Ann Arbor Business Monthly January 2016 : Page 1

BUSINESS MONTHLY • ann arbor • chelsea • dexter • manchester • milan • saline • whitmore lake • ypsilanti ann arbor area Volume 11, No. 11 January 2016 $2.00 Strong Economy Going Into 2016 By David & Margaret Baker On December 16th, the Federal Reserve took us into a new era by raising target interest rates for the fi rst time in almost a decade, a sign that the U.S. economy is expected to improve. And by most accounts, the economic outlook is fairly rosy. At The University of Michigan’s 63rd Annual Economic Outlook Conference toward the end of 2015, a group of economists from the Research Seminar in Quantitative Economics (RSQE) in the U-M Department of Economics made some predictions. According to Daniil Manaenkov, Gabriel Ehrlich, Matthew Hall, Ben Meiselman and Aditi Thapar, 2016 is shaping up to be a pretty good year: 2.4 million new jobs added, unemployment dropping to 5.3%, GDP at 2.6%, 1.13 million new homes built, and 18 million new vehicles sold. Manaenkov notes, “Labor market conditions are improving, wage growth is picking up again, vehicle sales are booming and the housing market is continuing its recovery.” He added that the modest economic performance of 2015 actually “masks a stronger domestic economy slowed by sluggish growth in its trading partners.”The stronger economic underpinnings will start to be seen in 2016. But before we get too excited, there is also reason for caution. Raising interest rates can be tricky, with consequences that are dif fi cult to predict. And U.S. trading partners can still have an adverse effect on the U.S. economy. According to Thapar, “The turmoil in fi nancial markets earlier this year served as a reminder that the United States is not insulated from economic events in the rest of the world.” A number of trading partners experienced weakness in their economies, which adversely affected net exports” to the U.S. The Michigan Economy While the U.S. economy is expected to improve overall, Michigan’s outlook is expected to hold steady, according to Dr. the end of 2017 to its level in the spring of 2003.” The Michigan unemployment rate, meanwhile, is expected to continue to drop from 5.4% in 2015 to 4.9% in 2016. With the Federal Reserve raising interest rates, in fl ation will now start to become an issue. However, Fulton predicts only moderate increases to in fl ation in Michigan. “Core in fl ation picks up again [in 2016],” says Fulton, but remains moderate. Energy prices rise modestly throughout 2016 and 2017. Local in fl ation increases to 1.6 percent in 2016 and to 2.4 percent in 2017.” Personal incomes are expected to increase 4.4%, outpacing local in fl ation but dampening real disposable income growth from 5.0% in 2015 to 2.8% in 2016. Some of Michigan’s success can be attributed to policies and a developing culture of economic freedom and entrepreneurialism. The Economic Freedom of North America report published by the Fraser Institute provides U.S. state rankings indexed by economic freedom. The 2015 freedom index attempts to measure the degree to which governments across Canada, the United States, and Mexico restrict (or permit) economic liberty. According to the index, Michigan ranks 27th among the 50 states in economic freedom. Dean Stansel, one of the architects of the report, says that Michigan has moved up from 40th in 2010 data and 33rd in 2011. According to Stansel, these changes in the “more free” direction are nothing to dismiss as they could portend greater economic well-being for the Great Lake State. Michael D. LaFaive is 2016 Economy (Continued Page 3) INSIDE: Stadium Hardware Changes Ownership But Not Its Direction – Page 4 Layoffs Expected To Subside While Hiring & Wages Increase – Page 5 Beware Claims Of State Budget Cuts – Page 7 A Better Deal–– What Can Happen If I Break My Contract? – Page 8 Small Business & The Internet By Mike Gould “Anonymous” – Page 9 Business Briefs – Pages 10-11 Make Plans Now To Place Your Advertising For 2016 Where Businesses Are Reading–– In the Pages of ann arbor area BUSINESS MONTHLY February Deadline is January 22 George A. Fulton. Fulton is the director at RSQE and research professor at the University’s Institute for Research on Labor, Employment, and the Economy, where he is director of the Center for Labor Market Research. According to Fulton’s “Michigan Model” economic forecasting, Fulton expects job growth for Michigan in 2016 to be just over 1.4% with 61,100 new jobs added followed by 64,800 new jobs in 2017. “Our outlook sees the job count returning by ann arbor area BUSINESS MONTHLY P. O. Box 460 Hamburg, MI 48139-0460 PRSRT STD US POSTAGE PAID ST JOSEPH MI PERMIT #335

Strong Economy Going Into 2016

David Baker,Margaret Baker

On December 16th, the Federal Reserve took us into a new era by raising target interest rates for the first time in almost a decade, a sign that the U.S. economy is expected to improve.

And by most accounts, the economic outlook is fairly rosy. At The University of Michigan’s 63rd Annual Economic Outlook Conference toward the end of 2015, a group of economists from the Research Seminar in Quantitative Economics (RSQE) in the U-M Department of Economics made some predictions. According to Daniil Manaenkov, Gabriel Ehrlich, Matthew Hall, Ben Meiselman and Aditi Thapar, 2016 is shaping up to be a pretty good year: 2.4 million new jobs added, unemployment dropping to 5.3%, GDP at 2.6%, 1.13 million new homes built, and 18 million new vehicles sold.

Manaenkov notes, “Labor market conditions are improving, wage growth is picking up again, vehicle sales are booming and the housing market is continuing its recovery.” He added that the modest economic performance of 2015 actually “masks a stronger domestic economy slowed by sluggish growth in its trading partners.”The stronger economic underpinnings will start to be seen in 2016.

But before we get too excited, there is also reason for caution. Raising interest rates can be tricky, with consequences that are difficult to predict. And U.S. trading partners can still have an adverse effect on the U.S. economy. According to Thapar, “The turmoil in financial markets earlier this year served as a reminder that the United States is not insulated from economic events in the rest of the world.” A number of trading partners experienced weakness in their economies, which adversely affected net exports” to the U.S.

The Michigan Economy

While the U.S. economy is expected to improve overall, Michigan’s outlook is expected to hold steady, according to Dr. George A. Fulton. Fulton is the director at RSQE and research professor at the University’s Institute for Research on Labor, Employment, and the Economy, where he is director of the Center for Labor Market Research.

According to Fulton’s “Michigan Model” economic forecasting, Fulton expects job growth for Michigan in 2016 to be just over 1.4% with 61,100 new jobs added followed by 64,800 new jobs in 2017. “Our outlook sees the job count returning by the end of 2017 to its level in the spring of 2003.” The Michigan unemployment rate, meanwhile, is expected to continue to drop from 5.4% in 2015 to 4.9% in 2016.

With the Federal Reserve raising interest rates, inflation will now start to become an issue. However, Fulton predicts only moderate increases to inflation in Michigan. “Core inflation picks up again [in 2016],” says Fulton, but remains moderate. Energy prices rise modestly throughout 2016 and 2017. Local inflation increases to 1.6 percent in 2016 and to 2.4 percent in 2017.” Personal incomes are expected to increase 4.4%, outpacing local inflation but dampening real disposable income growth from 5.0% in 2015 to 2.8% in 2016.

Some of Michigan’s success can be attributed to policies and a developing culture of economic freedom and entrepreneurialism. The Economic Freedom of North America report published by the Fraser Institute provides U.S. state rankings indexed by economic freedom. The 2015 freedom index attempts to measure the degree to which governments across Canada, the United States, and Mexico restrict (or permit) economic liberty.

According to the index, Michigan ranks 27th among the 50 states in economic freedom. Dean Stansel, one of the architects of the report, says that Michigan has moved up from 40th in 2010 data and 33rd in 2011. According to Stansel, these changes in the “more free” direction are nothing to dismiss as they could portend greater economic well-being for the Great Lake State.

Michael D. LaFaive is the Director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy. LaFaive is known for his scholarly work examining state economic development initiatives. “Economists have long investigated how and why some nations and people grow rich using a number of valuable categories,” notes LaFaive. “Their conclusions are usually mundane: property rights, the rule of law and an ability to engage in voluntary exchange often rank high on the list of qualities associated with national wealth. In other words, economic freedom matters.”

Although Michigan is only ranked as an average state for economic freedom, there is much to be celebrated. “Michigan’s middling performance may not seem impressive,” says LaFaive “but it does reflect improvements over time. . . Michigan has made important strides in the past few years.”

Other economist say that the key to Michigan’s economic growth is with smart policies that anticipate emerging trends and capitalizes on available opportunities.

John Austin directs the Michigan Economic Center at Prima Civitas Foundation, a center for ideas and network-building to advance Michigan’s economic transformation. Austin is also a Nonresident Senior Fellow with the Brookings Institution and President of the Michigan State Board of Education.

Austin is adamant that Michigan policy makers need to actively support new technological initiatives in order to keep moving Michigan forward economically. Austin recently co-authored a report with Susan Zielinski of SMART at the University of Michigan called “Building the New Mobility Economy.” The report benchmarks Michigan against other global regions for the “mobility economy” and examines what Southeast Michigan needs to do to become the “Silicon Valley” of new mobility.

Austin and Zielinski are clear that the state of Michigan should take a more active role in developing this industry. According to Austin, “Michigan has many of the assets in place to lead this revolution, but will have to do much more to put the right policies in place, and to deploy the platforms that will support New Mobility business growth over the long term. . . “Michigan also won’t attract and keep its young talent and new mobility entrepreneurs and investors if we don’t deliver the kinds of communities and transportation systems they want and need.”

Comparing economic freedom and state investment for growing our Michigan economy is a topic that will continue to be discussed among policy makers. This month the Detroit Economic Club (DEC) is hosting and Detroit Free Press journalist Tom Walsh will moderate the Michigan Economic Outlook luncheon panel to discuss growing Michigan’s economy.

Our Regional Economy

Locally, there is no obvious way to handle Ann Arbor when talking about Michigan economic regions. The Michigan Economic Development Corporate (MEDC) uses Economic Development Collaborative (or Prosperity Regions) and puts Ann Arbor and Washtenaw County with five other counties: Livingston, Jackson, Hillsdale, Lenawee, and Monroe.

Other economic development groups include theses counties as part of Southwest Michigan along with other counties: Genesee, Macomb, Shiawassee, Lapeer, Oakland, and Wayne. The Detroit Regional Chamber calls it the “Detroit Region” and uses this definition of an economic region when it reports the State of the Region at the end of each year.

Sandy Baruah is President and CEO of the Detroit Regional Chamber and is very optimistic about the region’s economy in 2016. “Over the past five years,” says Baruah, “there has not been a more compelling economic development story than that of the Detroit region. The domestic automotive industry re-engineered from the brink of collapse now exceeds pre-recession production levels.”

Our region has been strong relative to the national average. According to Baruah, “the region is growing and rapidly reemerging as a national economic leader – outperforming most of the country in many key indicators, including gross domestic product and private sector job growth.”

• GDP Growth: outpaced the national average by 5%

• Job Growth: outpaced the national average by 4.4%

• Unemployment: dropped to 3.2%

• Per Capita Income Growth: 3.8%

Washtenaw County is particularly strong in our region. Covering 710 square miles and home to a population of roughly 350,000, the Census Bureau estimates our per capita income as $33,495, the highest in our region after Oakland County. The current unemployment rate in Washtenaw is 5.7%, and Dr. Fulton estimates adding 4,200 new jobs in Washtenaw in 2016.

For Ann Arbor specifically, there is much stability and diversity but only modest growth. According to the Forbes list of The Best Places for Business and Careers, Ann Arbor has solid economic footing:

• Metro Population: 357,300

• Gross Metro Product: $21.9B

• Median Household Income: $60,478

• Median Home Price: $213,500

• Unemployment: 3.9%

On the modest side, job growth is roughly 1.2%, putting Ann Arbor at #56 among U.S. Metropolitan Statistical Areas (MSAs). In any case, as Fulton says, Michigan is continuing to grow, and with the close of 2015, has “ finished its sixth year of economic recovery since the previous recession’s low point in the summer of 2009, and we are forecasting at least two more years of growth.” And Ann Arbor will certainly continue to contribute to maintaining this upward trend for Michigan.

Read the full article at http://digitaleditions.walsworthprintgroup.com/article/Strong+Economy+Going+Into+2016/2363577/286620/article.html.

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