forecasting our future

Forecasting our FutureA regional look at the economy

A supplement to the

November, 2011

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On the cover:

(Clockwise from top left) Construction work on the addition at the Hagerty Insurance building, ripe cherries hanging from a tree, a crowded beach on East Grand Traverse Bay across from the Traverse City State Park, crowded streets during the annual sidewalk sale in downtown Traverse City and the early construction work of the cardiac diagnostic suite at Munson Medical Center.

File photos by Jan-Michael Stump and Keith King

Photo illustration by Pat Putney

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Table of ContentsNational PerspectiveBy George Mokrzan ......................................................................... 3TourismBy Bill O’Brien, Record-Eagle business editor .................................... 4State PerspectiveBy Bill Rustem ................................................................................. 5AgricultureBy Bill O’Brien, Record-Eagle business editor .................................... 6AgricultureSpecialty crop production in Michigan ............................................... 6Health CareBy Bill O’Brien, Record-Eagle business editor .................................... 8Local PerspectiveBy Doug Luciani ............................................................................... 9State ForecastBy Perry Adams ............................................................................. 10WorkforceBy Elaine Wood ............................................................................. 11ChartsCounty Populations in the U.S. Census .......................................... 12Northwest Michigan Employment by Job Sector .............................. 13Personal and Per Capita Income for Northwest Michigan ................. 15

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2011 ECONOMIC FORECAST 3TRAVERSE CITY RECORD-EAGLE

In the second half of 2011, the economic recovery has been slowed by European sovereign

debt contagion fears, softening of the housing market after expiration of tax credits, tax and regulatory uncertainty, the effects of the Japanese tsunami and historic international and domestic political events. In 2012, the economy is forecasted to gradually improve and real GDP is forecast to grow 2.5 percent, which at this stage of an economic recovery is below the post-World War II historical average. Fueling this expected GDP improvement is pent-up consumer demand, solid profit growth and cash flows, continued strength in the manufacturing sector and export growth, low inventory levels, plentiful liquidity, historically low interest rates and continued job growth.

Over the past couple of years con-sumer de-leveraging has come at the expense of consumption growth. Con-sumers have increased their saving rates to improve liquidity and reduce debt. Consumer credit debt service has fallen back into historical ranges and household debt obligations are at their lowest point since late 1993. Consumers still favor paying in cash rather than credit but have started to take on more loan debt. Saving rates are forecasted to adjust downwards into the 4-5 percent range next year from 6 percent, as consumer discre-tionary spending is forecast to pick-up next year.

However, even after the declines, the savings rate should remain above the low rates prior to the recession. Consumers are in a much better fi-nancial position to expand purchases next year and consumer lending is expected to expand in 2012 as consum-ers take advantage of historically low borrowing costs in conjunction with gradually improving balance sheets and job markets.

Corporate profits have staged a remarkable recovery from the reces-sion and reached a new high in the second quarter of 2011. This trend is expected to continue albeit at a decelerating growth pace of 5 percent. Firms are well positioned to expand payrolls and make capital invest-ments. Commercial and industrial lending is forecasted to grow in 2012

with the potential for upside surpris-es. High cash flows and strong profits are supportive of risk taking, yet low confidence levels in the domestic and global economy are elevating the risks of an economic downturn. Even in the forecasted slow-growth environment, modest single digit annual earnings growth can mean large increases in aggregate profits.

Similar to corporate profits, the recovery in manufacturing is expected to slow but remain a leading growth sector. Employment growth within the manufacturing sector has been the strongest since 2003 and 2004 – the last period when the industrial states were growing on par with the nation. The most-recent surge may have more durability as long as public policy re-mains supportive. Structural downsiz-ing and new technologies have made manufacturing more competitive in international markets. Export growth in the U.S. has been broad-based, as it has included the full spectrum of products, from raw materials to high value added capital equipment. A weaker dollar has supported export growth, but a productive manufactur-ing sector and rising worldwide inter-national trade have been the catalysts. Development of export growth prob-ably holds the key to the future of U.S. manufacturing.

Capital investment spending froze during the recession, but came back in a V-like fashion. The recent expansion in equipment spending was broad-based, but has been strongest in trans-portation and computer-related indus-tries. Business equipment spending is expected to slow from its torrid pace next year as temporary tax expensing privileges are likely to lessen. Hence, forecast risks for capital equipment spending are tilted to the downside.

The monetary policy outlook remains unchanged, with the Federal Reserve maintaining the Fed Funds target in its current 0-0.25% range through 2013. Recently, Chairman Ben Bernake outlined the potential for more me-dium to long-term security purchases (Operation Twist) should further eco-nomic stimulus be required. However, such purchases also pose inflationary risks that are probably high based on current economic conditions and com-modity prices. Employment growth in September confirmed a slow-growth economy, but generally did not indi-cate a double-dip recession. Thus, the Federal Reserve may implement measured increases in security pur-chases in the coming weeks, but is not forecasted to accelerate major quan-titative easing. Fed Fund rate risks are strongly to the upside if economic growth accelerates and inflation rises.

Long-term interest rates will likely remain close to current rates for the next few months and subsequently commence a long-term secular rise. Long-term bonds are still benefitting

from risk-aversion in worldwide finan-cial markets, especially with respect to European sovereign debt and Eu-ropean banks. As worldwide and U.S. economies gradually gain traction, long-term rates will likely gravitate to-wards levels consistent with economic growth, inflation and credit quality, all of which are forecasted to put upward pressure on long-term interest rates. A strong U.S. dollar trend is not in the immediate forecast, but the dollar could also come under severe down-ward pressure in the future if markets lose confidence in the ability or will-ingness of the U.S. to repay sovereign debt without creating inflation and higher interest rates.

Recession risks will likely remain elevated near-term due to continued concerns about Euro sovereign debt challenges, changing tax and regula-tion codes, lagging housing markets, state and local financial woes as well as U.S. federal debt concerns and fis-cal uncertainties.

George Mokrzan is the Chief Economist for Huntington Bank

Slow growth expected for United States economy in 2012N A T I O N A L P E R S P E C T I V E

Manufacturing remains a leading growth sector

G E O R G E M O K R Z A N

Local Columnist

2011 ECONOMIC FORECAST4 TRAVERSE CITY RECORD-EAGLE

By Bill O’[email protected]

TRAVERSE CITY – Northern Michigan’s tourism industry is coming off a solid season and

industry officials hope to build on that momentum for 2012.

“It was a very strong summer,” said Brad Van Dommelen, president of the Traverse City Convention & Visitors Bureau. “Our market is continuing to grow with more and more out-of-state travel.”

Statewide travel data from Smith Travel Research Inc. shows the re-gion’s tourism industry continued its summer momentum into the fall sea-son. Mid-summer numbers indicate the area’s measurement of “RevPAR” — or revenue per available room – climbed nearly 13 percent in Grand Traverse County from last year, with an 11 percent increase in the north-west Michigan region.

Those trends continued into the fall. From mid-September to mid-October, the RevPAR for Grand Tra-verse County lodging properties was up 13.8 percent from last year, while northwest Michigan showed a 14.9 percent increase.

Occupancy rates also showed a healthy increase from last year, totaling more than 70 percent over the month, the state’s top number. Occupancy rates are up more than 5 percent from last fall. Weekend oc-cupancy exceeded 90 percent.

“They’re all very positive signs,” Van Dommelen said.

State tourism officials said a major advantage for next year is that they don’t have to wait for lawmakers to decide how much the state will put in to its Pure Michigan promotional campaign. Pure Michigan funding was an annual political football in Lansing for several years, but has strong support from Gov. Rick Snyder and the 2011-2012 state fiscal year that started Oct. 1 includes another $25 million to fund a national cable television buy for a second straight year.

“We’re mapping out the whole cam-paign right now,” said George Zim-mermann, vice president of Travel

Tourism industry officials hope to ride momentum of 2011t o u r i s m

Occupancy rates — especially weekends — showed healthy growth

Crowds pack West End Beach for Fourth of July fireworks over West Grand Traverse Bay.Record-Eagle file photo/Jan-Michael Stump

see tourism page 14

Record-Eagle file photo/ Jan-Michael Stump

Lodging in the Traverse City area was often at a premium during the summer. Events such as the Traverse City Film Festival, Horse Shows by the Bay and Cherry Bomb Lacrosse Tournament, among others, bring visitors to the region.

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Relentless positive action. At the core of Michigan’s reinvention is this simple

philosophy. We will continue to look toward the future, rather than dwell on the past.

Michigan is in the process of rede-fining itself in a way that creates a new economy for the 21st Century. Talent attraction and retention are crucial to the new economy, which is why we will no longer accept 40 percent of our graduates leaving to find work in other states or our rank-ing as 47th among states in talent attraction. If we are going to reinvent Michigan, we must embrace a quality of life that attracts everyone, from the young person, to the entrepreneur, to the experienced professional and the retiree.

As a state, we have made great strides in the past year by transform-ing government, strengthening our

communities and regions, and recog-nizing the value of place-making. We have made investments in our future through an improved quality of edu-cation, a tax structure that is simple, fair and efficient, and a budget that reins in spending, pays down debt, and creates a structurally sound fiscal environment. Now we must leverage

these achievements to ensure that we are developing, retaining, and attract-ing talent.

Re-building Michigan’s economy will not only require us to harness Michigan’s premier talent but also to draw upon those interested in becom-ing residents of the Great Lakes state. Each and every Michigander is talent we refuse to lose.

For far too long in Michigan, deci-sions in both government and busi-ness were focused on short-term solu-tions to long-term problems. Today, we are focused on long-term success that benefits the entire state. Achiev-ing this goal means investing in those who’ve invested in Michigan.

The Michigan Economic Develop-ment Corporation (MEDC) is targeting its efforts on economic gardening, focusing first and foremost on ex-panding businesses that are already present in our state. The MEDC is hard at work helping Michigan start-up and second stage companies find the right talent and access capital through the Pure Michigan Business

Connect program.We know that Michigan talent

is spread throughout the country. However, many of these individuals would like to return home. We are committed to giving them that op-portunity through an innovative new program, MichAgain. This program collaborates with companies that are hiring in the state to aggressively recruit former (and future) talented Michiganders for job opportunities at home. This program is helping to give former Michiganders the oppor-tunity to return home and companies a chance to access Michigan’s highly-skilled global talent.

As any businessperson will tell you, the key to a successful business is talent. Making Michigan a state that cultivates, encourages and supports its talent is a key component in creat-ing our economy of tomorrow.

Michigan needs a talent develop-ment system that not only connects residents to today’s opportunities, but also prepares a pipeline of talent for

State officials talk up philosophy of ‘relentless positve action’S T A T E P E R S P E C T I V E

Michigan needs to use, acquire premier talent

B I L L R U S T E M

Columnist

SEE RUSTEM PAGE 12



TRAVERSE CITY – Bill Casier is upbeat about the prospects for his fruit and vegetable farm in

southwest Leelanau County.He’s coming off a decent growing

season, prices are solid, and demand is strong for his apples, cherries, peaches, pears and various vegeta-bles.

“It’s been a good year,” Casier said. “Sales are good.”

Casier is among northwest Michigan farmers benefitting from a surge in state agricultural. Some economists question the $70 billion-plus an-nual economic impact of Michigan’s farming industry, as touted by the state Department of Agriculture, but there’s little debate that agriculture is on the upswing.

A Michigan State University study estimates the state’s agricultural sec-tor grew nearly 12 percent since 2006. The U.S. Department of Agriculture reports that Michigan’s farm exports grew by almost 10 percent last year to about $1.75 billion.

Casier is optimistic those trends can continue. Fresh food farm mar-kets and retail outlets continue to grow, and schools increased fresh food product purchases from farmers. The value of direct farm-to-consumer sales exceeded $58 million in 2009, based on the latest available state figures.

“The school lunch programs are taking off nicely,” Casier said. “If you teach kids to eat healthy when they’re young, that will follow through.”

But farmers by nature can be a wor-risome sort, and Casier said the in-dustry faces plenty of challenges. His primary concern these days is finding enough labor to harvest his crops. The recent apple harvest almost stretched into November because he was short on help to hand-pick apples. That hurdle confronts other area growers.

“The biggest challenge for farm-ing right now in general is labor,” he said. “Almost every guy up here grow-

Good growing season has agriculture on the upswinga g r i c u l t u r e

State’s farm exports up nearly 10 percent over last year

Record-Eagle file photo/Keith King

Daniel Schmidt, left, and James Lyon guide dark sweet cherries onto a conveyor belt as they, along with others, harvest dark sweet cherries at Island View Orchards on Old Mission Peninsula.

A tank of harvested Pinot Blanc grapes lie in a tank at Brys Estate Vineyard and Winery.


Michigan’s $71 billion agricul-tural industry includes some of the nation’s leading specialty crops, including tart cherries, blueberries, Niagara grapes and several flori-cultural products. The most-recent production and sales information from the Michigan Department of Agriculture include:

Cherries — Michigan leads the U.S. in cherry production including 70 to 75 percent of tart cherries and 20 percent of its tart cherries. Michigan produced 242 million pounds of tart cherries in 2009 with an estimated value of $40.2 million, and 28,600 tons of sweet cherries valued at $13.6 million.

Apples — The economic impact of the state’s apple industry is esti-mated at $800 million per year with more than 7.5 million apples trees in production on more than 950 family-run farms in the Lower Peninsula.

Production in 2009 totaled approxi-mately 1.1 billion pounds with an estimated value of $124.6 million. Sixty percent of Michigan apples are processed into other products.

Grapes — Michigan growers pro-cessed 78,400 tons of grapes for wine and juice production in 2009 with an estimated value of $27.5 million. Its 14,600 acres of vineyards ranks fourth in the nation, while its 2,000 acres of wine grape vineyards ranks eighth in the U.S. Michigan’s 70-plus commercial wineries produce more than 450,000 cases per year.

Strawberries — Grown for both fresh and processed markets, 2009 strawberry production totaled $6.6 million with 43,000 tons of fresh strawberries and 3,000 tons of pro-cessed fruit.

Asparagus — The state ranks third

Specialty crop production in Michigan

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ing apples right now needs help.”

State and federal lawmakers continue to struggle to develop legislation to address undocu-mented workers, while allow-ing enough migrant workers to enter and harvest crops. Casier doesn’t expect a solution any-time soon.

“For agriculture in general, it’s a huge stumbling block,” he said. “They need to come up with a workable Visa pro-gram.”

Agricultural analysts said the region’s farming sector contin-ues to benefit from more crop diversity. The region relies less on tart cherry production and expanded other specialty crops: sweet cherries, grapes and new products such as hops.

Erwin “Duke” Elsner, a small fruit specialist with the MSU Extension office in Grand Tra-verse County, said area grow-ers shifted to new products, among them “dwarf”-style fruit

trees.“We’ve seen new acreage put

into grapes,” he said. “A lot of the grape acreage has gone into sites not managed for tree fruits.”

Another positive sign for the farming sector is the leveling of land values, in large part thanks to the country’s hous-ing sector collapse. There’s been less loss of farmland for housing because of the down-turn, although start-up costs for would-be farmers remains a challenge.

“Unless you’re producing something with a great return, it’s very, very costly to get started,” Elsner said.

in the U.S. for asparagus production with up to 2.5 million pounds grown each year. Production in 2009 was valued at $16.5 million, and it’s among Michigan’s earliest crops each spring.

Blueberries — Michigan leads the U.S. in production growing more than a third berries consumed in the country. Grown and processed by more than 600 family farms, the 2009 harvest produced more than 99 million pounds from 20 varieties. The sector’s annual economic impact is estimated at $101.8 million.

Potatoes — Michigan’s leading produce commodity by sales and volume totaling $156 million in sales from 735,000 tons harvested (2008). Michigan leads the U.S. in potatoes for chip processing.

Peaches/Pears/Plums — Michigan’s 2009 peach production in 2009 totaled 16,700 tons values at over $12 million. Pear pro-duction reached 4,200 tons ($1.4 million), while 2,000 tons of fresh and processed plums totaled $1.3 million.

Carrots/Cabbage/Celery — The state ranked second in U.S. carrot production in 2009 with 59.4 million pounds worth an estimated $12.6 million. Michigan cabbage farmers raised 7.6 million pounds worth

some $10.1 million. Celery production also ranked second in the country at 105.5 million pounds worth an estimated $14.8 million.

Honey/Maple syrup — Producers made 5.1 million pounds of honey in 2008, sev-enth in the U.S. worth an estimated $7.4 million. Maple syrup production in 2009 totaled 115,000 gallons.

Tomatoes/Sweet Corn — Tomato produc-tion reached $35.5 million in 2009, with 60 million pounds grown for fresh mar-ket sales and 132,600 tons for processing. Michigan growers raised 101.1 million pounds of fresh market sweet corn worth $23.6 million.

Christmas Trees — Michigan ranks third in the U.S. in tree harvesting with ap-proximately 3 million a year, and leads the U.S. with more than a dozen Christmas tree varieties available at wholesale. Com-mercial Christmas tree production covers about 42,000 acres with an estimated value over $41 million, plus another $1.3 million in wreaths, garland and other cut greens.

Floriculture — The state’s wholesale floriculture value totaled $393.5 million in 2008, trailing only California and Florida. Growers produced $187 million in sales of bedding and garden plants, second in the country, and the state leads the U.S. in sales value for 11 floriculture crops including impatiens, geraniums and petu-nias.

Crops

from page 6


Agriculture

from page 6

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TRAVERSE CITY – Northern Michigan’s health care sector continues to grow as an

economic driver in the region.The area’s employment base in the

health care and social assistance fields keeps expanding and should keep growing for the next few years, according to employment estimates from the Northwest Michigan Council of Governments. NMCOG estimates those sectors added close to 1,000 jobs since 2007, a nearly 9 percent growth rate. It’s forecast to added another 1,200 jobs by 2015, another 10 percent increase.

Munson Healthcare based in Tra-verse City remains the region’s largest health care employer, with close to 4,700 full- and part-time employees. Its employment base remains steady,

although Munson officials said it and other health care providers will have to continue dealing with ongoing changes in the health care industry.

“There will be more changes in health care in the next couple years than we’ve seen in the last 15 years put together,” said Ed Ness, Munson Healthcare’s president and CEO. Ness said Munson is bracing for a $100 million reduction in public and private reimbursements over the next decade, which could be even greater depending on other potential changes at the state and federal level.

Ness said that will necessitate

more efficiencies and partnerships among health care providers. Munson is trying to work more closely with hospitals within its umbrella, includ-ing smaller hospitals in Grayling and Cadillac, to collaborate in areas like supply purchasing and improving in-formation systems to reduce overhead and operating costs.

“I think the low-hanging fruit is gone,” Ness said. “We’re going to have to re-invent ourself to make sure we’re as effficient as possible.”

Munson will also work with larger hospitals to “fill in gaps” for health services so they can be provided closer to home for northern Michigan residents. Those include an expanded pediatric cardiology program with University of Michigan Health Sys-tem, and expanding a pediatric ortho-paedic clinic with Spectrum Health

based in Grand Rapids. Partnerships are also being pursued with other health care providers in areas like cancer research, he said.

The next year will also bring forth several facility issues for Munson Medical Center in Tra-verse City. Hospital officials will look at building a new patient bed tower, and consider construction of a can-cer center. Ness said Munson has limited options to expand at its Sixth Street cam-pus, and that the grow would happen on the north end of the facility. Munson offi-cials are already meeting with adja-cent neighborhoods to update resi-dents on possible expansion plans. Other off-site facilities may also be developed, he said.

Ness said no decisions have been made to proceed on a new bed tower or cancer center. But decisions will have to be made soon, he said, as Munson could exceed it existing bed capacity by 2016.

“We’ll have to make some decisions, probably by next summer, on what we’re going to go forward with,” he said.

Growth of region’s health care sector expected to continueh e a l t h c a r e

Nearly 1,000 jobs have been added since 2007

Health Care’s Economic Impact in Michigan

Direct Indirect/ Total Direct TotalRegion jobs induced jobs jobs salary/wages salary/wages North Central 21,820 11,663 33,482 $1,100,595,570 $1,497,216,680West Central 78,430 49,120 127,550 $3,887,444,500 $5,678,583,600Southeast Mich. 259,072 181,250 440,322 $14,364,461,100 $22,916,904,000Upper Peninsula 12,171 4,698 16,869 $589,258,400 $739,119,940

Source: 2008 estimates from the Michigan Health & Hospital Association

Ness

One of the patient rooms at the Munson Medical Center’s new Daniel and Debra Edson Cardiac Diagnostic Suite.

Record-Eagle file photo/Jan-Michael Stump

2011 ECONOMIC FORECAST 9

This year was a mixed bag in economic development. The Chamber saw unprecedented

activity in expansion opportunities. The number of active projects went from less than 20 in 2010 to more than 50 by June 2011. Unemployment dipped to lows under 9 percent. Deal flow appeared strong, with banks and investment funds seeing increased expansion interest from companies, and private equity capital flowed into the region.

State reforms also took shape in 2011. Legislative reforms reduced tax and regulatory burdens, and new programs were implemented by the Michigan Economic Development Corporation. Local governments coalesced around MEDC’s Next Michigan initiative that provides more tools for business expansion. And County Revolving Loan Funds are becoming less onerous and more regional in their application.

It would be easy to write about a rosy 2012 outlook based on the above, but it would be misleading. “Working on deals” is different than finish-ing them. During the second half of 2011 many expansion opportunities were either delayed or abandoned. Next year’s outlook will depend on the willingness of individual busi-nesses to use available tools and resources. Success will be localized and focused, with only incremental improvements to overall sectors.

There is plenty of available capital for businesses to expand, but it is cautious capital that undervalues in-ventory and assets while over-stating risk and ignoring entrepreneurial grit. The perception is that invest-ment dollars are available mostly to companies that need them least, while those struggling must pay high premiums – if they can get funding at all.

Also, unemployment rates are deceiving. Yes, unemployment moved from 11.5 percent to 9.5 percent, but the number of unemployed work-ers stayed relatively the same. What changed was available work force. Many unemployed workers left the region. In spite of a 9.5 percent unem-ployment rate, the region has a work-force shortage for the jobs growing fastest. Workers in demand are those skilled in areas including health care, engineering, welding, machin-ing, and jobs that require extraordi-nary communications or technical skills. On the “low-skill” end, the hospitality industry relied on foreign workers to fill hundreds of seasonal

and year-round positions.Next year will pose challenges

for businesses mostly due to uncer-tainty. Two major unknowns facing businesses are health care, which – besides being confusing – is largely undecided and is held hostage by election-year politics. The other is energy. This recession is different than previous ones concerning en-ergy. Previously, there was available energy capacity “on the shelf” to fuel economic recovery when it happened. Now, much of the available energy is being used and there are more plans to take aging power plants off-line than there are to build new ones. For an area dependent on other regions for its energy, this is a concern.

Initiatives are underway to deal with the issues most consequential to business in 2012. There are resources and strong leadership in the edu-cational, non-profit, and entrepre-neurial sectors. However, business owners must be actively engaged in the development and implementa-tion of solutions. Things won’t just get better if one hunkers down and waits it out. The successful businesses will be proactive, willing to consider new opportunities, abandon outdated practices, and take advantage of a wide array of available services.

In sum, look for a bumpy road for business in 2012, but one that still provides a means to move forward. It will be slower and more difficult than we would prefer, but we can reach our destination of prosperity and growth if we work together. There is a “fast lane,” but it will require aggres-sive perseverance on the part of each business owner and willingness to access and accept available help.

Doug Luciani is president and CEO of the Traverse City Area Chamber of Com-merce

Outlook depends on engagementL O C A L F O R E C A S T

D O U G L U C I A N I

Local Columnist


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Last year’s Michigan Outlook referred to the last decade as “The Lost Decade” and

pronounced that Michiganders will endure, and this decade will be known as the “My Michigan” decade.

Well, our Great Lakes State is off to a good start as the Bureau of Econom-ic Analysis reports that Michigan’s economy grew at a 2.9 percent pace in 2010 (ranked 15th in the nation) and the unemployment rate decreased 2.8 percentage points to 11.1 percent. Since the trough of the recession, Michigan has led the nation in total payroll growth at 2.4 percent versus U.S. growth of 0.5 percent.

The first several months of 2011 realized continued improvement as Michigan’s unemployment rate fell to 10.2 percent in April, before it rose to 11.2 percent in August. In general, persistent global uncertainties, cata-strophic natural disasters and his-

toric political events have weakened economic confidence and heightened risk aversion. Although U.S. economic indicators have been weakening of late, the forecast is for continued slow economic growth. More specifically, the Michigan economy should benefit from the continued recovery in the auto industry and sustained manufac-

turing growth. Following is a review of the industries and economic fac-tors vital to Michigan’s economy:

Manufacturing sector – Despite a four percentage point decline from 2008, the manufacturing sector still ranks as the number one contributor to Michigan’s economy and repre-sents approximately 17 percent of the State’s real GDP. This sector was the primary driver of Michigan’s econom-ic expansion in 2010 and was among the leaders in export growth for the nation. A widely followed report on manufacturing activity is The Insti-tute of Supply Management (ISM) – Manufacturing Report on Business, a publication that tracks and measures manufacturing activity.

From July 2009 to April 2011 this sector had solid expansionary read-ings. A measure above 50 generally indicates manufacturing is expand-ing and vice-versa. In May the ISM measures began to trend lower and in the past couple of months a hand-ful of the measures have fallen below the 50 mark, namely the New Orders,

Production and Backlog indices. The combination of sovereign debt concerns, the Japanese tsunami and historic international and do-mestic political events have been a catalyst that has heightened business cautiousness and slowed economic growth.

While economic growth has slowed and recession risks have elevated, the expectation for slow but posi-tive U.S. economic growth remains. Manufacturing activity is anticipated to remain stable as inventory levels relative to sales are near historic lows, automotive supply constraints are easing, and automotive fundamen-tals remain overall positive, which is particularly beneficial for Michigan.

Automotive Industry– From the depths of the financial crisis and the Great Recession, the automotive and related industries recently have been a solid positive on Michigan’s econo-my and employment growth. Since the trough of the recession, the automo-

After ‘The Lost Decade,’ economy looking up in MichiganS T A T E F O R E C A S T

Growth in 2010 was 15th best in nation

P E R R Y A D A M S

Local Columnist

SEE ADAMS PAGE 12

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Financial AdvisorRehmann – Traverse [email protected]

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Those of us who live in Northwest Michigan are all too familiar with 10-minute,

dramatic weather changes. But a sudden thunderstorm on an otherwise sunny day is small potatoes compared to the storm faced by a family that has lost its means of support and can’t get back on track as readily as in the past. For the family-supporting father or mother who thought they were playing by the rules and would be able to continue paying for their house and kids’ college based on their present employment, finding themselves face to face with bleak employment prospects is a storm that can’t pass fast enough. There’s especially no break in the clouds when that worker lacks the education and/or skills that today’s employers require, which, sadly, many of them do.

The long-term structural economic shift in which we are enmeshed has changed the game, especially for those who have become unemployed mid-stream in their working lives. The ramifications for many workers

are overwhelming and beyond those of a normal recession. Too many people who have lost their jobs are left hanging in this structural shift: unemployable in the new economy; understandably reluctant but even-tually forced to take a lower-paying, less-skilled job; scared of going back to school and unsure how to support

their family while shifting gears.This structural economic change

is certainly not hitting us out of the blue. It’s been building for at least two decades, but the economic tur-bulence of the past couple years has heightened the impact and is requir-ing us to trade our rowing oars for a high-horsepower motor.

Here’s some national data that sup-ports the anecdotal stories we hear from our neighbors and on the news, and possibly feel in our own families:

■ The duration of unemployment continues to rise. It has reached a level that is almost double the previ-ous peak in 1983 following the 1981-82 recession.

■ The percent of job losses relative to the peak employment month in each year since World War II is the highest ever from any recession.

■ Auto sector employment in Michi-gan, Indiana and Ohio fell by nearly 58 percent from 2000 to 2010.

■ A better-than-expected number of new jobs in September 2011 (103,000) still left the national unemployment

rate unchanged at 9.1 percent.■ The number of “discouraged

workers” accounts for at least the same number as those who are in the official unemployment figure. These are the folks who aren’t counted in the 9.1% unemployment rate because they have exhausted their Unemploy-ment Insurance, have resorted to two or three part-time jobs to get by, or may not even be looking for work any longer.

Then there’s the “partly sunny” side of the equation here in Michigan .

■ Our state’s agricultural sector, which includes farmers, proces-sors, equipment manufacturers, food product specialists and sellers, has become a major creator of new jobs, up over 50 percent in the last decade. Much of that growth is fueled by ex-ports to foreign markets.

■ Michigan is one of only seven states that added jobs last year, ac-cording to the U.S. Bureau of Labor Statistics.

Partly cloudy, intermittent thunderstorms, gradual clearingW O R K F O R C E

E L A I N E W O O D

Local Columnist

SEE WOOD PAGE 13


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tive industry has produced nearly 9,300 jobs and accounts for roughly 10.2 percent of Michigan’s non-farm payroll. Driving the recent growth (no pun intended) has been increased car sales and automotive production.

While we are nowhere near the 16.5 million annual vehicle sale average of yesteryear, actual North American vehicle sales for 2009, 2010 and 2011 consensus estimates are 10.4 million, 11.6 million and 12.8 million respec-tively. This year’s vehicle sale esti-mates were lowered from 13.4 million due to the impact that the Japanese tsunami had on automotive original equipment manufacturers (OEMs) and parts suppliers. Presently, there is an economic tug-of-war between the fundamentals of automotive growth.

On the contribution side is histori-cally low interest rates, good credit availability, low inventory, stronger consumer household balance sheets, an aging household fleet, pent-up demand and a street consensus es-timate of 13.8 million vehicles to be sold in 2012. On the detractor side is

stubborn high unemployment, a weak housing market, lower consumer confidence and elevated uncertainty. While the fundamentals related to the North American auto industry are mixed, the forecast is that the au-tomotive industry should continue to be a catalyst for growth in Michigan.

State & Local Government – The government sector contributes roughly 11.5 percent of Michigan’s real GDP and is one of the State’s largest real GDP contributors. The revenue tax base in Michigan has been declining for years but the pace of deceleration increased signifi-cantly with the onset of the financial crisis. The massive restructuring in late 2008 and throughout 2009 led to major job losses, a 14.5 percent peak in the State’s unemployment rate, and a brutal housing crisis which, in turn, drove housing values down significantly. Today, we are dealing with severely contracted state and local municipality budgets as well as highly-stressed school budgets. Since December 2007, over 35,000 local government and K-12 jobs have been lost to budgets cuts. The bright spot is Michigan’s House and Senate Fiscal Agencies project tax revenue growth in fiscal year 2010/2011 and the likelihood of tax revenue growth in

Michigan for 2011/2012 is high as the economy continues to slowly expand, employment gradually increases and the housing market stabilizes.

Loan Trends –Within the finance in-dustry, 2010 was a pivotal year as loss trends decelerated significantly, loss reserves strengthened and capital ratios greatly improved. According to the Federal Reserve’s July 2011 Senior Loan Survey, “banks continue to ease lending standards and most terms on all major types of loans oth-er than secured real estate.” This is a trend that began in late 2009, firmly took hold in 2010 and is expected to continue in 2012. It’s important to keep these trends in proper perspec-tive because while commercial and industrial (C&I) and consumer loan underwriting standards have become less rigid, they remain stringent when compared to historical stan-dards. The good news is that the cost to borrow funds is improving.

Risk premiums, also known as loan rate spread over the financial institutions cost of funds, have been decreasing for C&I and consumer loans. The main reason cited for more favorable underwriting terms and lower loan spreads is increased competition for loans. Loan demand for C&I has seen very modest increas-es, while consumer loan demand has been mixed. Consumer auto loan and credit card demand has increased, while other type of consumer loans remained flat. C&I and consumer

lending is forecasted to moderately increase in Michigan next year.

Consumer Spending – Over the past few years, consumers have been strengthening their household bal-ance sheets and this strength should be a catalyst for continued spending growth. Consumers have been pay-ing down revolving debt, refinancing mortgage debt, and increasing their savings as evidenced by the facts that household financial obligations have fallen to the lowest point since late 1993 and consumer credit contracted each month from October 2008 to Sep-tember 2010 (roughly $225 billion). The credit trend turned in October of 2010 as consumers began taking on more debt and credit expanded 10 consecutive months until contracting this past August. Consumer spend-ing however has remained resilient as evidenced by retail sales growth of 7.2 percent measured from August 2010 to August 2011. Although con-sumer confidence has remained weak of late, the combination of histori-cally low borrowing costs, positive employment growth and increased strength in personal financial posi-tions should result in a continued rise in consumer spending and retail sales in 2012.

For Michiganders this decade is off to a decent start and we will continue the march towards the “My Michigan” decade.

Perry Adams is Senior Vice President for Huntington Bank

Adams

from page 10

County Populations in the 2010 CensusMunicipality PopulationAntrim County 23,580 Benzie County 17,525 Charlevoix County 25,949 Emmet County 32,694 Grand Traverse County 86,986 Kalkaska County 17,153 Leelanau County 21,708 Manistee County 24,733 Missaukee County 14,849 Wexford County 32,735 Northwest Lower Michigan 297,912

Source: Northwest Michigan Council of Governments

the opportunities of the future. In the midst of a changing global economy, Michigan must adapt to the needs of employers and communities by developing and retaining talent that can compete in the global market. We can no longer allow a disconnect between employers’ demands and talents’ skill sets.

This month, Gov. Rick Snyder will release his Talent Special Message, laying out a comprehensive plan for how we will continue to reinvent the state through global talent develop-ment, attraction, and retention. Our ability to combine an unparalleled talent pool with an economic strategy aimed at the businesses and needs of tomorrow will ensure Michi-gan achieves success and is on the positive path to redefining our new economy.

Bill Rustem is director of strategy for Michigan Gov. Rick Snyder

Rustem

from page 5

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2011 ECONOMIC FORECAST 13

n The TechAmerica Foundation reports that Michigan gained more technology jobs last year than any other state.

n After hitting bottom in 2009 at the height of the recession, with only 8.6 million units produced, the auto companies are now growing and are projected to double that number within the next four years.

n Emerging markets in Asia and Eastern Europe are creating new avenues for Michigan’s products.

How does this mixed bag play out? It’s no different here in Northwest Michigan than it is around much of the country. Far too many people struggle to support their families while unem-ployed, staggering at the duration of their unemployment and their inabil-ity to find a job that’s comparable to the one they lost. Yet at the same time, hundreds of good jobs are going un-filled. We hear from a variety of busi-nesses that many are thriving, growing and looking for people to work.

Right here in our region, compa-nies have sought help from Michigan Works! for positions they are having trouble filling, most of them with decent to very good salaries, such as: equipment troubleshooting, repair and maintenance; CNC machinists and operators; certified auto mechan-ics; operations foremen; engineers; programmers; designers; welders; soft-ware developers; HVAC technicians; fabricators; healthcare technicians of all kinds. What do they all have in common? They require medium to high levels of post-secondary educa-tion, along with specialized training and skills.

This reflects the national “skills gap” that has resulted from the major structural changes we see in business. Global outsourcing may have started the trend of domestic job losses in the ’80s and ’90s, but now the skills gap presents us with a much more com-plex set of dynamics.

Technology continues to create greater efficiencies and productivity. It also contributes to the increasing gap between high-skill, high-wage vs. low-skill, low-wage jobs. Technology has reduced the number of people needed for many jobs. Much more significantly, though, it has increased the skill levels and knowledge needed for most jobs that pay well. The scope of technology’s impact on how work gets performed and what new jobs are created will continue to accelerate at an even faster rate.

The skills gap that’s making it so difficult for many unemployed work-ers to find a new, well-paying job will get worse before it gets better. Most of those who have been dislodged from the labor force still have a large num-ber of years remaining in their work lives. We must begin to recognize that investing in retraining these work-ers represents a significantly lower economic and social cost than just writing them off. We simply cannot af-ford to lose their talent, potential, and productivity.

Research shows that an investment in retraining our unemployed work-ers pays significant dividends in economic impact. A recent, extensive study by Economic Modeling Special-ists, Inc. for the National Association of Workforce Boards concluded that workforce investment programs gener-ate a 12.4 benefit/cost ratio, or a $12.40 cumulative value added for every dol-lar spent. And that figure does not in-clude the many other benefits that are well recognized but more difficult to quantify, such as avoided welfare and unemployment costs, increased tax revenues, reduced crime, increased volunteerism, improved quality of life, improved health, and increased regional competitiveness.

Regardless of whether your perspec-tive is predominantly business, eco-nomics, human services, faith-based, or any combination, workforce invest-ment makes good sense, especially in times of turbulent economic change.

Elaine Wood is Chief Executive Officer of the Northwest Michigan Council of Governments

NW Michigan (10 counties) Employment by Job Sector Job sector Total employment (2009) % change from 2000All private-sector industries 89,755 – 14.3%Retail trade 15,788 – 10.6%Health care/social assistance 15,760 + 24.9%Accomodations/food services 13,847 – 9.8%Manufacturing 12,300 - 41.6%Construction 5,135 – 43.1%Professional/technical services 3,583 – 3.7%Finance/insurance 3,361 +17.1%Information 1,652 – 9.3%Government (local, state and federal) 20,282 – 3% (since 2005)

Source: Michigan Department of Labor and Economic Growth

Wood

from page 11


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Michigan that runs the Pure Michigan campaign. “The fact that we’ll be able to buy sooner is always a good thing.”

Van Dommelen said the Traverse City CVB will again team up with Travel Michigan for a national cable ad buy next year touting the Traverse City area under the Pure Michigan brand. The local CVB puts up $500,000 toward the effort, which is matched by Travel Michigan for a total $1 million campaign. VanDommelen said the bureau was pleased with the results of this year’s campaign.

“We’d like to get it out a little sooner than last year,” VanDommelen said.

This year’s Traverse City spot didn’t air nationally until mid-June because of funding issues and it took time to produce the piece. Those won’t be factors next year and VanDommelen said they want to start advertising in the spring when consumers are making summer travel plans.

But officials acknowledge there are other factors that drive the tourism season. The weather is always a wild card for the tourism industry, Van Dommelen said, and summer condi-

tions have been excellent the past two seasons.

Summer gas prices also are a fac-tor. This year’s early-season gasoline prices inched near $4 a gallon but leveled off and fell slightly as the year went on. Stable gas prices next year could help boost the season, Van Dom-melen said.

The CVB also wants to bolster the area’s so-called shoulder seasons of late fall, winter and early spring by highlighting the region’s year-round at-tractions — wineries, shopping venues and wintertime events. The bureau plans fall and winter marketing cam-paigns in major Midwest cities includ-ing Chicago, Cleveland, Grand Rapids and Detroit to expand its non-summer tourism base.

“We’ll continue to promote Traverse City as a four season destination,” he said. “We want to let people know that Traverse City doesn’t board up and shut down when summer’s over.”

Tourism

from page 4

“We’ll continue to promote Traverse City as a four season destination.”

Brad Van Dommelen, Traverse City Convention & Visitors Bureau


Passengers make arrangements at Cherry Capital Airport.


Personal and Per Capita Income for Northwest MichiganLine Title 2009

UnITED STATESPersonal income ($000) $12,168,161,000Population (persons) 307,006,550Per capita personal income (dollars) $39,635

STATE Of MIChIGAnPersonal income ($000) $342,114,023Population 9,969,727 Per capita personal income (dollars) $34,315% of U.S. 86.6%

AnTRIM COUnTYPersonal income ($000) $738,406Population 23,834Per capita personal income (dollars) $30,981% of Michigan 90.3%% of U.S. 78.2%

BEnzIE COUnTYPersonal income ($000) $518,577Population 17,227Per capita personal income (dollars) $30,103% of Michigan 87.7%% of U.S. 76%

ChARLEVOIx COUnTYPersonal income ($000) $927,289Population 25,796Per capita personal income (dollars) $35,947% of Michigan 104.8%% of U.S. 90.7%

EMMET COUnTYPersonal income ($000) $1,266,681Population 33,649Per capita personal income (dollars) $37,644% of Michigan 109.7%% of U.S. 95%

GRAnD TRAVERSE COUnTYPersonal income ($000) $3,119,045Population 86,333Per capita personal income (dollars) $36,128% of Michigan 105.3%% of U.S. 91.2%

KALKASKA COUnTYPersonal income ($000) $418,483Population 16,891Per capita personal income (dollars) $24,776% of Michigan 72.2%% of U.S. 62.5%

LEELAnAU COUnTYPersonal income ($000) $871,908Population 21,899Per capita personal income (dollars) $39,815% of Michigan 116%% of U.S. 100.5%

MAnISTEE COUnTYPersonal income ($000) $707,857Population 24,439Per capita personal income (dollars) $28,964

% of Michigan 84.4%% of U.S. 73.1%

MISSAUKEE COUnTYPersonal income ($000) $350,251Population 14,838Per capita personal income (dollars) $23,605% of Michigan 68.8%% of U.S. 59.6%

WExfORD COUnTYPersonal income ($000) $855,628Population 31,553Per capita personal income (dollars) $27,117% of Michigan 79%% of U.S. 68.4%

TRAVERSE CITY MICRO STATISTICAL AREA(includes Benzie, Grand Traverse, Leelanau

and Kalkaska counties)Personal income ($000) $4,928,013Population 142,350Per capita personal income (dollars) $34,619% of Michigan 100.9%% of U.S. 87.3%

nORThWEST MIChIGAnPersonal income ($000) $9,774,125Population 296,459Per capita personal income $32,970% of Michigan 96.1%% of U.S. 83.2%

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