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Wisconsin is Open for Business
November 9, 2012
1
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Dennis WintersChief, Office of Economic Advisors
Department of Workforce DevelopmentNovember 9, 2012
Sizing up Today’s EconomySizing up Today’s Economy
Wisconsin Economics Association
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
ECONOMICOUTLOOK
Wisconsin is Open for Business
November 9, 2012
3
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
THE ECONOMY
HAS CHANGED
AND SO MUST YOU
Wisconsin is Open for Business
November 9, 2012
4
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Average Real GDP Growth First 9 Quarters of Recovery
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0Pe
rcent
4
ECONOMIC RECOVERYHOW IS THIS ONE NOT LIKE THE OTHER ONES
Wisconsin is Open for Business
November 9, 2012
5
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
JOBS RECOVERYHOW IS THIS ONE NOT LIKE THE OTHER ONES
Wisconsin is Open for Business
November 9, 2012
6
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy WHY HAS THERECOVERY
BEEN SO SLOW
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Source: BEA, OEA
BUSINESS CYCLE SEVEREIT TOOK NINE QUARTERS TO RECOVER
Recovered
Wisconsin is Open for Business
November 9, 2012
8
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
REAL EARNINGS ARE FLAT
Wisconsin Real Average Annual Wage
$28,000
$30,000
$32,000
$34,000
$36,000
$38,000
Wisconsin is Open for Business
November 9, 2012
9
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
INTEREST INCOME TAKE HIT WITH LOW INTEREST RATES
Personal Interest Income
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
Dec07
Mar08
Jun08
Sep08
Dec08
Mar09
Jun09
Sep09
Dec09
Mar10
Jun10
Sep10
Dec10
Mar11
Jun11
Sep11
Billi
ons
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November 9, 2012
10
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Household Debt as % of Disposable Income
10
11
12
13
14
15
Jan-
80
Jan-
82
Jan-
84
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
Jan-
10
Per
cent
HOUSEHOLD DEBT DELEVERAGING
Source: Fed flow of Funds
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
HOME EQUITY WAS USED FOR CONSUMPTIONNOW PART OF DELEVERAGING
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
1212
-100,000
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000Ch
ange
ove
r Pri
or Y
ear $
M
Source: Federal Reserve Board of Governors
REVOLVING CREDIT WAS USED FOR CONSUMPTIONNOW PART OF DELEVERAGING
Wisconsin is Open for Business
November 9, 2012
13
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
1313
Personal Savings, Billions of Dollars
0
100
200
300
400
500
600
700
800
200
0-I
200
0-III
200
1-I
200
1-III
200
2-I
200
2-III
200
3-I
200
3-III
200
4-I
200
4-III
200
5-I
200
5-III
200
6-I
200
6-III
200
7-I
200
7-III
200
8-I
200
8-III
200
9-I
200
9-III
201
0-I
201
0-III
2011
-I
NO SAVINGS – WAS USED FOR CONSUMPTIONNOW PART OF DELEVERAGING
Wisconsin is Open for Business
November 9, 2012
14
Sizing Up Sizing Up Today’s Today’s
EconomyEconomyIt is difficult to increase consumptionwhen you:
1. have stagnant income,2. are losing wealth,3. paying down debt,4. increasing savings,5. and are paying more for food and gas.
Wisconsin is Open for Business
November 9, 2012
15
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
CORPORATE PROFITS AT NEW RECORDSMOSTLY DUE TO COST CUTTING
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November 9, 2012
16
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Change In Investment From 2007 4th Qtr
-600
-500
-400
-300
-200
-100
0
100Bil
lions
of 20
05 $
Private investmentResidential
16
CORPORATE PROFITSBUILDING CASH HOARD
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November 9, 2012
17
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
INVESTMENT GROWTH IS IN PRODUCTIVITY, NOT EXPANSION
Source: BEA, OEA
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
MANAGING RISK WHERE IS THE INCENTIVE TO EXPAND
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November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Source: Federal Reserve Board, Data Download Program
-$500
$0
$500
$1,000
$1,500
$2,000
Ja
n-0
8F
eb
-08
Ma
r-0
8A
pr-
08
Ma
y-0
8Ju
n-0
8Ju
l-08
Au
g-0
8S
ep
-08
Oc
t-08
No
v-0
8D
ec-0
8Ja
n-0
9F
eb
-09
Ma
r-0
9A
pr-
09
Ma
y-0
9Ju
n-0
9Ju
l-09
Au
g-0
9S
ep
-09
Oc
t-09
No
v-0
9D
ec-0
9Ja
n-1
0F
eb
-10
Ma
r-1
0A
pr-
10
Ma
y-1
0Ju
n-1
0Ju
l-10
Au
g-1
0S
ep
-10
Oc
t-10
No
v-1
0D
ec-1
0Ja
n-1
1F
eb
-11
Ma
r-1
1A
pr-
11
Ma
y-1
1Ju
n-1
1Ju
l-11
Au
g-1
1S
ep
-11
Oc
t-11
Reserves of Depository Institutions(billions of dollars)
Required Reserves
Total reserves
EXTENDING CREDITBANKS ARE RETICENT TO LEND FUNDS
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November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Wisconsin is Open for Business
November 9, 2012
21
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy 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.
IN CONCLUSIONCONTINUED RECOVERY
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
IN REVERSE ORDERTHE UGLY, THE BAD, AND THE GOOD
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy “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
BEGINNING WITHTHE UGLY
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
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
ADDING INTHE BAD
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Housing markets finally moving higher Little happening in non-res construction
Motor vehicle sales are moving higher Perpetuating sector growth
SLOW PROGRESSTHE GOOD
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
WORKFORCEOUTLOOK
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Breach May 2015
JOBS RECOVERYOUR BEST ESTIMATES PUT THE BREACH AT MAY 2015
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
WORKFORCE PEAKED NO RECOVERY AFTER RECESSION, NONE EXPECTED
Wisconsin is Open for Business
November 9, 2012
29
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
WISCONSIN’S WORKFORCE GROWTHBECOMES FLAT
Source: Bureau of Labor Statistics, OEA
Wisconsin Population and Labor Force
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1960 1970 1980 1990 2000 2010 2020 2030
( x 1
000
)
POPULATION
CIVILIAN LABOR FORCE
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
WORKFORCE PARTICIPATION TRENDS DWARF FLUCUATION
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
POPULATION PARTICIPATION FUNCTION OF RECESSION SEVERITY
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
IT’S THE YOUNG THAT ARE DELAYING ENTERING THE WORKFORCE
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
CHANGING LFPR GREATLY ALTERS WORKER AGE MIX
Wisconsin is Open for Business
November 9, 2012
34
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy… 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 fewBy Rick Barrett of the Journal Sentinel, June 16, 2012
WAIT, WHAT HOW CAN YOU HAVE BOTH?!
Wisconsin is Open for Business
November 9, 2012
35
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy We have:
1. 223,600 people unemployed2. 43,400 job openings on JCW3. UI benefits running out
We also have: Lack of correct skills fit People looking for their old job Crust of chronically unemployed
WHAT’S THE PROBLEM NUMBER AND MIX OF JOBS NOT ALIGNED
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy IS ITCYCLICAL
ORSTRUCTURAL
Wisconsin is Open for Business
November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
DOROTHY
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November 9, 2012
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Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
A little economic theory
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
$0
$50
$100
$150
$200
1 d
ay
2 d
ays
3 d
ays
4 d
ays
Supply
Theory Tells UsMore Pay Yields More Work
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
$0
$50
$100
$150
$200
1 d
ay
2 d
ays
3 d
ays
4 d
ays
$100 per day yields 3 days work(total earnings = $300)
Area = $300
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
$0
$50
$100
$150
$200
1 d
ay
2 d
ays
3 d
ays
4 d
ays
Increased pay translates into increased work
(increased earnings)
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
$0
$50
$100
$150
$200
1 d
ay
2 d
ays
3 d
ays
4 d
ays
Well, the guy only shows up for two days. This gives what we call a backward-bending supply curve.
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
$0
$50
$100
$150
$200
1 d
ay
2 d
ays
3 d
ays
4 d
ays
At new wage, it only take 2 daysto make $300
=
S`
Wisconsin is Open for Business
November 9, 2012
44
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy 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.
THINGS HAVE CHANGEDBREAKING NEW GROUND
Wisconsin is Open for Business
November 9, 2012
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Wisconsin is Open for Business
November 9, 2012
46
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy
Questions ?
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November 9, 2012
47
Sizing Up Sizing Up Today’s Today’s
EconomyEconomy Dennis Winters
Phone: 608-267-3262
Email: [email protected]
Website: www.dwd.wisconsin.gov
OEA website: www.dwd.wisconsin.gov/oea
CONTACT INFORMATION