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Sizing up Today’s Economy. Wisconsin Economics Association. Dennis Winters Chief, Office of Economic Advisors Department of Workforce Development November 9, 2012. ECONOMIC OUTLOOK. THE ECONOMY HAS CHANGED AND SO MUST YOU. ECONOMIC RECOVERY HOW IS THIS ONE NOT LIKE THE OTHER ONES.
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Sizing up Today’s Economy Wisconsin Economics Association Dennis Winters Chief, Office of Economic Advisors Department of Workforce Development November 9, 2012
ECONOMIC OUTLOOK
THE ECONOMY HAS CHANGED AND SO MUST YOU
WHY HAS THE RECOVERY BEEN SO SLOW
BUSINESS CYCLE SEVEREIT TOOK NINE QUARTERS TO RECOVER Recovered Source: BEA, OEA
REAL EARNINGS ARE FLAT
INTEREST INCOME TAKE HIT WITH LOW INTEREST RATES
HOUSEHOLD DEBT DELEVERAGING Source: Fed flow of Funds
HOME EQUITY WAS USED FOR CONSUMPTION NOW PART OF DELEVERAGING
REVOLVING CREDIT WAS USED FOR CONSUMPTION NOW PART OF DELEVERAGING 12 12 Source: Federal Reserve Board of Governors
NO SAVINGS – WAS USED FOR CONSUMPTION NOW PART OF DELEVERAGING 13 13
It is difficult to increase consumption when you: have stagnant income, are losing wealth, paying down debt, increasing savings, and are paying more for food and gas.
CORPORATE PROFITS AT NEW RECORDS MOSTLY DUE TO COST CUTTING
CORPORATE PROFITS BUILDING CASH HOARD 16
INVESTMENT GROWTHIS IN PRODUCTIVITY, NOT EXPANSION Source: BEA, OEA
MANAGING RISK WHERE IS THE INCENTIVE TO EXPAND
EXTENDING CREDIT BANKS ARE RETICENT TO LEND FUNDS Source: Federal Reserve Board, Data Download Program
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 CONCLUSIONCONTINUED RECOVERY
“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 WITHTHE UGLY
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 INTHE BAD
Housing markets finally moving higher Little happening in non-res construction Motor vehicle sales are moving higher Perpetuating sector growth SLOW PROGRESSTHE GOOD
WORKFORCE OUTLOOK
JOBS RECOVERYOUR BEST ESTIMATES PUT THE BREACH AT MAY 2015 Breach May 2015
WORKFORCE PEAKED NO RECOVERY AFTER RECESSION, NONE EXPECTED
WISCONSIN’S WORKFORCE GROWTHBECOMES FLAT Source: Bureau of Labor Statistics, OEA
WORKFORCE PARTICIPATION TRENDS DWARF FLUCUATION
POPULATION PARTICIPATION FUNCTION OF RECESSION SEVERITY
IT’S THE YOUNG THAT ARE DELAYING ENTERING THE WORKFORCE
CHANGING LFPR GREATLY ALTERS WORKER AGE MIX
… 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; byHolly 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?!
We have: 223,600 people unemployed 43,400 job openings on JCW 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
IS IT CYCLICAL OR STRUCTURAL
Theory Tells Us More Pay Yields More Work Supply
$100 per day yields 3 days work (total earnings = $300) Area = $300
Increased pay translates into increased work (increased earnings)
Well, the guy only shows up for two days. This gives what we call a backward-bending supply curve.
At new wage, it only take 2 days to make $300 S` =
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
CONTACT INFORMATION • Dennis Winters • Phone: 608-267-3262 • Email: dennis.winters@dwd.wisconsin.gov • Website:www.dwd.wisconsin.gov • OEA website: www.dwd.wisconsin.gov/oea