Businesses and Experts Confident About Southeastern Michigan Economy, Not Consumers
Our GoldStar panel of expert economists and business executives are cautiously optimistic about the economic outlook for Southeastern Michigan. This outlook has consistently been significantly above the neutral score of 50. In contrast, consumers have been consistently stuck in neutral regarding the current economy. This gap has been consistent over the last 4 quarters and is illustrated in the figure below.
Our GoldStar panel of expert economists continue to be even more optimistic about the future economic outlook for Southeastern Michigan than the current economic outlook. Although consumers are also much more optimistic about the future than the current economic outlook they continue to be significantly below the experts. These results are illustrated in the figure below. Business executives were not surveyed about their expectations; a year from now; this will be rectified in our next survey.
The gap between the expert’s and the consumer’s outlook for the future versus the current economy is about 13 points. Unfortunately this gap is increased by over 5 points since last quarter’s survey. This again reflects the consumer’s feelings that they are not sharing in the region’s recovery. This differential is seen in the table of results below. Consistent with this interpretation high income consumer’s and those with graduate degree’s outlook is in-line with those of the experts.
||Change from Previous Quarter
Business Optimism Plateaus
Business executives continue their positive outlook entering the third quarter, reporting confidence well above neutral in sales, profit, and hiring expectations. Capital expenditure fell to a neutral level, with respondents indicating expenditures at their firms will continue at second quarter level.
Values for all components of the Business Confidence Index, except capital expenditure expectations, are substantially above the neutral level of 50 and the neutral range of 42 to 58. The overall Index is 63.4, a decline of 1.9 points from Q2 2014—which is not significant.
Capital expenditures decreased 7.3 points to 54.9, a neutral level from the previous positive outlook. Respondents believe that capital expenditures at their firms will continue at the second quarter level (significantly above the first quarter 2014 level) and not continue to grow.
In contrast, sales, profits and hiring will continue to grow at the same rate as forecasted last quarter since their indexes were statistically the same as they were in the second quarter. This is especially important in the labor market as SE Michigan struggles to narrow the gap between the local and national unemployment rates.
The figure below shows the time trend of the composite index since its conception. It shows that business executives believe that the local economy will continue to grow at the same rate next quarter after an increase in forecasted growth for the second quarter.
The SE MI Business Confidence Index is forward-looking, measuring economic expectations for the upcoming quarter gathered from a broad group of business executives across the Southeastern Michigan region. It is part of the SE MI Economic Outlook project (http:// www.oakland.edu/business/economic-outlook).
The survey is disseminated to businesses who first register as participants. Registration is open to all businesses in Southeastern Michigan. For classification and verification, the registration asks for company information regarding business type, employment size, and revenues. If you are interested in registering as a participant in order to receive invitations to complete our quarterly survey, you can do so at http://oaklandbusiness.qualtrics.com/SE/?SID=SV_0kMKM3rmgwF4vxH.
We would like to thank the 41 business leaders who completed the survey during the first two weeks of June. As the survey expands to include more participants, further analysis is planned to include breakdowns by individual industries and business characteristics, as well as to look at trends over time. The next survey will be the first two weeks of September 2014.
Calculation of Business Index
The Business Confidence Index is calculated using all six survey questions. A five-part scale is used for the industry indicators: strong increase, moderate increase, no change, moderate decrease, strong decrease. The economic indicators also employ a five-part scale, but the wording is: much better, somewhat better, remain the same, somewhat worse, much worse. These choices are weighted +2, +1, 0, -1, & -2. The composite index (CI) is
The item index (II) for each survey question is
Both CI and II will a range between 0 and 100. An index of 50 suggests neither positive nor negative business confidence. Values above 50 indicate positive business confidence; values below 50 indicate negative business confidence.
Consumer Outlook Unchanged
Consumer confidence for the third quarter is consistent with second quarter results at 51.7, reflecting consumers' lackluster outlook for the national economy.
The SE MI Consumer Confidence Index registered 51.7 for the third quarter of 2014, no change from the second quarter of 2014. The Index has shown minor improvement since its inception in the fourth quarter of 2013, and consistently remains just above 50 – the level for a neutral outlook (45 to 55). Dragging down the Consumer Confidence Index is consumers’ outlook for the National economy next year, as well as over the next five years, and their difficulty in getting along financially. Consumers are most optimistic about their financial condition improving next year with a value of 58.8, the only Index component above the neutral range.
The SE MI Consumer Confidence Index reflects the slow economic recovery since the recession end in June 2009, and a stall in the local labor market in the 1st quarter of 2014. The local unemployment rate (7.9%) continues to be substantially above the national rate (6.3%), although the difference has shrunk by over 2.5% in the last 4 years. Wage gains above inflation have been meager.
Total nonfarm employment for the Detroit-Warren-Livonia Metropolitan Statistical Area stood at 1,840,900 in March 2014, down 4,400 or 0.2 percent over the year. During this same period the national job count increased 1.6 percent.
The SE MI Consumer Confidence Index measures the degree of optimism that consumers are expressing through their activities of savings and spending and their expectations about the future of the economy. Five questions are asked. A five-part scale is used for each question with the choices weighted +2, +1, 0, -1, -2. The overall Index = (((Sum of responses / # surveys)*25) +50). The range is 0 to 100, with 50 the neutral point and 45 to 55 the neutral range. An index is similarly calculated for each of the five components of the survey. The index is part of the SE MI Economic Outlook project (http://www.oakland.edu/business/economic-outlook).
Calculating the Index
The SE MI Consumer Confidence Index measures the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending. The more confident people feel about the economy and their jobs and incomes, the more likely they are to make purchases. Declining consumer confidence is a sign of slowing economic growth and may indicate that the economy is headed into trouble.
Respondents are surveyed quarterly and asked two questions about current financial conditions:
- Are you better or worse off financially than a year ago?
- Is now a good or bad time to buy major household items?
There are three questions about future expectations:
- A year from now will you be better or worse off financially?
- For the country, do you think the next year we will have good or bad financial times?
- For the country, do you think the next five years we will have good or bad financial times?
The Consumer Confidence Index is calculated using all five survey questions. A five-point scale is used with the choices weighted +2, +1, 0, -1, and -2. The composite index (CI) is
The item index (II) for each survey question and is
CI and II will be between 0 and 100. An index of 50 is neutral, suggesting neither positive nor negative consumer confidence. Values above 50 indicate positive consumer confidence; values below 50 indicate negative consumer confidence.
Gold Start Expert Panel Forecast for 2015
Population, Private Employment, Per-capita Personal Income are annual percent change from the previous year for the SE MI region. The Unemployment Rate (SA), CPI, and the Case-Shiller Housing Price Index (SA) are the December year over year rate change for SE MI. U.S. Light Vehicle Sales is the calendar year total in millions of units.
Moderate Expansion in 2014 SE MI Economy
The 8 GoldStar Expert Economists are cautiously optimistic about the 2014 economy (6 out 9, 5 being neutral). This forecast is consistent with the June 2014 national forecast from the Federal Reserve of real GDP growth of 2.2% in 2014. The GoldStar panel upgraded the forecast for housing prices and nominal per-capita personal income. They forecast housing prices will increase 12% (from December to December) in 2014 compared with the March forecast of an average price increase of 8% for 2014. With inflation forecast remaining at 2% real per-capital personal income will gain 1.5% in 2014 up from the March 2014 forecast of 1% .
The local unemployment rate is predicted to continue its steady decline from 8.8% in December 2013 to a forecasted 7.8% in December 2014. It will remain substantially above the Federal Reserve forecast for the nation (June 2014) of 5.5% for the last quarter of 2014.
Beginning this quarter, there have been a number of changes to the GoldStar forecast. First, the panel is forecasting their outlook for the economy in 2014 and 2015. They are using a 9 point scale with 5 being neutral, 1 being very pessimistic and 9 very optimistic. Secondly, the unemployment rate and the growth in housing prices are being forecasted for December (SA) rather than the year average. These changes are more inline with the way the public views the numbers.
Increased Expansion Forecasted in 2015 for SE MI Economy
The GoldStar Expert Economists are more optimistic about the 2015 economy (6.5 out of 9). This forecast is consistent with the national forecast from the Federal Reserve of real GDP growth of 3.1% in 2015. Interestingly, the forecast from the Federal Reserve, in recent years, has been optimistic with regular downgrades. For every measure the experts forecasts increased for 2015 compared to last quarter’s forecasts. Even though their forecast for inflation increased to 2.5% for 2015, they saw an increae in real incomes of 1.25% compared to last quarter’s forecast of 1% (nominal income minus inflation). The local unemployment rate is predicted to continue its decline to 7.2% in December 2015. Although still substantially above the forecast for the nation from the Federal Reserve (June 2014) of 5.3% for the last quarter of 2015, the difference is shrinking.
Calculating the Forecast
The Gold Star Expert Panel polls top business economists in Southeastern Michigan quarterly collecting their forecasts of regional employment growth, personal income growth, population growth, home prices, unemployment rate, median family income and U.S. auto sales.
For each item a panel member specifies his/her forecast of growth for the current year and for next year. Each forecaster's prediction is published along with the consensus forecast, for each variable. To calculate the consensus, the high and low are eliminated and the remaining forecasts are averaged. The number of forecasts raised, lowered, or left unchanged from the previous quarter is also reported.
Southeastern Michigan Public Policy Issue
Question posed: Replacing gasoline taxes with a user fee based on distance driven over roadways in Michigan with higher rates for heavy vehicles (that cause the most damage) is an efficient, productive and smart way to finance Michigan's transportation infrastructure.
GoldStar panel of economic experts
— Five of the eight either strongly agreed or agreed with moving from a gasoline to miles driven tax to support Michigan’s roads and bridges. They did however express concern over the privacy issues in implementation. Many also believed that a combination of taxes would be a better approach. Their score of 3.63 was the highest of the 3 groups. However, because of the small sample size (8) and variability, it was not significantly different than an uncertain score of 3.
— were split with, 43 percent of consumer in favor, and 30 percent against with a large number uncertain at 25 percent. Their score was 3.12.
—- were also split with 44 percent in favor and 49 percent against. A typical comment is a user fee based on distance and weight is a fair way to pay for roads but I am concerned about the bureaucracy and privacy issues that goes along with it and the difficulty in enforcement. Their score of 2.97 was the lowest of the three groups.
Deeper Look into the Consumer Group
Wayne and Macomb County respondents were in favor of the tax, while respondents from Oakland County and the cities of Detroit and Pontiac were uncertain.
Those between 30 and 45 were uncertain about the tax while all other age groups were in favor of the tax.
Males were in favor while females were uncertain.
High income respondents (over $80K household income) were in favor of the tax while those with lesser household incomes were uncertain.
Respondents without a high school degree and college graduates were in favor of the tax, while those with a high school degree, some college or post high school training, or a graduate degree were uncertain. We suspect that many of those without a nigh school degree are current high school students, We will make sure that this is known for the next survey.
About the Policy Forum
The policy form explores the extent to which Southeastern Michigan economists, business executives, and consumers agree or disagree on a major public policy issues facing Southeastern Michigan. The question is included on the quarterly Business and Consumer Confidence surveys and on the Expert Panel Forecast survey conducted by the Economic Outlook Project at Oakland University.