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Southeastern Michigan Economic Outlook

Southeastern Michigan Economic Outlook

Summary

2015 Q2

Businesses and Experts Confident About Local Economy, Not Consumers

Current Economic Outlook
Looking to the end of the current year, our GoldStar panel of expert economists and our panel of business executives are optimistic about the economic outlook for Southeastern Michigan; business executives even more than the panel of experts. This outlook has consistently been above the neutral score of 50 and the neutral range of 45 to 55. In contrast, consumers’ outlook for the end of the current year has been consistently stuck in neutral. The significant gap between the three indexes has been consistent over the last 7 quarters and has actually increased in the last two quarters (see figure below). The survey only began asking business executives their outlook of the economy at the end of the current and following year in September, 2014. These indexes will be extremely useful as we try and forecast the next recession.

Business Confidence Index Trend

What is interesting about these indexes is that each index paints a very different picture of the economy than each of their views of the current quarter. Both experts and business executives are more optimistic looking to the end of the year, while consumers are less optimistic. This difference probably reflects the general impression that consumers have that they have not benefited from the recovery to date (slow decline in unemployment rate and anemic increase in real per capita income, barely 1% over the last 2 years).

Future Economic Outlook
Looking to the end of 2016, both our GoldStar panel of expert economists and our panel of business executives continue to be optimistic about the future economic outlook for Southeastern Michigan. Interestingly, the business executives are more optimistic than the panel of experts, same as in the current year outlook. It is also interesting that the experts forecast has been the same for the last 3 quarters while for the current year it has been steadily increasing. The current year is now slightly above next year’s outlook (but the difference is not significant). Business executives had a significant dip in confidence from the previous quarter, but still significantly above the experts. In contrast, consumers are locked into the neutral range, 45 to 55. The consumers’ outlook is consistently between 3 and 5 points more confident about the end of next year versus the current year (not significant). These results are illustrated in the figure below.


Business Confidence Index Trend

The similarity between the outlook at then end of this year to the end of next year is strikingly similar.(consumers’ index is slightly larger in the future, executives’ and executives’ slightly less in the future).

About the SE Michigan Economic Outlook Project
The Southeastern Michigan Economic Outlook began 22 months ago. It is the only regional project in the US that analyzes and reports a region’s economic outlook by three different groups: consumers, businesses and experts. Although numerous regions provide an analysis of one of the three groups, (mostly experts) no other region even analyzes two of the groups. The project also surveys the three groups each quarter regarding a policy issue that is important to the region.

Since the inception we have produced economic outlook reports for each of the three groups and a policy report that compares the responses of the three groups. This report is our second summary report of the economic outlook of consumers, businesses and experts.
Business
Confidence

2015 Q2

Business Executives’ Economic Outlook: Continue at Present Pace

Summary

While business executives continue to forecast economic expansion in Southeastern Michigan, the degree of their optimism has not changed in the last year. One year ago (second quarter of 2014) the Business Confidence Index rose to 65.3 (a value above 55 is significantly above neutral); however, since then, the index has been declining ever so slightly to its current value of 61.4. While not a significant decline, the downward trend is clearly evident on the figure below. This says that business executives believe the recovery will not accelerate but continue at its present pace. This mirrors national surveys about the economy.

Business Confidence Index Trend

More
The business panel’s outlook at the end of 2015 and 2016 shows that business executives continue to remain very optimistic (the index value above 80) about the economy 6 to 18 months into the future. However, there was a slight decline since last quarter (see table). The bar graph below shows that in both years optimism is due to over 70% of respondents believing the economy would be “Much better” or “Significantly better” than now. However, there was a small decline in optimism looking towards December 2016 compared to December 2015.

Michigan's Economy Dec 2015 v Dec 2016
Michigan vs. National Economy: Business executives were more optimistic regarding the Michigan economy than the national economy; 54 percent feeling “Somewhat better” or "Much better" regarding the Michigan economy as opposed to 42 percent for the national economy.

2015 Second Quarter Index Values

Current ConditionsQ2 (2015)Change From Last Quarter
Current National Economic Outlook54.9-9.5
Current Michigan Econ Outlook64.6-2.0
Sales Expectations67.1+1.4
Profit Expectations62.2+1.3
Hiring Expectations61.6+0.6
Capital Expenditure Expectations57.9+4.0
Southeastern Michigan
Business Confidence
61.4+0.5
MI Economic Outlook Dec 201583.35.6
MI Economic Outlook Dec 201681.6-5.0

 50 is neutral.  Between 45 and 55 is the neutral range. Above or below the range is significantly different from neutral.


Item Analysis

Individual Indexes: In looking at the individual questions, all four expectations continue to remain significantly above the neutral level (55 is significantly above the 50 neutral value). Bar graphs for expectations regarding hiring, capital expenditure, sales and profits (compared to the first quarter) are provided below, and the main findings are summarized.

Hiring: Business executives’ hiring expectations increased by 0.6; an insignificant change. The distribution in the graph below shows that the percentage believing that their hiring expectations were going to remain unchanged increased from 33% to 42%. Compared to last quarter executives felt both less optimistic and less pessimistic; hence virtually no change in the index.

Capital Expenditure: Capital expenditure expectations improved by 4.0 points from the first quarter (the index increased from 53.9 to 57.9); putting it clearly above neutral. This was primarily due to an increase in percentage of executives expecting “Moderate increase” rising to nearly 40 percent from 30 percent at the end of the first quarter. This area showed the largest increase this quarter.

Sales and Profits: Business executives’ sales expectations rose slightly (from 66 to 67), as did profit expectations (rising from 61 to 62). The increase in sales expectations are primarily due to a significant increase in proportion of executives expecting “Moderate increase” (from 46 percent to 58 percent). Consistent with sales expectations, profit expectations rose also because of increasing number of executives expecting “Moderate increase” in profits (from 36 percent to 44 percent). This is indeed a good news as sales and profits are critical to business optimism.

Hiring  Capital Expenditures

Sales  Profits

About the Index

The SE MI Business Confidence Index is forward-looking, measuring economic expectations for the upcoming quarter gathered from a broad group of business executives across the Southeastern Michigan region. It is part of the SE MI Economic Outlook project (http:// www.oakland.edu/business/economic-outlook) at Oakland University's School of Business Administration.

The survey is disseminated to businesses who first register as participants. Registration is open to all businesses in Southeastern Michigan. For classification and verification, the registration asks for company information regarding business type, employment size, and revenues. If you are interested in registering as a participant in order to receive invitations to complete our quarterly survey, you can do so at http://oaklandbusiness.qualtrics.com/SE/?SID=SV_0kMKM3rmgwF4vxH.

We would like to thank the 43 business leaders who completed the survey during May. As the survey expands to include more participants, further analysis is planned to include breakdowns by individual industries and business characteristics, as well as to look at trends over time. The next survey will be taken during early July 2015.


Respondent Characteristics

Respondent Characteristics

Annual SalesPercent% Michigan SalesPercent
Less than $1 million26%0% to 10%21%
$1 to $9 million12%11% to 25%9%
$10 to $49 million5%26% to 50%9%
$50 to 100 million0%51% to75%0%
More than $100 million40%76% to 100%44%
Undisclosed19%Undisclosed16%
Employment Size

 

Industry

 

0 – 1935%Manuf & Transp23%
20 – 9921%Sales4%
100 – 49919%Financial Services16%
500 – 10007%Prof. Services19%
More than 100016%Other Services38%
Consumer
Confidence

2015 Q2

Consumer are Finally Cautiously Optimistic

Summary

While consumers were not downright pessimistic during 2014, they were nearly neutral throughout the year – the index value remained around 51 (index value below 50 indicates a negative outlook). This is illustrated in the figure below that shows the time trend of the composite index since its conception. There had been no significant change for the first 5 quarters. This changed noticeably this quarter, the index value climbed to above 57 (above 55 is needed to be significantly above neutral). This coincided with the unemployment rate in Southeastern Michigan reaching 6%, from a peak of 16% in September 2009. In both the US and Michigan the unemployment rate in April was 5.4% after peaking at 10% and 14.2% respectively. Interestingly, consumer confidence in the US did not become cautiously optimistic until the US unemployment rate was at 6% also. The reduction in the unemployment rate in both Southeastern Michigan and the Detroit MSA has led the nation. In addition, Michigan, from having the highest state unemployment rate in September 2009, is now ranked 27th.

Business Confidence Index Trend

More

The panel of consumers was asked their outlook for the region’s economy at the end of 2015 and 2016. The responses showed that consumers are more optimistic farther into the future. The bar graph below shows that for the end of 2015 13% more believed the economy will be better (45%) than worse (32%). However looking to the end of 2016 this difference increased to 26% (52% projected better and only 26% worse). These questions will enable us to track the views of consumers farther into the future and will be most important in forecasting future turning points in the business cycle.

Unlike last quarter where no item in the index improved by more than 1.6 points, this quarter only one item did not mprove by 2.9 or more points (see table above). Residents in Southeastern Michigan are finally seeing the recovery they keep reading about.

Business Confidence Index Trend

2015 Second Quarter Index Values

Current ConditionsQ2 (2015)Change From Last Quarter
Getting along financially53.6+4.7
Buying major household items57.3+1.2
Future Expectations  
Financially a year from now64.1+3.7
National economy next year55.8+2.9
National economy next 5 years55.2+3.4
Consumer Confidence57.2+3.2
MI Economic Outlook Dec 201549.9+3.6
MI Economic Outlook Dec 201651.6+4.0

 50 is neutral.  Between 45 and 55 is the neutral range. Above or below the range is significantly different from neutral.


Detroiters Most Upbeat About the Future

Our consumer confidence survey results yielded some interesting findings. Among the four areas covered in the survey, Detroit/Pontiac area respondents felt most financially secure at the current time (index value of 56) and the most confident about their financial future a year from today (index value of 71). The difference of 15 was also the greatest. The following bar chart captures the upbeat outlook of Detroiters, compared to their more affluent neighbors. It appears as if Detroiter’s (2/3 of the respondents in category) are upbeat having come out of the City of Detroit’s bankruptcy.

Business Confidence Index Trend


Low Income Consumers More Upbeat

We also find another even more intriguing conclusion from the consumer survey: For the lowest income consumers (making under $30K), the index value for getting along financially in one-year is 17 points higher for the future (66) then the for the current year (49). All other income groups are less optimistic about the future, especially the highest income group. The following bar chart illustrates this interesting link between income class and expectations of the future.

Business Confidence Index Trend


Younger More Optimistic

We also observed that although younger respondents were more optimistic than older respondents, they were equally more optimistic about the future; about 10 points higher (those over 60 were only 7 points higher).

Business Confidence Index Trend

About the Index

The SE MI Consumer Confidence Index measures the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending and their expectations about the future of the economy. Five questions are asked. A five-part scale is used for each question with the choices weighted +2, +1, 0, -1, -2. The overall Index = (((Sum of responses / # surveys)*25) +50). The range is 0 to 100, with 50 the neutral point and 45 to 55 the neutral range. An index is similarly calculated for each of the five components of the survey. The index is part of the SE MI Economic Outlook project. Past reports and registration to become a part of the consumer panel is on our website http:// www.oakland.edu/business/economic-outlook at Oakland University's School of Business Administration.

In the last two weeks of May 2015, 391 consumers completed the survey. They were almost equally drawn from Detroit/Pontiac and Wayne, Oakland and Macomb counties. Other characteristic are in the table to the right. The survey questionnaire was designed and administered by the Oakland University Economic Outlook project in conjunction with CINT.


Respondent Characteristics

Respondent Characteristics

LocationPercentAgePercent
Cities of Detroit/Pontiac14%Under 3027%
Wayne County26%30-4534%
Oakland County12%45-6031%
Macomb County0%Over 608%
Income Education 
Under $30,00029%HS Dropout3%
$30,000-$80,00044%Still in HS2%
Over $80,00022%HS Degree17%
Undisclosed6%Some College29%
Gender Assoc/Tech Degree11%
Male28%College Degree24%
Female72%Grad Degree14%
Expert
Panel
Second Quarter 2015

Moderate Expansion in 2015 for SE MI Economy

Moderate growth for SE MI in 2015 is the median forecast from the 6 members of the GoldStar panel of Expert Economists that participated in this quarter’s survey. Population will expand (0.1%), per-capita personal income will grow 1.75% and will exceed inflation (1.0%) resulting in 0.75% real income growth, private employment will grow moderately (2.0%), housing prices growth will slow to 3.0%, the unemployment will rate will continue to fall (6.9%) although remain above the U.S. rate as it has since the early 1970s, and U.S. Light Vehicle Sales will be at the 17.05 million rate in 2015.

2015 Forecast

Since January 2014 the panel has been forecasting the 2015 economy. Compared to previous 2015 forecasts:

  • Population growth forecasts have changed little (ranging between 0.1% and 0.2%).
  • Housing price forecasts have plummeted from double digits to 3%; probably because housing prices increases in 2014 surpassed expectations and are beginning to approach their pre-recession levels.
  • Private employment forecasts have continued to slowly rise; now being 2.0%.
  • Forecasts for personal income growth has more than halved; now being 1.75%; paralleling the anemic US income growth. This slow growth in income is a national and SE Michigan concern.
  • Inflation forecasts have dropped over the year from 2.5% to 1.0%. This also mirrors what we see nationally and is a concern of the Federal Reserve who is targeting 2% inflation.
  • With personal income growth forecasts dropping more than inflation forecasts, forecasted real per-capita income growth (forecasted per-capita income minus forecasted inflation) has declined from 2.5% to 0.75%.
  • Light vehicle sales projections have increased from just fewer than 16 million to just over 17 million for 2015.
  • Unemployment rate forecasts have dropped from over 8.0% to just under 7.0% for 2015.

2015 FORECAST

 

EXPERT & AFFILIATION

POPULA-
TION

CASE-
SHILLER
HOUSING
PRICE

PRIVATE
EMPLOY-
MENT

PER-CAPITA
PERSONAL
INCOME

U.S. LIGHT
VEHICLE
SALES
(millions)

UNEMPLOY-
MENT RATE

INFLATION
RATE

Charles Ballard

Michigan State University

0.3%

3%

1.6%

2%

17.2 H

6.2%

1.0%

Charles Chesbrough
IHS Automotive

0.1%

2.7%

2.1%

1.5%

17.0 L

6.8%

0.3%

Christopher Douglas

UM-Flint

0.0% L

2% L

1.5% L

1% L

17.1

7.4% H

1.0%

Sean McAlinden

Center for Automotive Research

0.0% L

3%

2%

2.5%

17.0 L

7.3%

1.0%

Ron Tracy

Oakland University

0.5% H

6% H

2.5% H

4% H

17.0 L

6.0% L

1.5% H

Stephen Woodbury

W.E. Upjohn Institute

0.1%

6% H

2%

1% L

17.1

7.0%

0.0% L

CONSENSUS
Median

0.1%

3.0%

2.0%

1.75%

17.05M

6.9%

1.0%

Range

0.5%

4.0%

1.0%

3.0%

0.2M

1.4%

1.5%

2 Quarters Ago
Consensus

0.1%

12.0%

1.5%

3.5%

16.2M

7.85%

2.0%

Early 2016 Forecast
Early 2016 Forecast: Expansion Plateauing for SE MI Economy

This is the first forecast by the GoldStar Panel of Expert Economists for 2016. Compared to the 2015 forecast above, the panel sees expansion continuing but at a slower rate. The median forecasts from the 6 panel members who participated in this quarter’s survey are: Population will expand (0.05%), per-capita personal income will grow 1.55% and will exceed inflation (1.0%) resulting in 0.55% real income growth, private employment will grow moderately (1.45%), housing prices growth will slow to 3.0%, the unemployment will rate will continue to slowly fall (6.75%) although remain above the U.S. rate as it has since the early 1970s, and U.S. Light Vehicle Sales will be at the 17.35 million rate in 2016.

Interestingly comparing the 2015 and 2016 forecasts 3 of the 7 areas showed less growth than the 2015 forecast: growth of population, private employment, and personal income. Two forecasted areas, inflation and house price growth, stayed constant. The unemployment rate forecast showed a dismal decline of 0.15%, and light vehicle sales was forecasted to grow 2% (0.3 million) to 17.35 million vehicles. This suggests that the panel believes that the growth is plateauing, not an unlikely forecast 6 years after the bottom of a recession (2009).

However, there is less unanimity about the 2016 forecasts than the 2015 forecasts. The range (difference between high and low) in growth for population (1%), private employment (2%), and auto light vehicle (1 million) was greater in the 2016 than the 2015 forecasts. The range was the same for inflation, and personal income, while the range for growth in house prices was slightly more in the 2015 forecasts. In some ways these results are not surprising since these forecasts are farther into the future and therefore more susceptible to different views.

2016 FORECAST

 

EXPERT & AFFILIATION

POPULA-
TION

CASE-
SHILLER
HOUSING
PRICE

PRIVATE
EMPLOY-
MENT

PER-CAPITA
PERSONAL
INCOME

U.S. LIGHT
VEHICLE
SALES
(millions)

UNEMPLOY-
MENT RATE

INFLATION
RATE

Charles Ballard

Michigan State University

0.4%

3.0%

1.4%

2.5%

17.0M

6.0%

1.0%L

Charles Chesbrough
IHS Automotive

0.1%

3.6%

2.2%

2.1%

17.5MH

6.0%

1.0%L

Christopher Douglas

UM-Flint

0.0%L

2.0%L

1.5%

1.0%L

17.1M

7.3%H

1.0%L

Sean McAlinden

Center for Automotive Research

0.0%L

3.0%

1.0%L

1.0%L

17.3M

7.0%

1.0%L

Ron Tracy

Oakland University

1.0%H

5.0%H

3.0%H

4.0%H

17.4M

5.2%L

2.5%H

Stephen Woodbury

W.E. Upjohn Institute

0.0%L

2.5%

1.0%L

1.0%L

16.5ML

6.5%

1.0%L

CONSENSUS
Median

0.05%

3.0%

1.45%

1.55%

17.35M

6.75%

1.0%

Range

1.0%

3.0%

2.0%

3.0%

1.0M

2.1%

1.5%

Policy
Forum

Southeastern Michigan Public Policy Issue

More
Question posed: Replacing gasoline taxes with a user fee based on distance driven over roadways in Michigan with higher rates for heavy vehicles (that cause the most damage) is an efficient, productive and smart way to finance Michigan's transportation infrastructure.

GoldStar panel of economic experts — Five of the eight either strongly agreed or agreed with moving from a gasoline to miles driven tax to support Michigan’s roads and bridges. They did however express concern over the privacy issues in implementation. Many also believed that a combination of taxes would be a better approach. Their score of 3.63 was the highest of the 3 groups. However, because of the small sample size (8) and variability, it was not significantly different than an uncertain score of 3.

Consumers — were split with, 43 percent of consumer in favor, and 30 percent against with a large number uncertain at 25 percent. Their score was 3.12.

Business executives —- were also split with 44 percent in favor and 49 percent against. A typical comment is a user fee based on distance and weight is a fair way to pay for roads but I am concerned about the bureaucracy and privacy issues that goes along with it and the difficulty in enforcement. Their score of 2.97 was the lowest of the three groups.

Deeper Look into the Consumer Group

Wayne and Macomb County respondents were in favor of the tax, while respondents from Oakland County and the cities of Detroit and Pontiac were uncertain. Those between 30 and 45 were uncertain about the tax while all other age groups were in favor of the tax. Males were in favor while females were uncertain. High income respondents (over $80K household income) were in favor of the tax while those with lesser household incomes were uncertain. Respondents without a high school degree and college graduates were in favor of the tax, while those with a high school degree, some college or post high school training, or a graduate degree were uncertain. We suspect that many of those without a nigh school degree are current high school students, We will make sure that this is known for the next survey.

About the Policy Forum

The policy form explores the extent to which Southeastern Michigan economists, business executives, and consumers agree or disagree on a major public policy issues facing Southeastern Michigan. The question is included on the quarterly Business and Consumer Confidence surveys and on the Expert Panel Forecast survey conducted by the Economic Outlook Project at Oakland University.