1. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 1 Dennis Winters Chief, Office of Economic Advisors Department of Workforce Development November 9, 2012 Sizing up Today’s Economy Wisconsin Economics Association

2. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy ECONOMIC OUTLOOK

3. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 3 THE ECONOMY HAS CHANGED AND SO MUST YOU

4. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 4 4 ECONOMIC RECOVERY HOW IS THIS ONE NOT LIKE THE OTHER ONES

5. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 5 JOBS RECOVERY HOW IS THIS ONE NOT LIKE THE OTHER ONES

6. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 6 WHY HAS THE RECOVERY BEEN SO SLOW

7. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 7 Source: BEA, OEA BUSINESS CYCLE SEVERE IT TOOK NINE QUARTERS TO RECOVER Recovered

8. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 8 REAL EARNINGS ARE FLAT

9. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 9 INTEREST INCOME TAKE HIT WITH LOW INTEREST RATES

10. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 10 HOUSEHOLD DEBT DELEVERAGING Source: Fed flow of Funds

11. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 11 HOME EQUITY WAS USED FOR CONSUMPTION NOW PART OF DELEVERAGING

12. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 12 Source: Federal Reserve Board of Governors REVOLVING CREDIT WAS USED FOR CONSUMPTION NOW PART OF DELEVERAGING

13. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 13 NO SAVINGS – WAS USED FOR CONSUMPTION NOW PART OF DELEVERAGING

14. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 14 It is difficult to increase consumption when you: 1.have stagnant income, 2.are losing wealth, 3.paying down debt, 4.increasing savings, 5.and are paying more for food and gas.

15. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 15 CORPORATE PROFITS AT NEW RECORDS MOSTLY DUE TO COST CUTTING

16. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 16 CORPORATE PROFITS BUILDING CASH HOARD

17. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 17 INVESTMENT GROWTH IS IN PRODUCTIVITY, NOT EXPANSION Source: BEA, OEA

18. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 18 MANAGING RISK WHERE IS THE INCENTIVE TO EXPAND

19. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 19 Source: Federal Reserve Board, Data Download Program EXTENDING CREDIT BANKS ARE RETICENT TO LEND FUNDS

20. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 20

21. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 21  Recovery is self-sustaining.  Employment breach in 2015.  Strength of recovery subject to consumer income and wealth uncertainty. Risks  High unemployment dampens income growth.  Prolonged high gasoline prices sap consumption.  European Union fiscal problems wash over the global financial markets. IN CONCLUSION CONTINUED RECOVERY

22. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 22 IN REVERSE ORDER THE UGLY, THE BAD, AND THE GOOD

23. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 23  “Fiscal Cliff” – $580 million in changes  Could decrease GDP growth by four percentage points  Federal deficit and debt  Dampers on growth, current models not sustainable  Entitlements – Medicare and Social Security  Not sustainable in the long run  State and local benefits burden  Health care and pension liabilities  European fiscal crisis – global affect  U.S. dollar affects, export demand, wealth lost BEGINNING WITH THE UGLY

24. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 24  Slow down in manufacturing  Production, exports  Sub-par employment growth  Job growth not keeping up with labor force growth  Macro tools having limited impact  Low interest rates, fiscal stimulus, QEs, twist ADDING IN THE BAD

25. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 25  Housing markets finally moving higher  Little happening in non-res construction  Motor vehicle sales are moving higher  Perpetuating sector growth SLOW PROGRESS THE GOOD

26. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy WORKFORCE OUTLOOK

27. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 27 Breach May 2015 JOBS RECOVERY OUR BEST ESTIMATES PUT THE BREACH AT MAY 2015

28. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy WORKFORCE PEAKED NO RECOVERY AFTER RECESSION, NONE EXPECTED

29. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 29 WISCONSIN’S WORKFORCE GROWTH BECOMES FLAT Source: Bureau of Labor Statistics, OEA

30. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy WORKFORCE PARTICIPATION TRENDS DWARF FLUCUATION

31. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy POPULATION PARTICIPATION FUNCTION OF RECESSION SEVERITY

32. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy IT’S THE YOUNG THAT ARE DELAYING ENTERING THE WORKFORCE

33. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy CHANGING LFPR GREATLY ALTERS WORKER AGE MIX

34. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 34 … the number of unemployed persons (12.8 million) and the unemployment rate (8.3 percent) … have shown little movement thus far in 2012. BLS, July 2012 employment report, August 3, 2012 US Employers post the most jobs in 4 years; by Christopher S. Rugaber, AP economics writer, Posted: Aug 07, 2012 9:42 AM CDT State manufacturers have jobs, need workers; postcresent.com; by Holly Hartung, Grace Edquist and Matt Oleson, Wisconsin Center for Investigative Journalism, August 1, 2012 Marinette Marine struggles to attract young workers, Training, dozens of positions available, but applicants are few By Rick Barrett of the Journal Sentinel, June 16, 2012 WAIT, WHAT HOW CAN YOU HAVE BOTH?!

35. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 35 We have: 1.223,600 people unemployed 2.43,400 job openings on JCW 3.UI benefits running out We also have:  Lack of correct skills fit  People looking for their old job  Crust of chronically unemployed WHAT’S THE PROBLEM NUMBER AND MIX OF JOBS NOT ALIGNED

36. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 36 IS IT CYCLICAL OR STRUCTURAL

37. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 37 DOROTHY

38. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 38 A little economic theory

39. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy Supply Theory Tells Us More Pay Yields More Work

40. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy $100 per day yields 3 days work (total earnings = $300) Area = $300

41. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy Increased pay translates into increased work (increased earnings)

42. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy Well, the guy only shows up for two days. This gives what we call a backward-bending supply curve.

43. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy At new wage, it only take 2 days to make $300 = S`

44. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 44  We face a serious quantity challenge  We face a serious quality challenge  We need to break into the crust of the chronically unemployed  Many are not prepared technically or civilly  Backward-bending supply curve for labor. THINGS HAVE CHANGED BREAKING NEW GROUND

45. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy

46. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 46 Questions ?

47. Wisconsin is Open for Business November 9, 2012 Sizing Up Today’s Economy 47 Dennis Winters Phone: 608-267-3262 Email: dennis.winters@dwd.wisconsin.gov Website: www.dwd.wisconsin.govwww.dwd.wisconsin.gov OEA website: www.dwd.wisconsin.gov/oeawww.dwd.wisconsin.gov CONTACT INFORMATION