OEDA 2009 - Ned Hill
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Transcript of OEDA 2009 - Ned Hill
The 3 Rs: Recession, Resources, and Recovery
Edward (Ned) HillDean, Levin College of Urban AffairsCleveland State University
Ohio Economic Development AssociationOctober 14, 2009
Quarterly Real GDP and 12-month percent change in Quarterly Real GDP from 1979(1) to 2009(2)
Edward (Ned) HillSource: US Bureau of Economic Analysis, National Income and Product Accounts, Retrieved Oct 14, 2009 from FRED, St Louis Federal Reserve Bank. Released Sept 30,2009. Recessions are shaded.
Real G
DP
in
billion
s o
f $
20
00 1
2-m
on
th P
erc
en
t Ch
an
ge
Real GDP in Billions of $2005
12-month percent change in Real GDP
Gen
era
l p
erf
orm
an
ce
Quarterly data, last data point second quarter of 2009 2
Number of people employed in the economy and the Unemployment Rate, monthly 1979 to 2009
Edward (Ned) HillSource: US Bureau of Labor Statistics, Current Population Survey, retrieved from FRED, St Louis Federal Reserve Bank, Oct 14, 2009. Recessions are shaded
Number of JobsUnemployment Rate
Gen
era
l P
erf
orm
an
ce
Nu
mb
er
em
plo
yed
(0
00
) Un
em
plo
ym
en
t rate
(%)
3
Since the recession started:7.2 million jobs lost (-5.2% of total)Unemployment rate: 4.9% to 9.8%
Recession over? 6 month percent change in GDPForecast data from July 2009 on
Edward (Ned) Hill 4Source: HIS Global Insight and USA Today retrieved September 25,2009
Forecast data
Forecast 2.8%
1/07 1/08 1/09
US
GD
P
forecast of annual percent change in GDP; improving over time
Edward (Ned) Hill 5Source: The Economist, electronic edition, retrieved October 12, 2009 from http://www.economist.com/markets/indicators/displaystory.cfm?story_id=14365843
Glo
bal G
DP
Edward (Ned) Hill 6Source: Wall Street Journal Sept 25, 2009
Glo
bal G
DP
The 4-week moving average of new unemployment insurance claims usually trends down at the end of recessions—this is encouraging
Edward (Ned) Hill 7
4 w
eek a
vera
ge o
f num
ber
of
claim
s
Source: Bureau of Labor Statistics, Unemployment Insurance Weekly Claims Retrieved Oct 12, 2009 from FRED, St Louis Federal Reserve Bank .
Weekly data Jan 1968 to Oct 3, 2009
20011990-91
2007-09
1980-821973-751969-70
Lab
or
mark
et
A more localized look at the 4 week moving average of new unemployment insurance claims
Edward (Ned) Hill 8
Peak: April 4, 2009
Lab
or
mark
et
Source: Bureau of Labor Statistics, Unemployment Insurance Weekly Claims Retrieved Oct 12, 2009 from FRED, St Louis Federal Reserve Bank .
Weekly data, January 2005 to October 3, 2009
November 2007
Oct 3, 2009
Employment growth will lag
Edward (Ned) Hill 9
1990 recession 9 months long: employment recovered in 32 months
2001 recession 9 months long: employment recovered in 48 months
We are in month 23 of the 2007 recession & will it will last for last 22-24 months. When will employment be fully recovered? A guess is 5 years or 60 months from December 2007—this means 2013.
Lab
or
mark
et
Consumer confidence: Weak recovery beginsDropping since January 2004; Increase March to August
Edward (Ned) HillSource: St. Louis Federal Reserve Bank, FRED, from University of Michigan, http://research.stlouisfed.org/fred2/series/UMCSENT/downloaddata?cid=98retrieved Oct 12, 2009
1966(1)=100Monthly data 01/90 to 08/09
Recessions are shaded10
Con
fid
en
ce:
C
CFO economic confidenceFeeling better in May. Time for the next quarter’s data
Edward (Ned) HillSource: The Economist, June 3, 2009 http://www.economist.com/markets/rankings/displaystory.cfm?story_id=13781864
The latest quarterly poll of over 1,000 CFOs, conducted in late May by Duke University in America, Tilburg University in the Netherlands and CFO, a sister publication to The Economist.
11
Con
fid
en
ce:
I
Trade weighed value of the dollar reflects its role as a reserve currency—but gravity is reasserting itself due to trade
Edward (Ned) Hill
Peak Feb 2002129.5
Bottom July 2008 95.4
Feb 2009 111.8V
alu
e o
f th
e d
ollar
Source: St Louis Federal Reserve Bank, FRED, retrieved Oct 3, 2009 12
Credit markets freeze
Sept 15 2007China floats Yuan
Dollar increases as a reserve currency against major industrial currencies; Gains moderate in 2009
Edward (Ned) Hill 13
$ increases in value
$ decreases
in value
Monthly data Jan 1999 to June 2009; Indexed to relative values in January 199 when Euro was floated
Source: St Louis Federal Reserve Bank, FRED, retrieved Oct 14, 2009
Valu
e o
f th
e d
ollar
China floats Yuan
Credit markets freeze
€:$
CA$:US$
£:$
¥:$
Dollar in managed decline against YuanDrops in value against currencies of industrializing nations
Edward (Ned) Hill 14Monthly data Jan 1999 to Sept 2009; Indexed to relative values in January 1999 when Euro was floated
Source: St Louis Federal Reserve Bank, FRED, retrieved Oct 14, 2009
$ increases in value
$ decreases
in value
China floats Yuan
Credit markets freeze
Valu
e o
f th
e d
ollar
Brazil:$
India:$ Mexico:$
Korea: $
China: $
Auto & light truck sales walked off a cliff with a cash-for-clunkers reboundDecline starts in January 2006; accelerates September 2007; falls apart September 15, 2008; cash for clunkers worked; Annualized monthly auto and light truck sales
Edward (Ned) Hill 15Source: St. Louis Federal Reserve Bank, FRED, from US Bureau of Economic Analysis , retrieved October 12, 2009
Aug 09
Feb 09
Aug 07
June 05
Jan 06
Au
tos
Cars and trucks will be made in the United StatesNorth America remains a big marketUS & Canadian production numbers drop; Mexico climbs
Edward (Ned) Hill 16Source: International Organization of Automobile Manufactures (OICA) http://oica.net/category/production-statistics/2007-statistics/ retried July 1, 2009
In 2008 UAW and CAW membership produced 6.5 million vehicles in North America (52%); Nonunion assembly plants produced 5.9 million (48%) units
Edward (Ned) Hill 17Source: International Organization of Automobile Manufactures (OICA) http://oica.net/category/production-statistics/2007-statistics/ retried July 1, 2009
It is likely that less than 50% of North American production will come from plants organized by the UAW and CAW in 2009 and going forward.
A tale of 4 clusters: Auto assembly in North AmericaOld domestic heartland; New Domestic center I-70 – I-75 crosshair; Southeast Corridor
Edward (Ned) HillSource: Ohio Department of Development, Office of Strategic Research
18
Au
tos
Edward (Ned) Hill 19
Ohio’s economic performanceEcon
om
ic p
erf
orm
an
ce:
Oh
io is A
meri
ca’s
econ
om
ic b
att
leg
rou
nd
Edward (Ned) Hill 20
The economic challenge for the region and Ohio was in late 1990s until the end of the 2001 recession
-10.0
10.0
30.0
50.0
70.0
90.0
110.0
130.0
150.0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
% c
han
ge G
DP fro
m 1
990
United States
Ohio
Cleveland-Akron
CSA
Econ
om
ic p
erf
orm
an
ce:
GD
P g
row
th r
ate
s t
rail t
he n
ati
on
Source: Economy.com
Edward (Ned) Hill 21
Why will job growth be slow? The big 5 forces
1. Tyranny of the product cycleo Unbalanced product portfolio weighted toward older
productso Changing competitive advantage of firms
2. Creative destruction —fewer recalls, job growth comes from job creation not revitalization. In the US & Ohio capital investment may be the job creation driver.
3. Productivity Growth —better, faster, smarter, fewer, cheaper; a combination of technology, management and global supply chain integration
4. Legacy work practices and cost uncertaintyo Work ruleso Cost uncertainty—health care, torts, mandates, & energy o Benefits wedge
5. Failed business strategies of three key employers
Econ
om
ic p
erf
orm
an
ce:
Leg
acy o
f p
lace
Edward (Ned) Hill 22
Four facts explain the performance of this market areaChanging economic
advantageLow rates of innovation
& entrepreneurship
Failed corporate strategies and old products
Place-based legacy costs
Econ
om
ic p
erf
orm
an
ce
:Fou
r ob
serv
ati
on
s
Edward (Ned) Hill 23
Threats and challenges to Ohio
o Low to declining population growtho Does this make economic sense? Is cause and
effect backwards?o Role for targeted talent recruitment—remember the
labor agents of the early 20th Centuryo The threat of becoming an increasingly
commodity-driven economy, dominated by global competitors (China and possibly India)o Why the China model for industrial production is
beginning to break downo How this can fit into Ohio’s revival
o A legacy of outdated labor practices: work rules, legacy costs, and the Industrial Commissiono The antidote is new firms; new industries; new
business cultureo An overall perception of the region as dominated
by industries under stress or in decline (“rust belt” image)o The response has to be opportunity
Econ
om
ic p
erc
ep
tion
s:
Sit
e locati
on
pro
fessio
nals
Edward (Ned) Hill 24
Lessons learned
o No “silver bullet” that will turn a slow-moving traditional-based economy into a vibrant, high performance one
o A skilled workforce and strong business dynamics are most highly correlated with regional economic growth
o The pursuit of societal goals, such as racial inclusion and income equality, can enhance growth
o While positively related to growth, locational amenities are not as important as other factors
o A region must overcome “legacy of place” costs
Source: W.E. Upjohn Institute, NEO Dashboard Indicators
Con
clu
sio
ns:
Fro
m t
he a
cad
em
ic lit
era
ture
Edward (Ned) Hill 25
The competitive advantage of Ohio
o Required areas of product improvemento Education & workforce (incumbent workers)o Entrepreneurial managemento Workplace flexibility
o Areas of demonstrated competitive competenceo Portfolio of productso Portfolio of technologieso Portfolio of regions
Com
peti
tive a
dvan
tag
e:
Man
ag
ing
port
folios,
not
bett
ing
on
silver
bu
llets
What’s next:Realities
Edward (Ned) Hill
Keys to survival for companies and plantso Flexible workforce and flexible work rules
o Company & supply chain culture will continue to be important
o No debt—leverage is now the company killer
o Long term value of the dollar will influence the health of assembly clusters
Edward (Ned) Hill 26
Edward (Ned) Hill 27
Edward (Ned) Hill 28
The region’s economic health depends on corporate strategies and the portfolio age of the region’s products. Five categories of companies:o Product innovators — Grow the top line of their
income statement without blowing up their cost structure. Can manage continuous product innovation and own intellectual property or have proprietary knowledge.
o Process innovators and global competitors — Manage the middle of their cash statements and ride their product catalogs. Have deployed IT to tighten supply and customer chains. Developing global supply chain.
o Lifestyle firms — Goal is not growth but owner’s control and earning target income. Are not profit maximizers. Frequently have no intellectual property or proprietary competitive advantage.
o One trick ponies — Commodity business dependent on a single business or production relationship.
o Dead and dying companies — Job shops in auction markets.
Con
clu
sio
n:
Wh
ere
is y
ou
r fi
rm?
What’s nextReading the dust storm on the horizon
“Hard to tell from here. Could be buzzards. Could be economic development consultants. Most likely the
chase for stimulus cash”
Edward (Ned) Hill 29