2008 Economic Forecastfor the 5-County Region of Antrim, Benzie,Grand Traverse, Kalkaska, and Leelanau CountiesSponsored by:Prepared by:November 2007
The Traverse City Area Chamber of Commerce helps to grow business and build community. It helps togrow business by promoting its members’ businesses and delivering sales leads, providing cost-cuttingbenefits, and sponsoring networking programs. It builds community by giving its members a voice in thegrowth of the region, bringing together groups to address the region’s biggest issues, and helping torecruit and retain enterprises in the area.
The Traverse City Area Chamber of Commerce would like to thankthe following contributors to the 2008 Economic Forecast:Robert Barnard, Blue Skie Computers & Business CenterTino Breithaupt, Traverse Bay Economic Development CorporationMatt Case, Traverse Area Association of RealtorsStephen Cassens, Cherry Capital AirportDon Coe, Black Star FarmsBryan Crough, Traverse City Downtown Development AuthorityJim Glassman, JP Morgan ChaseRobert Gluszewski, Consumers EnergyGavin Goetz, AT&T MichiganMike Hill, Traverse Bay Area Intermediate School DistrictBarb Gordon Kessel, Munson HealthcareMathias McCauley, Northwest Michigan Council of GovernmentsDebra McKeon, NorthSky Nonprofit NetworkKathleen Maisonville, Home Builders Association of Grand Traverse AreaSteve Merten, Fawcett/Dopke Agency, Inc.Tim Nelson, Northwestern Michigan CollegeMichael Orden, Real Estate OneKarmin Philp, ManpowerSteve Rawlings, DTE EnergyJohn Sak, BORIDE Engineered AbrasivesJames A. Schmuckal, James Schmuckal RealtorsBob Sutherland, Cherry RepublicTroy Terwilliger, Graceland FruitBrad Van Dommelen, Traverse City Convention & Visitors BureauJan Warren, Northwest Michigan Works!A.J. Yuncker, Natural Gas Compression Systems
TABLE OF CONTENTS:2008 Economic Forecast Considerations 1The Global Economy 2The Global Outlook.2Global Indicators .3The National & State Economy 4The National & State Outlook .4National Indicators .6State Indicators .7The 5-County Regional Economy 8The Regional Outlook .8Regional Indicators.10Employment .10Unemployment .11Population .12Age Characteristics .13Income & Wages.14Regional Industry Profiles.15Agriculture, Forestry, and Fishing .16Mining (Extraction) .18Utilities .20Construction .22Manufacturing .24Wholesale Trade .26Retail Trade .28Transportation and Warehousing.30Information (Communication) .32Finance and Insurance .34Real Estate.36Professional and Technical Services .38Administrative Services .40Health Care and Social Assistance.42Arts, Entertainment, and Recreation .44Accommodation and Food Services.46Government .48County Economic Profiles.50Antrim County.50Benzie County .52Grand Traverse County .54Kalkaska County.56Leelanau County.58About the Data 60
"The dogmas of the quiet past are inadequate to the stormy present.As our case is new,so we must think anew, and act anew.”—President Abraham Lincoln
2008 Economic Forecast ConsiderationsThe 2008 Economic Forecast should be considered an informative resource that can assist in makingcritical business decisions affecting the 5-county region of Antrim, Benzie, Grand Traverse, Kalkaska,and Leelanau Counties.All sources contributing to this report were compared against numerous other data and informationsources. Best efforts were made to reconcile these sometimes widely varying outlooks; however, noeconomic forecast should ever be considered definitive or flawless, due to the number of variablescontributing to the sources.The following should be understood as significant factors in the precision of this year’s (and any)economic forecast: Weak business investment may hamper economic recovery and expansion.Elevated fluctuations in energy prices, particularly the price of oil, could prevent sustainedeconomic growth.A weaker dollar could lead to inflationary concerns and therefore slow spending and investment.The national housing slump could continue to have profound effects on homebuilding, real estate,and the credit market.Geopolitical concerns may hamper economic activity.The overriding intention of this forecast is to provide an illumination of the regional economy (past,present, and future), not to provide pages of academic thought. The Traverse City Area Chamber ofCommerce 2008 Economic Forecast is intended for all who have an interest in understanding theregional economy.Traverse City Area Chamber of Commerce2008 Economic Forecast1 of 60
The Global EconomyThe Global OutlookThe following are excerpts from the World Bank, Prospects for the World Economy and The GlobalOutlook, published in May of 2007. Growth among the developing countries came in at 7.3 percent in 2006, the fourth year that theireconomies expanded by more than 5.5 percent. Very fast-growing countries, such as China (10.7percent) and India (9.2 percent), contributed strongly to this overall result. But even excluding thesecountries, low and middle-income countries grew 5.9 percent and gross domestic product (GDP) in everydeveloping region expanded by more than 5.0 percent. This robust developing-country demand wasreflected in stronger high-income country export growth, which was the main factor behind theacceleration of GDP in those countries to 3.1 percent. Prospects for Europe appear increasingly robust. Improved consumer confidence, lowerunemployment, high capacity utilization rates, and still-strong order books should translate intosolid domestic demand growth, while continued integration of new member states into theEuropean Union should fuel exports. While inflationary pressures are present, lower commodity pricesand a gradual tightening of monetary conditions by the European Central Bank should contain themwithout endangering the expansion. As a result, GDP among European countries is projected to moderateonly modestly, to about 2.6 percent (2.5 percent for the Euro Area) in 2007, before easing toward moresustainable growth rates of about 2.2 percent (2.0 percent for the Euro Area) by 2009. In Japan vigorous growth in developing East Asia, strong business confidence indicators, andreduced drag from corporate consolidation are expected to help maintain growth at 2.3 percent in2007. Very low interest rates are projected to sustain investment and industrial production as the maindrivers of the economy, while tightening labor market conditions should boost consumer demand,permitting the economy to accelerate to a 2.4 percent annual pace in 2008. In the East Asia and Pacific region, growth, led by China, was once again very strong. Whileefforts to contain investment and credit growth in some sectors moderated the pace of the expansiontoward midyear, it has since picked up. Growth in other countries in the region strengthened, in partbecause of a relaxation of monetary policy in several countries following the successful dampening ofemerging inflationary pressures. Regional growth is projected to slow through 2009, reflecting a tighterpolicy environment in China and weaker U.S. import demand, especially in 2007. The developing economies of the Middle East and North Africa also enjoyed strong growth,despite the conflict in Lebanon, which saw GDP in that country decline by 5.5 percent. WhileOPEC cut oil output during the course of the year, slowing GDP growth among oil exporters, a 20 percenthike in oil prices fueled domestic demand and imports. This boosted exports of goods and servicesamong the diversified countries of the region, which, along with a rebound in agricultural productionfollowing a severe drought in 2005, propelled their GDP growth to 5.6 percent—a 10-year record.Several years of very rapid growth and the removal of some price subsidies have contributed to an uptickin inflation in several countries and a decline in the current account and government balances of oilexporters (which nevertheless remain in surplus).Traverse City Area Chamber of Commerce2008 Economic Forecast2 of 60
Global IndicatorsIt is no secret that the national, state, and regional economy influence and are influenced by a variety ofglobal forces. Despite fluctuating oil prices and geopolitical uncertainties, the world economy grew by4% in 2006. Continued global economic expansion is expected for the foreseeable future.Percent Change Gross Domestic Product for the Worldand Selected Sub-regions, 2005-2009 (Actual & 184.108.40.206.25.4.High IncomeEuro AreaJapanUnited States.Developing CountriesEast Asia and PacificEurope and Central AsiaLatin America and CaribbeanMiddle East and North AfricaSouth AsiaSub-Saharan AfricaSource: The World Bank. 2007.The U.S. is becoming increasingly reliant on goods and services from its international trade partners.Since 2000, the deficit balance on goods and services trade has almost doubled. The 2007 current tradedeficit is approximately 59 billion (BEA, 2007).According to the U.S. Bureau of Economic Analysis (2007), there exist several key international trade(goods & services) factors relevant to future economic growth in the U.S.:Exports Exports of goods and services increased 0.6 billion in August to 138.3 billion, reflectingincreases in both goods and services exports. The increase in goods exports was mostly accounted for by increases in industrial supplies andmaterials and foods, feeds, and beverages, which were partly offset by a decrease in automotivevehicles, parts, and engines. The increase in services exports mostly reflected an increase in travel.Imports Imports of goods and services decreased 0.8 billion in August to 195.9 billion, reflecting adecrease in goods imports. Services imports were virtually unchanged. The decrease in goods imports was mostly accounted for by decreases in industrial supplies andmaterials and automotive vehicles, parts, and engines, which were partly offset by an increase incapital goods. Services imports were virtually unchanged, reflecting small and nearly offsetting changes in allcategories.Traverse City Area Chamber of Commerce2008 Economic Forecast3 of 60
The National & State EconomyThe National & State OutlookAfter the financial shock .2008 holds more promise for the national economy and MichiganJim GlassmanManaging Director and Senior EconomistJPMorgan Chase & Co.The US economy grew more slowly in 2007, at about a 2% pace, than in earlier years when it wasrecovering from the 2001 recession. This was partly by design: the Federal Reserve took its foot off themonetary gas pedal between 2004 and 2006 when it appeared the economy was strong enough to return toits full potential on its own. Nonetheless, the transition has been a bit more rugged than most, includingthe Federal Reserve policy makers, anticipated. The shakeout in the overheated housing market,particularly in the West and in Florida, which has been exacerbated by a cessation of financing toborrowers which shakier credit histories, has retarded growth a little more than many expected.Thankfully, unemployment has held relatively steady at a low 4 ½% despite the economic slowdown. Inpart, that may be because firms believe the slowdown in business this year will prove temporary and, inthat case, are reluctant to trim their staff. The limited rise in unemployment also reflects a slowdown inthe number of people looking for a job, presumably because they know that businesses are turning morecautious than they were.This year has been particularly challenging for Michigan. Michigan’s real GDP held steady for the fifthconsecutive year. And employment declined for the sixth consecutive year. Today, the Wolverine state’sjob count is 434,000 below the summer 2000 peak levels, a 9% contraction in employment. Michigan’sjob losses, coming at a time when the rest of the nation enjoyed a respectable, if not exuberant recovery,reflect a disproportionate impact from globalization as well as technological innovation that has displacedmany jobs, particularly in the manufacturing sector.By summer 2007, a broad consensus held that the near-term outlook for the US was relatively positive.Although the US economy was expected to grow more slowly through the balance of 2007, perhaps at asubpar pace, prospects for 2008 looked good, with the economy expected to speed up to a 2½ - 3% pace.Although the housing industry was not expected to emerge from its slump until late in 2008, at least thedrag from shrinking new residential construction was expected to diminish over time.A financial crisis emerged late in the summer of 2007, however, that called into question optimisticeconomic forecasts. The well-known subprime mortgage problem triggered an investor panic—a flightfrom certain financial instruments, including asset backed commercial paper vehicles, much like the oldfashioned run on banks—when investors learned that AAA ratings on collateralized subprime mortgagedebt obligations that backed some money market instruments they held were on shaky ground. Nofinancial crisis since 1929 has ever derailed the US economy—that includes the banking crises in the mid1980s when falling oil prices led to the collapse of the southwest economy, the 1987 stock market crash,the early 1990s bank credit crunch triggered by losses on loans for commercial property, and the 1998seizing up of the Treasury market that was triggered by the Russian debt default and failure of Long TermCapital Management. In contrast, this summer’s financial crisis posed a greater danger than any otherfinancial disruption because it represented a challenge to the ideas that have led to the evolution oftoday’s modern financial system that is based on securitized finance. Investors, realizing that had greaterexposure to credit risk than they realized as a result of the complex and nontransparent nature of theTraverse City Area Chamber of Commerce2008 Economic Forecast4 of 60
financial derivatives that have been developed in recent years, became more risk averse, triggering adeleveraging and tightening of credit conditions.The Federal Reserve moved swiftly to counteract the damage from the credit crunch by cutting policyrates ½ point. The market anticipates that the Fed will lower rates slightly more, taking its overnightinterest rate target rate down to about 4¼%. This action will not completely immunize the economy froma more hostile credit market but it offers substantial protection.Despite the summer’s credit market storm, the equity market remained strong and set new records in earlyOctober. The reaction of the equity market reflects a confidence in the Fed’s ability to counteract tightercredit conditions and it reflects two other developments as well, a favorable global backdrop and benigninflation.On the first, despite the US slowdown, the economic performance abroad is the best in memory. Theglobal economy is expected to grow about 5% this year, with virtually all pockets of the world expanding.One reason for this is that most of the industrial countries, which have been growing at roughly half thepace of the US economy for the past decade, have begun to accelerate cyclically. Another reason is that alarge number of developing economies are in full bloom and growing at a 7-8% pace. Because manydeveloping economies are relatively open to foreign investment, European, American, and Japanesecompanies large and small are able to take advantage of the abundant amount of workers in thosecountries. As a result, despite the US slowdown, profits of American businesses have never been higher.Profits are hovering near all-time records in relation to GDP.On the second, benign inflation represents another profoundly favorable economic trend. Consumerinflation, both the actual and core measures that exclude the volatile food and energy components, hasfallen to 1¾%. That is at the low end of the Federal Reserve’s forecast for 2008. It is near the middle ofthe Fed’s long-run target for inflation. And it is near the low end of the range since World War II. What isso noteworthy about inflation developments is that this moderation has come in the face of a quadruplingof oil prices since 2003, nearly a 20% decline in the real trade-weighted value of the dollar on foreignexchange markets, and food price pressures that are a result of a 2005 congressional mandate to increasethe use of renewable fuels (ethanol) for transportation, which drove up the price of corn and the manyrelated byproducts.The economy is forecast to grow at a subpar pace into early 2008, with the national unemployment rateedging up to around 5% from 4.7% currently. Home building activity will remain a key drag on theeconomy, particularly in those parts of the economy, including California, Nevada, Arizona, and Florida,that saw real estate values rise far more than in the rest of the nation. Falling house values, particularly inthose areas, likely will dampen consumer spending too. But the drag from real estate excesses is forecastto slowly wane over the course of 2008. As a result, US real GDP is forecast to accelerate slightly from2.1% over the four quarters of 2007 to 2.6% in 2008. In that case, the unemployment rate should steadynear 5%. Core inflation is forecast to hold steady near 1¾% next year. A projected moderate decline in oilprices, back to 50 – 60 per barrel is forecast to dampen overall inflation readings. Michigan is forecast tofare better in 2008, with growth turning positive and employment expanding by 40,000 over the twelvemonths of the years.Traverse City Area Chamber of Commerce2008 Economic Forecast5 of 60
National IndicatorsThe U.S. has historically enjoyed varying levels of economic expansion throughout the years resulting inaverage annual GDP 1 gains. In the last 30 years, there have only been four years (1975, 1980, 1982, &1991) where real GDP showed negative growth.Percent Change Gross Domestic Product (GDP) for the U.S.,1975-2006.(in chained 2000 0%Source: U.S. Bureau of Economic Analysis (BEA). National Economic Accounts. 2007.Since 2000, U.S. GDP has grown at an annualized rate of 2.7%. During the same time period, inflationhas stayed in check with the core CPI 2 averaging 2.1%.The Congressional Budget Office (CBO) predicts the U.S. GDP will grow 2.1% in 2007 and 2.9% in2008. The CBO projects national annual average real GDP growth from 2009 – 2012 to be 3.0%. 3The CBO’s expectations of real GDP growth in 2007 are slightly more optimistic than the University ofMichigan’s Research Seminar in Quantitative Economics (RSQE) forecast of 1.8%. 4 However, RSQEestimates slightly greater national GDP growth (3.1%) in 2008 than predicted by the CBO in 2008.1Gross Domestic Product: The value of all goods and services produced within a nation in a given year.Consumer Price Index: A measure of the average change in prices over time in a fixed market basket of goods and services typically purchasedby consumers. “Core” CPI is less food and energy.3Congressional Budget Office. The Budget and Economic Outlook: An Update. August 2007.4University of Michigan: Research Seminar in Quantitative Economics. The U.S. Economic Outlook for 2007-2009. August 2007.2Traverse City Area Chamber of Commerce2008 Economic Forecast6 of 60
State IndicatorsOver the last ten years, the State of Michigan has endured varying levels of economic expansion andretraction. From 2005-2006, the State of Michigan experienced -.5% (negative) GDP growth.Percent Change Gross Domestic Product (GDP) for theState of Michigan, 1997-2006.(in chained 2000 0012002200320042005-2.0%-3.0%-4.0%Source: U.S. Bureau of Economic Analysis (BEA). 2007.Michigan continues to struggle with the slide of the American automotive industry. According to recentUniversity of Michigan RSQE estimates, Michigan’s economy is 700% more concentrated in automotivemanufacturing employment than the national economy. 5 The state’s historical dependence on theperformance of the Big Three 6 auto makers has reached critical mass.Michigan’s economic health in the near term will be dependant on the ability of the Big Three to becomemore structurally agile and once again become profitable. However, in the long term, it will be necessaryfor Michigan to seek greater economic diversification towards becoming a balanced and robust economy.56University of Michigan: Research Seminar in Quantitative Economics. The U.S. Economic Outlook for 2007-2009. August 2007.The “Big Three” refers to Michigan-based automotive manufacturers- General Motors, Ford, and Chrysler.Traverse City Area Chamber of Commerce2008 Economic Forecast7 of 60
The 5-County Regional EconomyThe Regional OutlookRegional Cluster CompetitivenessTino BreithauptTraverse Bay Economic Development CorporationandMathias McCauleyNorthwest Michigan Council of GovernmentsIn the last few decades, the 5-county region of Antrim, Benzie, Grand Traverse, Kalkaska, and LeelanauCounties have experienced extraordinary growth and prosperity. The region has provided manyopportunities for growth as a result of relatively high educational attainment, economic diversity, lowlabor costs, a mild environment, access to natural resources, niche business opportunities, and highoverall quality of life.If we were to extrapolate our economic past, the region could easily expect economic expansion in thecoming years. History suggests (and to an extent, rightfully so) the 5-county region will continue its pastsuccesses with small business vitality and economic diversity. However, as increases in technology,productivity, and globalization become more commonplace, the region’s economic health will ultimatelybe dependent on the ability to foster globally marketable goods and services—not the expectedcompetitive advantages we have grown accustomed to.For long-term economic prosperity to occur, the region (and the State, too) must embrace a 21st Centuryeconomic development mindset. The goal of the new economy or the knowledge economy, to which it issometime referred, remains the same: regions, in order to grow and prosper, will need to invest intechnologies, systems, industries, and people that are more adaptable to this ever-changing world.One way for the 5-county region to better plan for this inevitable paradigm shift will be the fostering ofindustry “clusters.” According to the U.S. Department of Commerce Economic DevelopmentAdministration, industry clusters are geographic concentrations of competing, complementary, orinterdependent firms and industries that do business with each other and/or have common needs for talent,technology, and infrastructure. Interestingly, the companies included in the cluster may be bothcompetitive and cooperative. Examples of well-known industry clusters include North Carolina'sResearch Triangle; Hartford’s (Connecticut) insurance and finance markets; Hollywood's film industry;tourism in south Florida; and Silicon Valley’s (California) technology.Northern Michigan has the opportunity to foster a variety of industry clusters based on geography,demographics, access to technology, current industry composition, and regional desire. The region hashistorically enjoyed the performance of the recreation / visitor industries cluster and currently the regionis experiencing the emergence of two additional clusters that have equal potential, health science andagribusiness. Regional stakeholders may also want to pursue economic development strategies that worktoward the development of renewable energy and freshwater industry clusters. While water is not anindustry, the fairly recent realization that water is a commodity of ever-increasing demand cannot beignored by regions with access to abundant freshwater systems.Traverse City Area Chamber of Commerce2008 Economic Forecast8 of 60
However, each of the previously identified clusters (actual and potential) will require two significantdrivers for future economic success in the region—research and access to human capital.Research is quickly becoming a cornerstone of economic development activity. Increasing the researchcapacity for the 5-county region would provide for public/private partnerships that would focus onidentifying, analyzing, and creating regional competitive advantages. Potentially, a research anddevelopment corridor might contribute to areas such as renewable energy, agriculture, manufacturing andmedical technologies, in addition to freshwater studies. Wind energy technologies could potentially giveour manufacturing community a more diverse market opportunity and the agriculture industry will benefitfrom technologies such as anaerobic digesters that in the future will likely be used more for processingwaste, but also have the capabilities to generate additional energy and power. With a growing medical andhealth-science technology sector in Northern Michigan, we see opportunities to take advantage of ourmedical strengths to attract more medical device, diagnostics and health research activities to our region.Finally, the role of workforce development and improving our access to superior human capital cannot beunderstated. Our new economy will demand a significantly higher level of academic preparation andachievement. In addition to high academic skills in reading, communication, math and science, workerswill have to be creative problem solvers, good team members, technologically savvy, and comfortablewith change. It will be imperative that every employer harness and leverage the intelligence of eachemployee for the collective good of the business and the region. The region must have the right people toinfluence emerging technologies and systems.This regional outlook is not intended to be the result of a casual view through rose-colored glasses. Thereis no doubt that the region will experience, and is susceptible to, a variety of economic threats—real andperceived. However, the region will ultimately be successful as the result of coordinated economicdevelopment efforts, such as the fostering of industry clusters.Traverse City Area Chamber of Commerce2008 Economic Forecast9 of 60
Regional IndicatorsEmploymentThe 5-county region experienced steady employment gains from 2003-2007. In 2007, it is expected thatthere are 107,077 employees in the region, a 8.1% increase from 2003 levels.Total Employment for the 5-County Region,2003-2011 (Actual & 5-County2008200920102011Linear (5-County)Source: Economic Modeling Specialists, Inc. (EMSI). 2007.Since 2003, the region, state, and nation each experienced overall employment gains. It is expected thatin the coming years, the region, state, and nation will continue to experience total employment growth,with the highest percentage gains felt at the regional level (10.5%).Percent Change Total Employment for the U.
John Sak, BORIDE Engineered Abrasives James A. Schmuckal, James Schmuckal Realtors Bob Sutherland, Cherry Republic Troy Terwilliger, Graceland Fruit Brad Van Dommelen, Traverse City Convention & Visitors Bureau Jan Warren, Northwest Mich