013,Wisconsinstillwasstillslightlybehind 2001 (99.2). However, neither has reached thepeaksof2008(103.9and101.8,respectively),areminderofgeneraleconomicweakness.

Ifpoliticiansarebeingtruthfulwithvoters,theyhave to acknowledge that increases in monthly employment, both nationally and in the state, have beenslowingforyears.Thegraph(toppage,right)makes this clear: The largest monthly job gains in each successive economic cycle have been eroding overthepast25years;intermsofthechart,thepeakshave been getting shorter.

This pattern is not likely to change soon. While statepolicymakershavelargelyfailedtorecognizeit, demographic change is here. Statewide school

populationshavebeendecliningfor15years,atrendthat is now rippling across college campuses and is going to spill into a soon-to-stagnate state labor force.Itbecomesincreasinglydifficulttocourtnewemployersabletocreatenewjobsifthestatelackstheworkerstofillthem.

Beyond Job Numbers: Digging DeeperThe “job problem” has other deeper and broader roots than Wisconsin partisans would care to admit.Wisconsin’seconomygenerallytracksthecountry more closely than all but a dozen states. Consequently, no state politician can have much short- or even medium-term impact on the Wisconsin economy,unlessitisadverse,theresultofill-advisedrhetoric or counter-productive action. No matter who isincharge,thebeststatepoliticianscanhopeforistocreateastableandnurturingenvironmentthatfosterslong-term growth. Income and earnings. The “pols” would be wise to includeavarietyofmeasuresintheirthinkingandrhetoric. One is the percentage by which Wisconsin leadsorlagstheU.S.onpercapitaincome(PCPI),ofwhichabout60%isattributabletowagesandsalaries.

Wis. Per Capita Personal Income: Pct. < US(WISTAX, Benchmarks for a Competitive Wis. 2013)

Cum. Job Growth (2001=100): US vs. Wis. and US-Wis. Difference

Years are March to March (Source: BLS, with WISTAX calculations)

Monthly Employment Chgs. (US and WI), 1984-2013


Creating new jobs but at lower pay levels limits the economicbenefitsofemploymentgrowth,soincomeand wages bear watching. Our PCPI has trailed the countryformorethan40years,althoughwebrieflyclosedtowithin-2%oftheUSduringtheexpansionofthelate90s.

Asthegraphbelowshows,averageincomeherelostground to the nation during the 2007-09 recession. Wisconsin typically begins a recovery somewhat sooner than the country, so it could be expected that we would move back toward income parity as the recessionended.But,wehavestagnatedatabout-5%below the U.S.

Theimpactofwagesandsalariesonlaggingpersonalincome cannot be overlooked. In 1970, state earnings averagedabout4%lessthanthoseofthenation.Withthepunishingrecessionsoftheearly80s,moregroundwaslostandneverregained.AverageearningsinWisconsinhavetrailedthenationby10%to15%fordecades.

Firm creation. Asecondmeasurethatstateleadersshouldfocusonisnewbusinesscreation.Thenation’sleadingmonitorofentrepreneurialactivity,theKauffmanFoundation,findsthat,net,mostifnotallnew jobs created since 1980 can be attributed to new oryoungfirms.Datashowthat,sincetheearly90s,the Badger State has been among the 10 states with thelowestratesofnew-firmcreation.

Thelinkbetweennewjobsandnewfirmsisreadilyapparentforthe1997-2007period,asthetablebelowshows.Itarrangesstatesingroupsof10(fivequintiles)bytheirrateofnewfirmcreation(newfirmsasapercentofallfirms),fromlowesttohighest.Foreachgroupofstates,firmbirthanddeathrates,aswell as average annual job growth during the decade, are shown.

Several conclusions emerge. The most important isthatstateswithhighaverageratesofnewfirmcreation spawned more jobs over the period studied. But,stateswithhigherratesoffirmdeathalsotendedtohavemorejobgrowth.Why?Becauseoneisrelatedtotheother:Whenmorefirmsarestarted,morearegoingtosucceed,andfail.Inthevernacular,ithelpsto “throw more mud at the wall and see what sticks.” ThelessonforastatelikeWisconsinthat,eitherbyreputation or in reality, tends to be more risk averse isthis:Asuccessfulentrepreneurialculturerequiresacceptanceoffailure,aswellassuccess;onegoeswiththe other.

Getting Beyond the “State” EconomyIn exchanging partisan barbs, state politicians also err simply by attending only to state economic performance.Yet,itmightbearguedthatthereisnostateeconomybutratherasetofregionaleconomies,each with its own strengths and weaknesses, each withitsownpatternsofgrowthanddeclinethatreflectdifferencesinindustrymix,major-marketproximity, and demography.

Thisisatopicthatcanbestudiedatlength(see,forexample,theSeptember2013issueofWISTAX’smonthlyWisconsinTaxpayermagazine).But,inbrief,westernWisconsin—borderingIowa,Minnesota,andtheMississippiRiver—hasbeenoutperformingthestateasawholeonanumberofeconomicanddemographic measures. So has the south central region centered around Madison. By contrast, the southandeast,withalmosthalfthestate’spopulationandadisproportionateamountofitsmanufacturing

Note: Firm birth and death rates are percentages of new or expiring firms relative to all establishments. Job growth is on an avg. annual percentage basis.

Firm Birth Rates and Job Growth, 1997-07States Grouped by Birth Rate (Low to High)

Recent County Job GrowthPct. Change, 2000-12

Pct. Job GrowthCo’s in Four Groups

Low to High[Note: 0.1 = 10%]


base, is lagging.

Regionaldifferencesareevidentwhenemploymentincreases (2000-12) are examined by county. The map(left)displaysthe72countiesandgroupsthemintoquartiles(fourgroupsof18)bytheirrateofjobcreation.Growthishighestindark-shadedcountiesand lowest in white or lightly shaded counties. Clearly, the growth counties are concentrated in the west and south central areas, while the populous southeast and sparsely populated north tend to lag.

Giventheseintrastatedifferences,onehastowonderhowusefulitisforpartisanpoliticianstouse—andmisuse—economicstatisticsthatarestatetotals.Ifsuccessfullong-termstrategiesforWisconsinaretobedeveloped,theassetsofeachregionhavetoberecognized.

State Finances: Fact, Not FictionEven more than jobs and the economy, the bread andbutterofpartisanpoliticalexchangeistaxesandspending.Moststatefinancialdecisions—bothrevenuesandexpenditures—aremadeinWisconsin’sbiennialbudget.Tounderstandcurrentstatefinances,itisimportanttohaveagraspoftherecentpast.

Modern Budget History. From the late 1990s until mid-2011, state budgets were characterized by boom-bust, patchwork decision making. When the economy and state tax collections were growing robustly in thelate1990s,thegovernorandlawmakersofbothpartiesfoundthemselvesinapolitical“sweetspot”:Revenuewassufficienttocuttaxes,e.g.,abillion-dollar“buydown”ofschooltaxes,restorationofincometaxindexing,andmajorincometaxreformand reduction in 2000-01. There was also revenue to boostspendingoneducation,taxrebates,welfarereform,andMedicaid.

Aslongasthetaxcollectionswerestrong,theconsequencesoffiscal“overcommitment”inthelate90s were avoided. However, with the 2001 recession, state tax growth withered, and a billion-dollar general funddeficitopenedup.Overthenexttenyears,thebudget was ostensibly balanced using a number ofshort-termmaneuvers,includingsaleandlaterrefinanceof“tobaccobonds”;fund“raids,”including$1.4billionintransfersbetweenthetransportationgeneralfunds;rapidgrowthofhighwaybondingthatindirectlyfacilitatedgeneralfundbudgetbalancing;and accounting tricks that spent money but delayed itsappropriationuntilthefollowingyear.Inthedepthsoftherecession,largeamountsoftemporaryfederalstimulusmoneywerealsousedtoreplacegeneral-fundschoolaidandMedicaidcosts.Gettingafixonthestate’struefiscalconditionduringthisperiodwasdifficult.Thisis,inpart,becauseasaccountantsviewfinances,Wisconsinbudgetsarepreparedonamodified“cash”basis.Relyingonthisapproach and the gimmicks just mentioned enabled stateofficialstodeclarebudgetsbalanced.However,fromaCPA’sperspective(usinggenerallyacceptedaccountingprinciples,orGAAP),stategeneralfunddeficitsgrewformuchofthepastdecade,reachingabout $3 billion in 2010-11 (see graph above).

To the casual observer, what might be surprising about the past two decades is, in some ways, how little party label mattered. The “outs” always blamed the“ins”forhiddendeficits,spendinggrowth,subparbond ratings, and increased borrowing. When election results led them to switch places, all they had to do was trade scripts.

Adecadeofdelay-and-deferbudgetscametoaheadin2011-13.Withfederalstimulusmoniesdryingup,statebudgetersprojectedageneralfund“cash”deficitinexcessof$3billion.Manydifficultdecisions accompanied the 2011 budget, but they can

besummedupsimply:Backfillloststimulusfundingwithover$1billioninnewstatemoniesforMedicaid,andfreezeorcutothermajorprograms,e.g.,sharedrevenuesforlocal governments, the UW System, and corrections. The resulting budget pain and controversy were considerable, but with a little economic luck, the dividend was real—asurplusof$759million(about5%ofannualspending)whenthebiennium ended in mid-2013. The amountmayseemlarge,buta5%

State General Fund Balances ($ Billions) Using GAAP, 1990–2012 (Source: Wis. Financial Statements)


surplusiswhatmostbudgetexpertsrecommendforstates.

The New 2013-15 Budget. Thedifficult2011-13budgetpavedthewayforaneasier2013-15versionthatwas passed in June and “tweaked” in October. The gistofthepartisandebatemightbedistilledtoonesidehailingitasfiscallyresponsibleandtaxpayerresponsiveandtheothercriticizingitforlackofadequatefundingforhealthandeducation.Asusual,neitherpointofviewisentirelycorrect.

Innumericalterms,thegeneralfundbudget(withthe October trailer) spends, net, $14.88 billion the firstyearand$15.46billionthesecond—increasesof3.5%and3.7%,respectively.Althoughtheopening2013-15balanceof$759million(over5%ofannualexpenditures,withoutthe“rainyday”fund)ishealthy, the gross ending balance is $125 million, orjust0.8%ofspendingin2015.Thelatteramountapproachesthe0.5%balancesWisconsinhadin2007-09 (see graph below) that were smaller than any state’s,saveArkansas.Goingintotherecessionthatyear,the50statesaveragedreservesequaling8.5%ofexpenditures.

Reasonsforthesurplusdrawdownarestraightforward:Netexpendituresexceedannualrevenuesby$254millioninthebudget’sfirstyearandby $380 million in its second. Surplus is consumed to fundspendingincreases,aswellastoenabletwo-year cuts in income taxes (about $650 million) and property taxes ($100 million, as proposed in October). Ahistoryofthosesurplusesisshowninthebargraphbelow.

Anotherwaystatebiennialbudgetshavebeenevaluatedinthepasttwodecadesisintermsofstructuralbalancesor“deficits.”Thisnotionisdifferentfromtheusualmeaningof“deficit.”Thestructuralimbalanceresultsfromtaxorspending

decisions in one budget that have implications, positiveornegative,forthenext.Inpartbecauseofmany one-time, budget-balancing gimmicks used during 1997-2011, Wisconsin had eight consecutive biennial budgets with structural imbalances. The Legislative Fiscal Bureau estimated their size in the firstyearasrangingfrom$589millionin1999to$1.3billion in 2003 and $1.2 billion in 2011.

Asdifficultabudgetasitwas,the2011-13editionaccomplished something that had not been done since1995.Wisconsinbeganbudgetingfor2013-14witha$140structural“surplus”in2013.Oneoftheunfortunateaspectsofthelatestbudgetisthatitbringsbackastructuralproblem.Althoughsmallerthan at any time between 1997 and 2011, this means thatwhenWisconsinbeginsplanningfor2015,itwillfirsthavetousenewrevenuetocover$336millionfromthepriorbudgetbeforeitcandevotethistofutureneeds(seebargraph,below).

Drawdownofsurplusandafuturestructuralimbalance are probably the two leading issues associated with the 2013-15 budget. Both become even moreproblematicifwhathasbeenanunpredictableand uneven economic recovery loses steam. The governor and legislature are relying on tax projections revised in May 2013 that gave them extra revenues to complete budget preparations and to enact larger-than-planned income and property tax cuts. Should theseestimatedrevenuesnotmaterialize,thestate’sfiscalvulnerabilitywouldquicklybecomeapparent.

Other Issues ... Transportation.Majorfinanceissues aside, the 2013-15 budget leaves several programmaticquestionsunansweredaswell,chiefamong them roads. For years, Wisconsin has had difficultyfundingtransportation.Inelasticgastaxrevenuesarebeingerodedbyinflationandincreasingvehiclefuel-efficiency.Anagingpopulationisputtingpressureontaxandfeerevenue.

Budgeted Ending Balances, 1997-2015 est.Gross Bal. as % Approp’s + Comp. (LFB, 10.2013)

Wisconsin “Structural Deficits:” 1997-2015 est.(First Biennial Year, $Millions; Source: LFB)


Otherindicatorsoftransportation’slong-termfiscalproblemsare:(1)generalfundsubsidiesinrecentyears, which total about $450 million in 2013-15; (2) about$1billioninbondingfortransportation,abouthalfofallstateborrowinginthenewbiennium;and(3)federalhighwaydatafor2011thatshowanoticeable drop in high-quality road miles since 2009. Inshort,thehand-to-mouthnatureoftransportationfinanceinrecentyearswillforceadifficultchoiceinthenearfuture:Increasefeesandtaxes,orscalebackthepublic’sappetiteforhighways.

Borrowing. Transportation bonding raises a related issue, total state borrowing. The new budget authorizes $2.05 billion in additional debt, $1.64 billionofwhichrequiresrepaymentwithgeneralfundtaxes.Statedebtservicedbythegeneralfundmore than tripled between 1999 and 2012. Nascent legislativeconcernfortheissuethisyearwillprobably return stronger in 2015.

State-Local Finance. Historically averaging about 58%ofgeneralfundspending,stateaidtolocalgovernments and schools has been losing budget share, as shared revenues and schools aids were cut, frozen,orincreasedonlyminimally.Thatpercentagesharehasnowdippedunder50%.Atthesametime,state government imposed and tightened revenue andlevylimitsonlocalunitsofgovernment.Anumberrespondedbycreatingorincreasingfees,orborrowingmore.Althoughthiscombinationofpoliciescouldbedefendedduringastatebudgetcrisis, it is not sustainable long-term, especially when statespendingisrisingcloseto4%annually.Iffixedcosts rise, even minimally, but all local revenues are restricted, “something has to give,” as the saying goes.

Biggest Issue of All? In the drama that is state budgeting,MedicalAssistance(MA),orMedicaid,hasmovedfrombitparttocenterstageoverthepast20years.MAparticipation,duemostlytoeligibilityexpansions,hasgrownfromonein13residents15yearsagotooneinfivetoday.Whileitgenerallyclaimed10%orlessofgeneralfundexpendituresduring the two decades ending in 2003, it grabs more than15%duringthecurrentbiennium.

Final Thoughts. Medicaid spending is currently averaginggrowthofalmost9%peryearandshowsnosignofrelinquishingthebudgetspotlight.AsMAconsumedincreasingsharesofthestategeneralfundbudget,ithasalsodiminishedthelikelihoodofnewfundingforschools,localgovernments,ortheUWSystem, which has been modest to nil. How long can itlast?

Otherdecisionsmadeaspartofthenewbudgetraisesimilar questions. How sustainable are the “spending down”ofahard-wonsurplus,thereturntostructuralimbalances, temporary approaches to transportation funding,andincreasedborrowing?

Thedifficultbudgetdecisionsof2011-13rightedthestate’sfiscalshipandreturnedittostability.Thenewbiennium began with commendable reserves. But, in spending more than is collected in revenues this yearandnext,inavoidingdifficultdecisionsnowthatleaveunresolvedissuesforlater,the2013-15budgetraisesthesamequestionyetagain,onlyindifferentwords:Althoughthenewbudgetseemsto“work”forthisbiennium,whataboutthenext?Canrecentbudget choices and decisions be sustained beyond 2015?

Ifnot,andparticularlyiftheunevenrecoveryslowsagain or ends, Wisconsin may add yet another chapter toitslongsagaofboom-bustbudgetingcharacterizedbyshort-term,politicallymotivatedfinancialdecisionsthateventuallycomebacktohaunt.Ifthathappens, the 2015-17 budget might begin to resemble itsrecessionarycounterpartsof2007-11when,ironically, taxes were increased and spending was cut.

MISSION AND VISION

ThemissionoftheUW-StevensPointCentralWisconsinEconomicResearchBureau(CWERB)istofostereconomicdevelopment by bringing timely economic analysis to our region,focusingonMarathon,PortageandWoodcounties.

The mission has been accomplished through the publicationofEconomicIndicatorReports.ThesereportsarecompiledandreleasedforeachcountyinCentralWisconsin.

TheCWERBaspirestobeWisconsin’spremierresearchcenterfocusedonregionaleconomicdevelopment.

HISTORY

TheCWERBisanonprofitorganizationfoundedinOctober1983.ItsoperatingbudgetcomesfromtheprivatesectorandtheUWSPSchoolofBusiness&Economics.TheCWERBalsorepresentsanimportantpartoftheoutreacheffortsoftheUWSPSchoolofBusiness&Economics.

SOURCES OF FUNDING • UWSPSchoolofBusiness&Economics• BMOHarrisBankofStevensPoint• BMOHarrisBankofMarshfield• BMOHarrisBankofWausau• CentergyInc.ofWausau• CommunityFoundationofGreater• South Wood County - Wisconsin Rapids

SCHOOL OF BUSINESS & ECONOMICS • Enrollmentof1,000students;Morethan30%ofour

studentscomefromMarathon,PortageandWoodcounties;approximately50%ofourgraduatesstayinthe three-county area

• The SBE is in the pre-accreditation phase by the AssociationtoAdvanceCollegiateSchoolsofBusiness(AACSB),oncecompleted,SBEwillbeamongthetop18%ofallbusinessschoolsintheworld.

CWERB CLIENTELE • CentralWisconsinbusinessfirmsarethemost

crucialcomponentintheeconomicdevelopmentofourregion.Businessfirmsarekeenlyawareoftheimportantrolethatinformeddecisionmakingplaysinany developmental strategy.

• Private sector organizations devoted to economic development in Central Wisconsin, such as area chambersofcommerceandtheiraffiliatedeconomicdevelopment agencies.

• Public sector organizations devoted to economic development in Central Wisconsin.

• Thegeneralpublic,inordertomakeinformeddecisions,takeadvantageoftheunbiasedinformationand analysis about the economy.

• The CWERB employs student research assistants which provides an excellent educational setting while alsoprovidingtheopportunityforstudentstoearnfundstowardeducation.Faculty,staffandstudentsatUWSPutilizethereportsandresourcesoftheCWERB.

CWERB ACTIVITIES ThedisseminationoftheCWERBresearchtakesplacethrough various hard copy publications, electronic media reports and presentations. For example, the Economic IndicatorReportsarepresentedinMarshfield,StevensPoint, Wausau and Wisconsin Rapids. The audiences consistofbusiness,politicalandeducationalleaders.

The Economic Indicator Reports also contain a special report section that is devoted to a current issue in economics. These special reports are usually presentedbyUWSPfaculty.

Substantialnewspaper,radioandtelevisioncoverageofthe publications and presentations have been instrumental infocusingattentionontheSchoolofBusiness&Economics.ChiefEconomistRandyCrayhasbeeninterviewed by the local media as well as the Chicago TribuneandCNNRadioonavarietyofeconomicmatters.

ABOUT THE CENTRAL WISCONSIN ECONOMIC RESEARCH BUREAU


uwsp.edu/busecon/cwerbfacebook.com/uwspsbetwitter.com/uwspcwerb

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