1. Seeking Economic Sustainability: The Outlook for Michigan July 25, 2008 Donald R. Grimes University of Michigan Michigan Community College Association (MCCA) Traverse City

2. The Economic Outlook for Michigan through 2009 Supported by the State of Michigan and the University of Michigan

3. – 6% – 4% – 2% 0% 2% 4% 6% ’71’75 ’77’81 ’83 ’85’89 ’91’95 ’97’01 ’03’07 Michigan Employment National Employment ’69’73 ’79’87 ’93 ’99 ’05 Employment Growth, Michigan and National 1969 – 2007

4. Michigan Per Capita Income Deviation from National Average 5.3 – 3.3 1.1 – 2.9 1.9 –1.2 – 9.1 – 10% – 5% 0% 5% 10% ’69 ’71 ’73 '75 ’77 ’79 ’81 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 ’01 ’03 ’05 ’07

5. Wages and Salaries per Job Deviation from National Average 6.8 2.5 7.4 6.3 13.1 – 5% 0% 5% 10% 15% ’69 ’71 ’73 '75 ’77 ’79 ’81 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 ’01 ’03 ’05 ’07 1.8 – 4.0

6. Michigan Job Change, 2000q2 – 2007q4 Cumulative Job Change (Thousands) Job Change Ratio Average Wage 2006 Wage & salary employment – 461.8 – 1 in 10.2$42,157 Manufacturing – 307.3 – 1 in 3.0$58,070 Transportation equip- ment manufacturing – 157.5 – 1 in 2.3$72,505 Construction – 50.3–1 in 4.2$46,561 Education & health services 98.0+1 in 5.1$38,543

7. Job Growth in Michigan by Educational Composition 2000 – 2007 Number of Jobs Total nonfarm4,262,000– 1.3 Above-average- education industries 1,830,600+ 0.1 Below-average- education industries 2,431,400– 2.3 % Job Change Per Year 2000 – 2007 20002007 4,676,900 1,814,300 2,862,600

8. Labor Force Statistics for Michigan by Educational Attainment, 2006 Income Below Poverty Line (%) Labor Force Participation Rate (%) Unemployment Rate (%) Annual Earnings 23.9$19,029 55.317.1 Less than high school12.525,710 71.910.1 High school graduate 8.331,71779.66.9 Associate’s degree or some college 2.961,645 N.A. Graduate degree3.945,808 N.A. Bachelor’s degree Educational Level N.A. 84.43.4 Bachelor’s or more Age 25 and olderAge 25 to 64

9. 8 9 10 11 12 50% 55% 60% 65% 70% 75% Sales in millions of units Market share ’91’92’93’94’95’96’97’98’99’00’01’02’03’04’05’06’07 Detroit Three: Sales of Light Vehicles and Market Share of Total Sales United States, 1991–2007 50.4 72.6 Market share Sales

10. Employment Location Quotients by Industry Michigan, 2006 Location QuotientIndustry Automobile, light truck, and parts manufacturing 7.15 Detroit Three vehicle and parts manufacturing (end of 2005) 12.29 Manufacturing except autos and parts1.05 Private nonmanufacturing0.95

11. Wages and Salaries per Job Deviation from National Average and Detroit Three Share Market Share ’79 ’81 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 ’01 ’03 ’05 – 6% 0% 6% 12% 50% 60% 70% 80% Detroit Three Share Wages & Salaries per Job ’07

12. Millions of units National Light Vehicle Sales Total vs. Detroit Three 0 5 10 15 20 2006200720082009 15.1 14.9 16.1 16.5 Total 7.2 8.1 7.1 8.7 Detroit Three Annual % Detroit Three market share shown in box. 53.0 50.4 48.1 47.5

13. Michigan Building Permits, 1963 – 2009 RSQE: May 2008 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 '63 '65'69 '71'75 '77'81 '83'87'91 '93 '95'99 '01'05 '07'67 '73 '79 '85'89'97 '03 '09

14. Thousands Job Growth in Michigan, 1991–2010 – 112.2 – 76.9 – 70.9 – 16.7 – 9.1 – 63.1 – 66.0 – 65.4 – 40.1 27.3 88.0 – 150 – 120 – 90 – 60 – 30 0 30 60 90 120 Average Annual Job Growth ’91 – ’00’01’02’03’04’05’06’07’08’09’10

15. RSQE Forecast – State Revenues by Fiscal Year (Millions of dollars) RSQE: May 2008 GFGP Revenue (% change) ActualForecast 200720082009 8,318 9,299 9,054 ( 0.6)(11.8)( – 2.6) Earmarked State SAF Revenue (% change) 11,15311,38611,753 (0.6)(2.1)(3.2)

16. GFGP Revenue Fiscal 1995 – 2009 0 2 4 6 8 10 12 ’95’97’99’01’03’05’07’09 1995 $Current $ ’96’98’00’02’04’06’08 Billions $

17. The Economic and Demographic Outlook for Michigan and Its Counties to 2035 Supported by the Michigan Department of Transportation

18. Background on the Forecasts

19. Included are demographic and economic forecasts for: ● County results can be added to form any region. ● 1. Every county in Michigan 2. The state as a whole (a summation of the county results)

20. Long-term forecasts are intended to identify economic trends ● — NOT to predict business cycle movements Forecasts are unable to capture major one-time events ● — unless there is prior knowledge of the event and external information is directly introduced into the forecast General Observations on the State and County Forecasts for 2005 –2035

21. Some counties have special circumstances that cause them to deviate from the general trends—for example, a county with a large college-age population. General Observations on the State and County Forecasts for 2005 –2035 The long-term outlook for regions is governed by: 1.Prospects at the national level 2. Trends in productivity growth 3. The mix of industries within regions (e.g., growing service sector, declining goods-producing sector) 4. Demographic trends

22. Fundamental Drivers in Michigan’s Long-Term Outlook 1.The consequences of profound changes in the auto industry 2.The level of investment in other activities that show promise for future growth and prosperity, and for which the region has supporting assets 3.The impact of the aging of the “baby-boomer” generation, and the migration patterns of the younger and well-educated populace

23. Forecasts of Population for Michigan

24. 9.6 9.8 10.0 10.2 10.4 10.6 10.8 11.0 11.2 ’00’05’10’15’20’25’30’35 Millions Actual Michigan Population, 2000 – 2035 Long-term forecast Short-term forecast per + 0.23% year per – 0.10% year per + 0.35% year * 2014 exceeds 2005 population level

25. – 600 – 400 – 200 0 200 400 600 800 1000 = + + = + + 2000 – 20052005 – 20102010 – 2035 Components of Population Change in Michigan Net domestic migration Net international migration Natural change in population Total change in population Thousands =+ +

26. 0% 5% 10% 15% 20% 25% 30% 35% 40% 0 to 2425 to 4445 to 6465 plus Population Distribution by Age Group Michigan, 2005 and 2035 34.6 29.3 27.5 24.2 25.5 23.1 20052035

27. 0% 5% 10% 15% 20% 25% 30% 35% 40% 0 to 2425 to 4445 to 6465 plus Population Distribution by Age Group Michigan, 2005 and 2035 12.4 23.4 20052035

28. We are getting much older. By 2035, more than 23 percent of Michigan’s residents will be 65 or older. ● Compare this with the situation in Florida today. In the state known as “God’s waiting room,” 17 percent of the residents are 65 or older. ●

29. According to an informal survey, the retiree wish list includes: 1. Warm climate 2. Proximity to water 3. Access to good health care 4. Cultural activities 5. Recreational activities 6. Good restaurants 7. Elder-friendly housing Retiree Wish List

30. Forecasts of Employment for Michigan

31. Short-term forecast based on the Bureau of Labor Statistics definition of wage and salary employment. ● Long-term forecast based on the Bureau of Economic Analysis definition, including self-employed, agricultural workers, and military. ● CAUTION Thus, employment numbers are not strictly comparable across forecasts. ●

32. 5.30 5.35 5.40 5.45 5.50 5.55 5.60 5.65 5.70 5.75 5.80 Actual Long-term forecast ’00’05’10’15’20’25’30’35 Millions Total Employment in Michigan, 2000 – 2035 (BEA definition — includes self-employed, farm, military) Short-term forecast per – 0.40% year 5.85 per – 0.24% year per + 0.26% year * 2022 exceeds 2000 employment level

33. Total Employment in Michigan 1985 –20102010 –2035 6.6%28.1% 25-Year Growth Rate

34. Industry Employment Forecasts for Michigan

35. High-Education Industries % of U.S. Employment with Bachelor’s or More, 2000 Average for all industries 27.2% Private education services61.2% Professional & technical services58.0% Management of companies49.1% Information39.1% Financial activities36.0% Government33.4% Health care, social assistance32.7% Average, all high-education industries $42,157 30,111 68,828 91,798 54,625 49,693 43,403 39,530 Michigan Average Wage 2006 48,216

36. High-Education Industries in Michigan Private education svcs. Prof. & tech. svcs. Management of companies Information Financial activities Government Health care, social assistance 2001 High-education industries 73,183 366,306 68,848 87,123 375,624 699,496 551,775 2,222,355 2001– 05 19,105 – 2,267 – 1,558 – 6,409 48,933 – 12,367 53,656 99,093 19,170 123,108 770 – 6,101 26,649 – 41,821 232,054 353,829 2005 – 35 Employment Change

37. Low-Education Industries Average for all industries 27.2% Arts, entertainment, recreation 26.4% Other services (repair, personal, civic) 19.5% Manufacturing 19.2% Trade, transportation, & utilities 16.4% Administrative services 15.5% Farm, natural resources, mining 13.7% Construction 9.7% Accommodation, food services 8.7% Average, all low-education industries % of U.S. Employment with Bachelor’s or More, 2000 $42,157 37,807 26,135 25,700 58,070 35,638 31,241 29,436 46,561 12,664 Michigan Average Wage 2006

38. Low-Education Industries in Michigan Arts, entertainment, recreation Other services Manufacturing Trade, trans., utilities Admin. services Farm, natural resources, mining Construction Accommodation, food Low-education industries 100,369 285,445 843,743 1,007,145 322,152 104,019 304,276 350,383 3,317,532 6,406 13,638 – 142,839 – 37,912 33,941 – 3,658 – 2,923 13,314 – 120,033 34,018 12,879 – 228,794 – 62,690 124,911 – 27,869 – 8,886 95,894 – 60,537 2001 2001– 05 2005 – 35 Employment Change

39. Forecasts of Households for Michigan

40. Number of Households in Michigan 2005 – 2035 % Change Total population8.7% Group quarters32.3% Population in households 8.2% 2005 10,100,833 224,190 9,876,643 2010 10,057,256 227,781 9,829,475 2035 10,982,682 296,548 10,686,134 Households20.0% Average household size 3,863,662 2.56NA 3,981,427 2.47 4,635,109 2.31

41. Distribution of Michigan Households by Size, 2005 and 2035 0% 5% 10% 15% 20% 25% 30% 35% 40% 12345+ Number of persons in household 20352005 26.4 30.4 33.8 36.0 16.0 14.1 13.8 11.3 10.0 8.2

42. County Population and Employment Forecasts

43. Change in Population by Michigan County 2005–2035 Growth   statewide average Growth < statewide average Decline

44. Change in Employment by Michigan County 2005–2035 Growth   statewide average Growth < statewide average Decline

45. The fastest-growing counties in Michigan are clustered in four geographic areas: ● The tourist-oriented and retiree-friendly northwestern lower peninsula, particularly the Traverse City area —

46. Change in Employment by Michigan County 2005–2035 Growth   statewide average

47. The fastest-growing counties in Michigan are clustered in four geographic areas: ● The tourist-oriented and retiree-friendly northwestern lower peninsula, particularly the Traverse City area — The urban and suburban Grand Rapids area: more concentrated in the growing industries, including tourism —

48. Change in Employment by Michigan County 2005–2035 Growth   statewide average

49. The fastest-growing counties in Michigan are clustered in four geographic areas: ● The tourist-oriented and retiree-friendly northwestern lower peninsula, particularly the Traverse City area — The urban and suburban Grand Rapids area: more concentrated in the growing industries, including tourism — The suburban Lansing area: more concentrated in the growing industries —

50. Change in Employment by Michigan County 2005–2035 Growth   statewide average

51. The fastest-growing counties in Michigan are clustered in four geographic areas: ● The tourist-oriented and retiree-friendly northwestern lower peninsula, particularly the Traverse City area — The urban and suburban Grand Rapids area: more concentrated in the growing industries, including tourism — The suburban Lansing area: more concentrated in the growing industries — The area most concentrated in high-education industries, comprising the counties of Oakland, Livingston, and Washtenaw counties —

52. Change in Employment by Michigan County 2005–2035 Growth   statewide average

53. Although the slowest-growing counties in Michigan are scattered throughout the state, there are three general areas of greater concentration: ● The rural areas of the Upper Peninsula —

54. Change in Employment by Michigan County 2005–2035 Decline

55. Although the slowest-growing counties in Michigan are scattered throughout the state, there are three general areas of greater concentration: ● The rural areas of the Upper Peninsula — The area along the shores of Lake Huron —

56. Change in Employment by Michigan County 2005–2035 Decline

57. Although the slowest-growing counties in Michigan are scattered throughout the state, there are three general areas of greater concentration: ● The rural areas of the Upper Peninsula — The area along the shores of Lake Huron — The strip of counties along the state’s southern border —

58. Change in Employment by Michigan County 2005–2035 Decline

59. Although the slowest-growing counties in Michigan are scattered throughout the state, there are three general areas of greater concentration: ● The rural areas of the Upper Peninsula — The area along the shores of Lake Huron — The strip of counties along the state’s southern border — These areas tend to have an older population and an unfavorable industry mix. ●

60. Summary and Conclusions

61. The knowledge-based economy, and the educated workers who fuel it, are the fulcrum of future prosperity in Michigan. ● Michigan and its communities need to invest in programs to provide the education and training essential for the economy of the future. ● Opportunities for Economic Development in Michigan Bill Gates observed that for knowledge-based enterprises, educational attainment trumps everything when they’re deciding where to invest. ●

62. Among activities with fewer educational requirements, the hospitality industry shows promise for the future, providing services to visitors as well as to a growing number of older people. ● Support personnel for industries with the most favorable growth prospects—health care and professional/ technical services—require skills but often not professional degrees. ● Other actions may show promise for the economic well-being of the state, but none is more compelling than investing in workforce development. ● Opportunities for Economic Development in Michigan

63. Assets matter ● Consider whether a region has the underlying assets to promote and sustain promising industries. ● Don’t just chase after what is “hot” elsewhere. ●

64. Key assets that are linked to industries that show promise: Premier system of higher education + the knowledge-based economy ● Great Lakes + the tourist-oriented economy ● Nationally prominent health system + the health care economy ●

65. Short-Term Risks to the Economy Oil prices ● Credit crisis ● Local housing market ●

66. Long-Term Risks to the Economy Severe labor shortages ● Not attracting knowledge-based and elder- friendly businesses ●

67. What Can Local Public and Private Leaders Do? Short-term risks? ● Longer-term risks? ● Build strong health care system ► Improve recreational and cultural amenities ► Attract emerging industries, consistent with assets ► Increase technological collaboration ► Emphasize education and training ► Almost nothing.

68. U NIVERSITY OF M ICHIGAN www.ilir.umich.edu/lmr/