Some Insights to Economic Development Programs in Michigan and Observations
of the Michigan Economy
Presented to
By:Steven Miller
August 13, 2008
Rural Economic Development
Why is Rural Economic Development Important?
• Nearly 80% of Michigan is rural and hosts nearly 20% of its population
• Decreasing share of rural income earned on the farm
• Rural income lags urban income
• High rate of income earned off-farm
• High rates of unemployment
• Farm and rural population is increasingly depending on non-farm economy
Challenges and Opportunities for Rural Economic Development
• Access to venture capital
• Low education attainment and skills gaps
• Consolidation of Community Reinvestment Act (CRA) funds
• Decreasing share of total population
• “In-sourcing” and “Rural sourcing”
• High gasoline prices will likely increase retail demand in non-central regions
What is Economic Development?
• Economic development is a local phenomenon
• Economic development is not economic growth– Economic Development entails qualitative
changes that impact the quality of life– Economic Growth entails quantitative changes
measured in dollars
Local and Regional Development is a Two-Part Equation
• Development = c · rc = capacity
economic, social, technological, and political capacity – the level of functioning of social, political, and organizational structures and leadership
r = resources natural resources, location, labor, capital investment,
entrepreneurial climate, transportation, communications, industrial composition, technology, size and linkages to export markets
Landscape of ED Approaches
• Business attraction “Smokestack Chasing”• Strategic planning• Promoting the development of new
products and services - Entrepreneurship• Business retention• Workforce development• Support services and technical assistance• Quality of life investments
Entrepreneurship as an Economic Development Strategy
• “Smokestack Chasing” has lost favor as an ED approach especially in rural communities.
• Rural emphasis is on developing the economy from within through business facilitation– Locally owned businesses are more likely to purchase
from local suppliers– Locally owned businesses tend to share community
values– Multitude of smaller employers provides more job
stability than a single large employer– Contributes to the quality of life of residents
Quality of Life as an Economic Development Strategy
• It is well documented that quality of life measures impact regional economic development– Wildlife– Recreation– Historic tourism– Creative economy– Agricultural tourism– Retirement destinations
Conclusions
• Economic development is about increasing the quality of life measures within a community.
• Business attraction models of ED are no longer favored and greater focus is on developing growth from within.
• Much focus has been directed at increasing the quality of life and supporting local entrepreneurs.
Scan of the Michigan Economy
Employment By Industry Breakout2007*
Industry MI USNatural Resources and Mining 0% 1%Construction 4% 5%Manufacturing 14% 10%Trade, Transportation, and Utilities 19% 19%Information 2% 2%Financial Activities 5% 6%Professional & Business Services 14% 13%Education & Health Services 14% 14%Leisure & Hospitality 10% 10%Other Services 4% 4%Government 15% 16%
Michigan U.S.
*Source: Bureau of Labor Statistics
U.S. and Michigan Unemployment Rates and GDP Growth
2.3%
1.5%
0.7%-0.3%0.9%
1.3%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Illin
ois
Indi
ana
Mic
higa
n
Ohi
o
Wis
cons
in
Uni
ted
Sta
tes
Average Annual Growth in Real GDP: 2000-2007
2
4
6
8
10
12
14
16
18
1980 1985 1990 1995 2000 2005
Michigan U.S.
U.S. and Michigan Unemployment Rates
Source: Bureau of Labor Statistics
Source: Bureau of Economic Analysis
Michigan’s Employment Situation Appears Bleak
-5
0
5
10
15
20
25
30
90 92 94 96 98 00 02 04 06 08 10
U.S. Employment Total GrowthMichigan Employment Total Growth
Employment Growth Since 1990
Source: Bureau of Labor Statistics
Per
cent
Gro
wth
Michigan’s Tax Base Remains Flat
$-
$5,000
$10,000
$15,000
$20,000
$25,000
Mil
lio
ns
2001 2002 2003 2004 2005 2006
MI State Tax Collections*Nominal Dollars
Other Taxes and Fees
Sales and Use Tax
Net Single Business Tax
Net Individual Income Tax
Sources: 2005-2006 and 2000-2001 Annual Reports of the State Treasurer
*Excludes property Taxes$-
$5,000
$10,000
$15,000
$20,000
$25,000
Mil
lio
ns
2001 2002 2003 2004 2005 2006
MI State Tax Collections*Real 1997-Valued Dollars
Other Taxes and Fees
Sales and Use Tax
Net Single Business Tax
Net Individual Income Tax
Sources: 2005-2006 and 2000-2001 Annual Reports of the State Treasurer
*Excludes property Taxes
Population Growth Rates2000 - 2007
-11.8% - -5.0%
-4.9% - 0.0%
0.1% - 5.0%
5.1% - 10.0%
10.1% - 20.0%
20.1% - 77.5%
Source: U.S. Bureau of the Census
Population Growth Rates
Is a Recession on the Horizon?
0
4
8
12
16
20
1980 1985 1990 1995 2000 2005
30-Year Treasuries1-Year Treasuries
Inverted Yield Curves Have HistoricallyIndicated an Imminent Recession
Source: Federal Reserve Board
Energy Concerns
• High energy costs,– Reduce consumer discretionary spending– Absorb government budgets– Decrease local margins at the pump– Reduce tourism– Impact rural areas with longer travel distances
to destinations– Require industries to retool toward less
energy intensive production methods
How Important is Energy to the Economy?
5
6
7
8
9
10
11
12
13
14
1970 1975 1980 1985 1990 1995 2000 2005
Energy Expenditures as Share of GDP (Percent)
0
500
1000
1500
2000
2500
3000
3500
1970 1975 1980 1985 1990 1995 2000 2005
Energy Expenditures per Person (Nominal Dollars)
While expenditures on energy continue to rise, energy expenditure’s share of total GDP is much lower than late 1970’s and early 1980’s
Source: Energy Information Administration
CPI versus Energy Prices
0
40
80
120
160
200
240
1970 1975 1980 1985 1990 1995 2000 2005
CPI ENERGY GASOLINE
Price Indices
Source: Bureau of Labor Statistics and Energy Information Administration
0
40
80
120
160
200
240
1970 1975 1980 1985 1990 1995 2000 2005
CPIUnleaded GasolineRefiner Acquisition of Crude
Price Indices
Source: Bureau of Labor Statistics and Energy Information Administration
Rural Highways
2.40
2.60
2.80
3.00
3.20
Janu
ary
Febr
uary
Mar
chApr
ilM
ayJu
ne July
Augus
t
Septe
mbe
r
Octob
er
Novem
ber
Decem
ber
Travel Month
Av
era
ge
Da
ily V
eh
icle
-Dis
tan
ce
Tra
ve
led
(B
illio
n M
iles
)
2006
2007
2008
source:Office of Highway P olicy Information, Federal Highway Administration
Rural Tourism Destinations Will Need Re-tooling
The Exchange Rate Impacts the Price at the Pump
Trade Weighted Exchange Index: Broad: Index January 1997=100
8090
100110120130140
2000
:01
2001
:01
2002
:01
2003
:01
2004
:01
2005
:01
2006
:01
2007
:01
2008
:01
Source: Federal Reserve Board
Manufacturing Jobs
• Manufacturing makes up a sizeable portion of a region’s economic base
• One lost manufacturing job is likely to lead to more than one lost job in the region
• The largest manufacturing sectors in distress is the auto and auto-related sectors
Manufacturing Job Growth
-50
-40
-30
-20
-10
0
10
20
30
1970 1975 1980 1985 1990 1995 2000 2005
Midwest: Metropolitan*Midwest: Nonmetropolitan*US: MetropolitanUS: Nonmetropolitan
Metropolitan-Nonmetropolitan Manufacturing EmploymentPercent Change from 1970
Source: Bureau of Economic Analysis
Pe
rce
nt C
an
ge
fro
m 1
97
0
* Includes Indiana, Illinois, Michigan, Ohio, and Wisconsion
Manufacturing Continues to Shrink, but…
Proportion of Manufacturing EmploymentIn Non-Metropolitan Areas
0%
5%
10%
15%
20%
25%
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
US
MI
Proportion of Total Wage and SalaryEmployment In Manufacturing
0%
10%
20%
30%
40%
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
US
MI
Source: Bureau of Economic Analysis
Relative Manufacturing Employment Concentrations
MSA County
No Data Available
Less Manufacturing Intensive
More Manufacturing Intensive
Source: U.S. Department of Commerce, Bureau of Economic Analysis based on Wage and Salary Employment Employment concentrations are relative to non-metro proportion of total W&S employment in manufacturing
Distribution of Rural Manufacturing Centers
Michigan Unemployment Rates
• Between 2000 and 2006– Population 18 to 65 has increased by 234,196– Labor force has declined by 70,833– Essentially, 305,029 nearly 5%, of working age
residents have left the labor force in Michigan since 2000
• It is expected that young Michigan workers are most impacted– Michigan lost 22,515 people aged 18-24 between
2000 and 2005
Sources: Census and Bureau of Labor Statistics
Michigan Unemployment Rates Continue to Exceed the Nation’s
U.S. and Michigan Unemployment Rates
0
1
2
3
4
5
6
7
8
9
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Per
cen
t MI-NonMetro
MI-Metro
U.S.
Source: Bureau of Labor Statistics
Unemployment Rates2007 Annual Average
2.9 - 5.0
5.1 - 6.7
6.8 - 9.1
9.2 - 13.0
Source: Bureau of Labor Statistics: Local Area Unemployment Statistics
Unemployment Rates by County
Housing
• Housing is a store of wealth
• The current mortgage crises has so far been isolated to the subprime market, but there are signs that it is creeping into the prime mortgage markets
• Michigan is less exposed to subprime risk than many states but delinquency rates and foreclosure remain high
Housing Price Indices
Index of Housing Prices
90.0
110.0
130.0
150.0
170.0
190.0
210.0
1995
:1
1996
:1
1997
:1
1998
:1
1999
:1
2000
:1
2001
:1
2002
:1
2003
:1
2004
:1
2005
:1
2006
:1
2007
:1
2008
:1
IL
IN
MI
OH
WI
Source: Office of Federal Housing Enterprise Oversight
Relative Nonmetro to Metro Housing Price Index
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.019
95:1
1996
:1
1997
:1
1998
:1
1999
:1
2000
:1
2001
:1
2002
:1
2003
:1
2004
:1
2005
:1
2006
:1
2007
:1
2008
:1
IL
IN
MI
OH
WI
Source: Office of Federal Housing Enterprise Oversight
Mortgage Stressed States
Source: Wall Street Journal
Rural Health Care and the Elderly
• Rural seniors tend to have lower financial resources than their urban peers.
• Rural seniors self-report lower health quality than urban peers.
• Retiree attraction has been pushed as an economic development strategy.
Percent of Population Over65 Years of Age: 2000
7.1% - 11.0%
11.1% - 14.0%
14.1% - 16.0%
16.1% - 20.0%
20.1% - 25.0%
Source: U.S. Bureau of the Census, Decennial Census
Distribution of Population Over 65-Years of Age
Retirement Destination 15% Growth
Retirement Destination 20% Growth
Metropolitan County
Nonmetropolitan Counties with 15 or 20% or more growth in population
aged 65 or older 1990 – 2000
U.S. average rate is 12 percent growth
Nonmetropolitan Retirement-Destination Counties 2000
Source: Woods and Poole using Census Data
Not a Retirement Destination
Source: EMSI: 2005 Estimates
Number of Healthcare Employees per 1,000 Residents Over 65
0 - 161
161 - 277
277 - 452
452 +
Urban County
Healthcare Providers versus Needs of Elder-Care
Conclusions
• Evidence points to a forthcoming national recession.• Michigan remains steeped in an industrial sector that has
a clear negative growth bias.• Recent statistics indicate that Michigan’s economic
growth tails the nation.• Michigan’s employment sector has experienced declines
since 2001 failing to benefit from the post-2001 national expansion.
• Michigan is loosing a substantial portion of its young population.
Conclusions Cont’d
• Decline of the dollar makes US produced goods more attractive in overseas markets. It also makes the US a more attractive tourist destination for foreign tourists.
• Michigan may be partially shielded against the forthcoming ARM resets, but the state of the economy threatens the economic health of Michigan’s home owners.
• Michigan provides the amenities sought by retirees. However, fully capitalizing on this strength calls for investment in rural healthcare.
•