Here is a blog post on the Regionomics forecast by my friend Jim Lane. “Coolumbus” — I love it! http://bit.ly/1cWvv5E
Following is the text of my 15th annual economic forecast for the Columbus MSA, released January 8, 2014, at the Columbus Metropolitan Club. For a PDF of the forecast document, please send an email to bill.lafayette at att dot net.
Columbus MSA employment growth will continue in 2014 with an above-average net gain of 18,200 (1.9%).
The national and local economies will continue their gradual strengthening. U.S. employment growth is expected at around 1.6%. Ohio will continue to underperform, with job growth burdened by increasing reliance on technology in manufacturing and slow population growth.
MSA growth in 2013 (as currently estimated) was 1.3% versus the 1.6% national average. However, this estimate is preliminary and may well be revised upward in new estimates due in March. The forecast assumes this, and that 2014 employment growth will be only somewhat better than the revised 2013 rate.
Regional employment has increased 7.7% since the Jan. 2010 employment trough, better than Ohio (3.7%) or the U.S. (5.7%). Central Ohio recovered the last of 53,000 jobs lost in the recession in March 2012; employment is now 16,000 jobs above its December 2007 peak. The U.S. will likely surpass its previous high in mid-2014. Ohio, however, has to date recovered only 49% of its 414,000-job loss. Thus, it will be several years at least before Ohio recovers all of these lost jobs.
Construction jobs have increased 16.9% since Jan. 2010, douple the U.S. average. Multi-unit residential properties have been an especially important contributor to regional construction activity. 2014: Gain of 1,200 jobs (4.1%)
Manufacturing: Employment increases earlier in the recovery have abated as producers substitute technology for labor. The manufacturing companies are healthier than the stagnant employment suggests. 2014: Gain of 100 jobs (0.1%)
Wholesale employment growth has been extremely strong, but may be overestimated. The forecast expects slower growth in 2014, but still above average. 2014: Gain of 1,000 jobs (2.6%)
Retail: The large decrease in the preliminary employment figures for 2013 will likely be reduced or eliminated in the revisions. The forecast calls for a healthy increase in 2014. 2014: Gain of 2,300 jobs (2.4%)
Transportation and utilities: After a slow start in the early stages of the recovery, this crucial sector enjoyed above-average growth in 2013. Growth will continue stronger than average in 2014. 2014: Gain of 1,300 jobs (2.9%)
The publishing segment of information has experienced fundamental challeges to its business model, leading to more than a decade of sustained employment declines. 2014: Loss of 200 jobs (1.5%)
Financial activities: The improving economy and real estate market will generate increasing demand for financing, insurance underwriting, and real estate services. 2014: Gain of 1,100 jobs (1.5%)
Professional and business services: The estimates implying a net decline in the professional and technical services segment in 2013 are likely incorrect. The forecast predicts fairly strong growth in 2014. 2014: Gain of 4,500 jobs (2.8%)
Education and health services: Growth of both private education services and healthcare has been twice the U.S. rate since 2010. Continued growth is likely in 2014, but at some point the rate must slow. 2014: Gain of 4,200 jobs (2.9%)
Columbus leisure and hospitality employment has grown at a rate greater than average since 2010. Though slightly slower, above-average growth will continue in 2014. 2014: Gain of 2,800 jobs (2.9%)
Other services: The 2013 decline in this sector may have been a correction of the very strong growth in 2012. Growth near the U.S. average is expected for 2014. 2014: Gain of 300 jobs (0.7%)
Government employment suffered its second consecutive net decline in 2013, a record unmatched since the early 1980s. The coming year is likely to see a third decline. 2014: Loss of 300 jobs (0.2%)
Federal government employment has been in decline since its Census-fed 2010 peak. Nationally, postal jobs have been falling since 1999, while military jobs declined last year. 2014: Loss of 400 jobs (2.6%)
The share of Ohio’s state government employment located in the Columbus MSA has been increasing since 1989 and is now at its highest level since 1965. This consolidation is likely to continue, leading to a local employment increase despite a statewide decline. 2014: Gain of 1,000 jobs (1.4%)
Local governments in the region have shed 5,000 jobs since November 2008. The majority of these losses have been felt in non-education government services. 2014: Loss of 900 jobs (1.2%)
There is a lot of conversation and controversy about the “chained consumer price index” being used to adjust social security payments instead of the traditional CPI. Without taking a position on that question, it is good to understand the difference.
Any consumer price index is calculated by measuring price changes over time in a specific basket of goods and services. This basket is supposed to represent the purchase patterns of a typical household. (The Bureau of Labor Statistics partners with the Census Bureau to conduct the Consumer Expenditure Survey to measure on a regular basis what people actually do buy.) The difference between a standard CPI and a chained CPI is that a chained CPI takes into account one specific aspect of consumer behavior: buying more of goods that rise less in price and less of goods that rise more. For example, if apples rise in price by 10 percent and oranges rise by 5 percent, people will tend to buy a larger share of oranges and a smaller share of apples (but possibly less of both overall).
The standard CPI ignores this behavior; it assumes that the purchase shares of the items in the basket are fixed. The chained CPI lets people substitute goods and services that experience smaller price increases for those that experience larger ones. Because people are substituting goods with smaller price increases, you expect the chained CPI to report a lower inflation rate than the standard CPI. Therein lies the source of the controversy.
I ran across a blog post by Dean Barber that does a great job highlighting the problem of poverty in America. Here it is. Go have a look at it; I will see you back here in a few.
Those of us living in economically diverse neighborhoods know all too well that poverty exists. We are looking at this issue in the United Way of Central Ohio’s Workforce Development Committee. Part of the answer probably lies in targeting training initiatives to jobs in our regional driver industries. These jobs are more secure and either provide a household-sustaining wage or allow the worker to attain one sooner rather than later.
But employers have told me time and time again that it is just as much the soft skills that are lacking as the technical skills — especially the ability to communicate effectively and work productively in teams. And this is coming as much from the IT manager hiring people with bachelor’s degrees as the manager in a warehouse. Thus, training programs that neglect this side of skills development are not addressing the entire issue.
I do not buy the argument that addressing the skills mismatch will make unemployment go away, and it certainly won’t make poverty go away. But if it makes a real difference in the lives of people and gives them hope — while giving employers workers with the skills they need — it will be money well-spent.
There have been lots of ink and bits spilled lately over the manipulation of something called LIBOR – the London Inter-Bank Offered Rate. It may seem as if the only people who need to care about this scandal are bankers and government finance officials. Some of these probably should be checking to make sure that their résumés are up to date; others may get a chance to reflect behind bars. But this truly affects us all.
What is LIBOR? It is a rate (actually a series of rates) based on a survey of British banks of the rate they might charge to lend to other banks. In other words, it is a survey of what amounts to a close-knit little trade group that is based on opinion, not actual loans. Each bank’s offer is published, high and low offers are thrown out, and the resulting average is the rate.
Contracts with a value of more than $360 trillion use LIBOR as a reference point, according to an estimate cited earlier this month in Newsweek. That includes many thousands of contracts in the U.S. It may include your own adjustable-rate mortgage.
But there is no need that the reporters back up their asserted rate with anything substantive, such as actual loans. Given this, what happens if you are trading securities whose values depend on what happens to LIBOR? You have an incentive to fib and talk your friends at other banks into fibbing as well – and fib a good number of them did. We know that this rate-fixing went on as early as 2005, and possibly years earlier at Barclays and allegedly elsewhere as well.
You might think that banks would try to fix the rate upward, but they actually fixed it downward. They did this for two reasons – one internal, the other external. The internal reason was the opportunity to generate trading gains. The external reason was essentially marketing. LIBOR is an indicator of credit risk for banks, so at the height of the credit crisis a lower rate made banks look stronger than they really were. (Remember that the individual submissions are public.) There is evidence that at least one British official sent out emails telling the banks that it would certainly ease fears if LIBOR declined. The trading desk knew that this was going on because in some cases traders were literally sitting next to the people who were reporting the rate. Thus, they made bets on LIBOR falling and made a fortune when it did.
Ironically, while the trading desk was raking in cash, payments on the banks’ own adjustable-rate loans based on LIBOR declined. But no matter. Because of the way the securities that the traders were playing with were structured, a tiny change in LIBOR translated to huge changes in the value of the securities. Losing a bit on a loan is no problem if you make many times that much at the trading desk.
The fundamental problem in all this is that the interest rate on a loan is supposed to be based on the risk of that loan to the lender. If the interest rate was wrong, the pricing of risk was wrong and there were undeserving winners and losers – collateral damage from the point of view of the traders. In this case, it appears that the borrowers were the winners and the lenders were the losers. (Remember that there were many innocent lenders who didn’t have the trading profits to offset their diminished income on their loans.)
It may be harder to generate sympathy for lenders than it would have been for borrowers if the situation were reversed, but this is one more example of the system – which is based on trust – being rigged. If the system is rigged, lenders won’t lend except at a higher rate, borrowers have a harder time acquiring funds to invest, and the recovery is that much slower.
Last month I spent two-plus days in Grand Rapids at the annual conference of the Business Alliance for Local Living Economies. BALLE emphasizes a local approach to economic and community development that harnesses the power of local dollars and local entrepreneurial talent to revitalize communities and grow incomes. I gained a huge number of insights from the conference, which I will be sharing as I continue to organize the pages of notes that I took.
The first of these insights comes from Cleveland, where a collaborative effort is focused on a challenged neighborhood. Evergreen Cooperatives is focusing on fostering employee ownership in the University Circle area on the east side of the city. The six neighborhoods in the initiative are home to 43,000 residents with a median income of $18,500. Evergreen was launched in 2008 by a group of local institutions, including the Cleveland Foundation, the Cleveland Clinic, University Hospitals, Case Western Reserve University, and the municipal government. The mission is to stabilize and revitalize the area by fostering employee-owned worker cooperatives that employ local residents and sell goods and services to the anchor institutions. This keeps money not only within the community, but within the neighborhood, leveraging its impact.
Organizers project that an initial complex of ten companies will generate roughly 500 jobs over the next three to five years. The co-op businesses are focusing on the local market in general and the specific procurement needs of “anchor institutions,” i.e., “the large hospitals and universities that are well established in the area and provide a partially guaranteed market.” All businesses are employee-owned and operated. One of the first was Evergreen Cooperative Laundry, which serves healthcare institutions from a LEED silver building and uses environmentally responsible laundry methods that use less than 30% of the water and far less energy than typical commercial laundries. Ohio Cooperative Solar installs, owns, and maintains solar panels on institutional buildings. Green City Growers operates a 230,000 square-foot greenhouse in the neighborhood. Evergreen continues to seek business plans for additional businesses.
It seems that cities everywhere ought to take a look at this model. By keeping money within the community, local institutions increase their impact by supplying economic opportunity in addition to jobs. Here in Columbus, an initiative like this could help to address the region’s much lower-than-average rate of business formation, pointed out in Community Research Partners’ Benchmarking Central Ohio report. One important emphasis of an Evergreen-like initiative ought to be providing support and counseling to would-be entrepreneurs — perhaps engaging the local Small Business Development Center or a local university.
Sunday’s Big Game matchup scores some surprising touchdowns
This Sunday all eyes will be on Super Bowl XLVI as the New York Giants battle the New England Patriots in Indianapolis. New York, Boston, and Indianapolis are all super cities, but how about Columbus? Comparing the four cities using U.S. Census Bureau data, Columbus shows some quick maneuverability to score some touchdowns against the other cities.
In terms of total population, New York has been victorious even longer than has a certain baseball team located there. With more than 8 million residents, it is by far the nation’s largest city, but perhaps surprisingly, Indianapolis (12th largest) and Columbus (15th largest) both beat out 22nd-ranked Boston. In fact, Columbus boasts nearly 170,000 more residents than does Boston.
In terms of population growth, though, there is no contest. The population of Columbus increased 10.6 percent between 2000 and 2010, more than twice the growth rate of Boston and Indianapolis, five times the growth rate of New York, and greater than the growth of the U.S. as a whole. Columbus rushes 60 yards to a touchdown.
Columbus also scores in the percentage of adults with at least a high school diploma – 88.4 percent. But Boston scores in college degrees, with 44 percent of adults holding at least a bachelor’s, but Columbus beats out Indianapolis, 32 percent to 27 percent. A priority for next year’s training camp is to work on conversions – of high school diplomas to college degrees.
Nimble Columbus also scores a touchdown in commute time. The 21 minutes commuters in Columbus spend getting to and from work is a minute less each way than in Indianapolis, eight minutes less than in Boston, and nearly 18 minutes less than in New York. Over a 245-day work year, Columbus commuters save 10 hours over Indianapolis commuters, 60 hours over Boston commuters, and 145 hours – six full days – over New York commuters.
Columbus and Indianapolis both trounce New York and Boston in homeownership, but Indianapolis edges out Columbus. Affordability is what gives our two cities the edge. It takes more than 10 years of the typical New York household’s income to buy the typical dwelling (which is almost certain to be an apartment or row house) and seven years of income in Boston, but only a little more than three years
of income in Indianapolis and Columbus. The 3.1 years in Indianapolis is not statistically different from the 3.3 years in Columbus – in other words, a split decision.
The odds-makers had New York demolishing the competition in retail sales per capita. But in an amazing upset, Columbus comes out far ahead. With more than $16,000 per person in 2007, we smash both New York and Boston, and edge out Indianapolis.
Put Columbus in some super company and we hold our own. Enjoy the game!
Once again the time has come for the U.S. Bureau of Economic Analysis (BEA) to take its month-end look at the U.S. economy with its estimate of growth in Gross Domestic Product (GDP). GDP is an important number because it represents the value of all goods and services produced in the U.S. This month was the first estimate of growth during the final quarter of 2011. It came in at 2.8 percent – but GDP growth rates are always stated on an annualized basis (adjusted for inflation) so actual growth was one-quarter of this. It was the strongest growth in a year and a half – which isn’t saying much.
Growth for all of 2011 was 1.7 percent, less than half the 2010 rate. But consider what happened last year. The disaster in Japan disrupted supply chains and had an impact across the globe – including here in Columbus, where manufacturing and wholesale trade employment fell. The Arab Spring uprisings created jitters in oil markets and gasoline prices spiked. All this put consumers in a surly mood; the Thomson Reuters/University of Michigan Consumer Sentiment Index dropped in August to a level comparable to those at the depths of the recession. (The index has come back nicely from that low, however.)
The 2.8 percent rate was a touch less than the 3 to 3.25 percent that economists had expected, but this initial estimate is subject to changes that could easily raise it to that level. Consider that we in the economics community are telling the BEA, “We want you to figure out the total value of everything produced in the U.S.! And we want you to do it in a month!” The fact that they are able to come up with an estimate at all is really pretty amazing.
In any case, where growth was – and where it wasn’t – raise some concerns. It wasn’t in consumer spending, which accounts for 70 percent of the economy but contributed only half of the 2.8 percent total growth. And it certainly wasn’t in government expenditures, which actually subtracted nearly a percentage point. We imported more; imports are a subtraction from GDP (but do indicate that consumers and businesses are buying something).
As it turns out, nearly 2 percent of the 2.8 growth was due to businesses stockpiling inventories. We don’t know whether they are doing this on purpose because they expect sales to pick up and want to be ready or whether they did it by accident because they thought that holiday sales were going to be stronger than they were. But regardless, inventories rising now means that less production will be needed later to satisfy demand. So inventory accumulation adds to growth now but subtracts from growth later.
The economics community is not thrilled about growth prospects for 2012: GDP growth staying below 2.6 percent all year, and a 2.4 percent average for the year as a whole. (But see my earlier post about the inability of economic forecasts to predict anything over the past few years.) We need better than three percent consistently to make a real dent in unemployment.
I issued my 2012 forecast at the Columbus Metropolitan Club last week. This was my 13th annual forecast, and I was proud to be able to release it at CMC for the 10th consecutive year. The podcast of the forum is available here.
If the forecast is right this will be a better year, but there are several problems that we will have to watch — the European economy, the uncertainty over tax and spending policies here at home, consumer confidence, and possible continuing upheaval in the Middle East.
Best wishes for a happy and prosperous 2012!