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Southeastern Michigan Economic Outlook

Southeastern Michigan Economic Outlook


Third Quarter, 2015

Business Executives’ Economic Outlook Turns Less Bullish


Business executives have been forecasting economic expansion in Southeastern Michigan since the first quarter of 2014 (the inception of this survey). However, the extent of their optimism has been decreasing almost continually since 2014 Q2; it is now at its lowest level, 59.8. While the current value is well above the neutral range (between 45 and 55), the fall in the index’s value from its peak in 2014 Q2 is significant; unlike the previous declines. This suggests that business executives have a less bullish outlook for the next quarter. The individual expectations confirm this view; with only capital expenditures increasing. Continued volatility in international financial markets, and monetary policy uncertainty surrounding interest rate could be affecting executives’ optimism

Business Confidence Index Trend

The business executives’ outlook for the state of the Michigan economy for the end of 2015 and 2016 demonstrates that the business panel continues to remain highly optimistic (the index value above 80 for both years) about the Michigan economy 6 to 18 months into the future.

Michigan's Economy Dec 2015 v Dec 2016

As shown in the bar graph above, the percent of executives who thought that the Michigan economy will be worse either at the end of 2015 or 2016 was zero and only 2.3 percent of the business panel expected the Michigan economy to “remain the same” at the end of 2015, and 5.3 percent at the end of 2016. In contrast, 71.1 percent of executives expected the Michigan economy to much better or significantly better at year-end 2015 and almost the same percentage (65.7 percent) believed it would be much better or significantly better at the end of 2016. Moreover, these observations are slightly better than those obtained last quarter (second quarter 2015).

Michigan's Economy Dec 2015 v Dec 2016

Michigan vs. National Economy: As in the 2nd quarter report (2015), business executives were more optimistic regarding Michigan’s economy than the national economy, although the gap has narrowed to only 8.1 from 9.7. At the national level, 18 percent of executives expected moderate decrease, while 29 percent expected a moderate to strong increase. For Michigan, only 5 percent expected moderate decrease, while 44 percent expected a moderate to strong increase. The overall score for the U.S. economy was 53.4, in the neutral range, down slightly from last quarter’s value of 54.9. The overall score for the Michigan economy was 61.5, significantly above the neutral range, though down from 64.6 last quarter.

Item Analysis of Individual Indexes

Hiring  Capital Expenditures

Sales  Profits

Individual Indexes: Survey results for the four individual expectations reveal that all continue to remain significantly above the neutral level (index value of 50 is neutral, and 45 to 55 is the neutral range). Bar graphs are provided above, and the main findings are summarized below.

Hiring: The index of business executives’ hiring expectations decreased from 61.6 to 60.1, a modest decline. Distribution in the bar graph shows that 50 percent of executives expected hiring to decline or remain the same for the third quarter -- during the second quarter it was 48.9. Also, 47.3 percent of executives expected moderate or strong increase in hiring – it was 46.6 for the last quarter. These observations suggest that the hiring expectations did not change much comparted the previous quarter.

Capital Expenditure: Compared to the previous quarter, capital expenditure expectations increased from 57.9 to 59.7, both significantly above the neutral level. There was one noteworthy difference -- 7.9 percent of executives expected strong capital spending, where none expected strong capital spending during the previous quarter.

Sales and Profits: Business executives’ sales expectations fell significantly (from 67.1 to 62.8). The decline in profit expectations (from 62.2 to 61.5). was insignificant. The decrease in sales expectations are primarily due to a decline in the proportion of executives expecting “Moderate increase” (from 58 percent to 47 percent). Despite a significant drop in the index value for sales, profit expectations did not decline by much. This is indeed a good news as profits are critical to capital expenditure.

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 (SEMEO) project in the School of Business Administration at OU, (http://

The survey is disseminated to businesses who first register as participants. Registration is open to all business executives 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 you can do so at

We would like to thank the 38 business leaders who completed the survey during July.  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 September.

Respondent Characteristics

Business Confidence Index Trend

Third Quarter 2015

Consumer Optimism Still Positive but Slightly Lower


This is the second quarter in a row that the Southeastern Michigan Consumer Confidence Index has remained positive at 56 (50 signifies a neutral outlook and 45 to 55 is the neutral range). For 6 quarters, 2013 Q4 to 2015 Q1, the index ranged from 50.9 to 54. This is illustrated in the figure below that shows the time trend of the composite index since its inception. This changed noticeably last quarter when the index jumped to 57.7 (above the neutral range). This quarter, the index value fell slightly to 56. As observed in the second quarter report, the Seasonally Adjusted (SA) unemployment rate in Southeastern Michigan dropped to 6.1% in June 2015 (dropping from 6.8% four months earlier), from a peak of 16.3% in June 2009. This drop to about 6% unemployment appears to bolster consumer confidence. The same thing happened In August 2014 when the US SA unemployment rate hit 6.1%.

Business Confidence Index Trend


It is interesting to note just how volatile the unemployment rate is in SE Michigan. The Detroit area and Michigan SA unemployment rates have each declined 63% while the US rate has declined slightly less than 50%. This is illustrated on the graph below.

Business Confidence Index Trend

In looking at the individual components of the index we see that “Getting along financially” and “Buying major household items” increased while the other 3 declined. Further the national economy moved back into the neutral range for next year as well as the next five years. Clearly the two items that kept the current index positive were “Buying major household items” now and getting along “Financially a year from now.” They hold out hope that things will be better for them next year (given the decline in unemployment locally, statewide and nationally).

Business Confidence Index Trend

Finally, 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 slightly more optimistic farther into the future – index value is 49.8 at the end of 2015, and 51.3 for the end of 2016. However, both these numbers are essentially at the neutral level. Moreover, these numbers are not materially different from those for the second quarter (49.9 and 51.6, respectively). This plateau is consistent with the plateauing of the overall Consumer Index. Although there were 3 times more females than males answering the survey, there was no gender difference in their responses.

Detroiter-Pontiac Residents Most Upbeat

Detroit-Pontiac residents had the highest value for the overall index (59.7), followed by Oakland (56.5), Macomb (54.2) and Wayne (54.1) counties. Looking at current conditions vs future conditions, the order changed little. Detroit/Pontiac residents saw the future significantly more positive than current conditions (although positive). See graph below. All the other areas saw the current and future basically the same, though all in the significantly positive range above 55.

Business Confidence Index Trend

This difference is even more noticable if one focuses on getting along financially now (Q1) vs one-year from now (Q3). See graph below. Clearly all areas are hopeful about next year, while only Oakland County residentes are postive (above 55) currently. For future conditions Detroit/Pontiac respondents are almost 10 points above the other respondents.

Business Confidence Index Trend

Younger and High Income More Positive

The youngest consumers (those under 30 and 30-45), appear to be the most upbeat about the current and future economy. Those over 60 are more positive about the current economy. Those 45-60 were neutral for both the current and future economy.

Business Confidence Index Trend

High income respondents were significantly more positive about current conditions but not significantly more positive relative to other income levels about the future.

Business Confidence Index Trend

About the Consumer Confidence 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 (SEMEO) project. Past reports and registration to become a part of the consumer panel is on our website http:// at Oakland University's School of Business Administration.

In the last two weeks of July 2015, 431 consumers completed the survey. They were almost equally drawn from Detroit/Pontiac and Wayne, Oakland and Macomb counties. Other characteristic are in the table below. The survey questionnaire was designed and administered by SEMEO. It was distributed by SEMEO and CINT to their respective consumer panels in SE MI and merged.

Respondent Characteristics

Business Confidence Index Trend
Third Quarter, 2015

Unemployment Rate Projected Below 6% in 2015 for SE MI Economy

Moderate growth is expected to continue for SE MI in 2015. The GoldStar Panel sees the unemployment rate in SE Michigan dropping below 6% for the entire 2015 year (it started the year at 7.4%). This consensus projection is down 1% from last quarter. It was 7.5% for 2014 in SE Michigan. To put this forecast in perspective the Detroit area and Michigan seasonally adjusted (SA) unemployment rates have each declined 63% while the US rate has declined slightly less than 50%. Even with this projected decline in unemployment, they see private hiring only increasing by 1.65% in 2015.

Also notable is the forecasted inflation rate for 2015. It is down to 0.25% from 1.0% last quarter. Even with this decline in forecasted inflation the panel has raised its forecast of nominal wages by 1.0% to 2.75%. This would amount to a 2.5% growth in real wages if both forecasts are correct. This would be a welcome change.

The panel has continued to forecast no or minimal growth in population in SE Michigan. This is consistent with the government’s estimate of population growth since 2011 (only in census years is an actual population known). What is interesting, given births and deaths, this is actually a small decline in the area’s population. The panel also sees the housing gains to be modest (3.1%). This is slightly above the 2014 increase of 2.4% and considerably below the 16% growth in both 2012 and 2013. They have also increased their projection of 2015 light vehicle sales to 17.2 million vehicles from 17.05 million vehicles.

Most of the consensus forecasts are more optimistic about 2015, although the range from high to low forecast amongst the panel has not appreciably declined. The arrows show if the range has risen or fallen since last quarter. In parentheses next to each panel member is the number of times that the member’s forecast was either lowest or highest in the seven categories.

2015 Expert Panel Forecast

2016 Forecast
2016 Forecast: Expansion Plateauing for SE MI Economy

Just as in last quarter’s forecast for 2016, the GoldStar Panel of Expert Economists see the expansion plateauing for 2016. In almost every area the panel forecasts little change from their 2015 forecast. The one area that the panel sees an increase is in nominal personal income. Their forecast is 3.25% for 2016, up from only 1.55 when they forecasted 2016 last quarter. However, they also see inflation increasing to 1.0% for the year (same as last quarter’s forecast) up from 0.25% in 2015. This means that real personal income growth would be 2.25% for 2016, slightly lower than the 2015 forecast of 2.5%. This would still be very positive.

Even the unemployment rate they see plateauing at 5.7% (5.9% is the consensus forecast for 2015). Although this is considerably lower than last quarter’s forecast of 6.9% for 2016, it says that our recovery will not continue as it is expected to nationally. This is even in the light of forecasted light vehicle sales continuing to climb to 17.35 million vehicles (same as last quarter’s forecast for 2016).

This suggests that the panel believes that the growth is plateauing, not an unlikely forecast 7 years after the bottom of a recession (2009). However, since historically (except after the 2001 recession) SE Michigan has continued to grow faster than the US economy until the end of an expansion; is this a sign that the nationally economy may weaken in 2016 or 2017? It is too early to tell.

In three areas the panel is very divergent in their views. The range (difference between high and low) measures this divergence. The range in US light vehicle sales is 1.9 million vehicles, this is a huge difference. It is similarly large for the unemployment rate (1.6%). Finally the range for inflation is 2.0%. Although this seems small, given the low inflation we have seen this divergence is also quite large. It will be interesting to see how 2016 forecasts change over the next 15 months

2015 Expert Panel Forecast

Southeastern Michigan Public Policy Issue

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.

2015 Q2 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.