Special Report - Sustainability: Our Pathway to Equality, Diversity and Inclusion by Brianna Burke, Prof. Bo DeDeker, Ed.D., Alex Garcia
CENTRAL WISCONSIN
SPRING 2022 REPORT
SUSTAINABILITY Our Pathway to Equality, Diversity and Inclusion
by Brianna Burke, Prof. Bo DeDeker, Ed.D., Alex Garcia
Just Like Old Times The CBEI crew and our presenters are very excited to be back in front of a live audience for our May 13 breakfast meeting at SentryWorld Atrium. It’s been a long time! Our last breakfast meeting was in December 2019, just three months before the unwelcome arrival of COVID-19! In The U.S. Economy: The Myths vs. The Realities , Chief Analyst Kevin Bahr provides much needed context in creating a more nuanced account of our current economic conditions. In doing so, he exposes the shortcomings of several popular myths about the economy. The macroeconomy is a constantly evolving web of extraordinarily complex relationships. Depictions that focus solely on one or two causal factors typically fall short in providing an accurate characterization of the economy. I am excited to announce the revival of our business confidence index in the Economic Indicators section of the report. The index is based on a survey of business executives in Marathon, Portage and Wood counties. We are grateful for the cooperation of the following Chamber of Commerce leaders for sharing the survey with their members: Brian Otten, marketing manager of the Greater Wausau Chamber of Commerce; Scott Larson, president of the Marshfield Chamber of Commerce; Angel Whitehead, president of the Heart of Wisconsin Chamber of Commerce; and Karen Myers, director of programs and events for the Portage County Business Council. Thanks also go out to Prof. Nik Butz, Emma Fisher and Jenny Resch for organizing and managing the survey process. Our special report, Sustainability: Our Pathway to Equality, Diversity, and Inclusion by Bo Dedeker (assistant professor of accounting), Brianna Burke (career development coordinator), and Alex Garcia (accounting major) addresses the critical importance of sustainability for both our planet and society and describes the important role that businesses, government, and universities can play in meeting sustainability goals. This issue’s Insight Spotlight column, The Growing Trend to Overcome the Labor Shortage , features Christopher Spranger, CEO of Spranger Business Solutions, describing how the adoption of Lean Six Sigma practices can help companies dramatically improve efficiencies in production and help relieve the current labor shortage problem.
Table of Contents
The U.S. Economy: The Myths vs. The Realities.................................................1-10 Kevin M. Bahr, CBEI Chief Analyst Economic Indicators..................................................................11-17 Scott Wallace, CBEI Director and Editor National Economic Statistics................................................... 11-13 Table 1: Key Economic Indicators Table 2: Contributions to Percent Change in Real Gross Domestic Product Table 3: Lifecycle of the Expansion Labor Market Statistics.................................................................. 14 Table 4: Labor Market Indicators from LAUS Table 5: WI Employment by Major Industry Sector County Economic Statistics. .......................................................... 15 Table 6: Help Wanted Advertising Table 7: Unemployment Claims Table 8: County Sales Tax Distribution Housing and Construction.........................................................16-17 Table 9: National Affordability Index Table 10: Median Home Prices and Home Sales Table 11: Residential Construction Table 12: Nonresidential Construction Business Sentiment........................................................................ 17 Table 13: Business Confidence Survey: Central Wisconsin Area Special Report........................................................................... 18-22 Sustainability: Our Pathway to Equality, Diversity and Inclusion Brianna Burke, Prof. Bo DeDeker and Alex Garcia Column: Insight Spotlight......................................................... 23-24 The Growing Trend to Overcome the Labor Shortage Christopher Spranger MBA Program........................................................ Inside Back Cover
CBEI Mission
CBEI Staff
The UW-Stevens Point Center for Business and Economic Insight (CBEI) promotes regional economic and community development through the provision of business and economic knowledge to local business, governmental, and community leaders. The primary areas of focus are Portage, Marathon and Wood counties.
Scott Wallace.................................... Director and Editor, CBEI Kevin Bahr................................................... Chief Analyst, CBEI Alexis Flaten......................................Research Assistant, CBEI Eva Donohoo................................... Publication Designer, CPS
The Center for Business and Economic Insight is made possible thanks to support from the UW-Stevens Point School of Business and Economics.
The UW-Stevens Point School of Business and Economics creates career-ready graduates and leaders through applied learning. We serve the businesses, economy and people of the greater Central Wisconsin region. We specialize in preparing students for success by providing professional development experiences, access to employers, and in-demand skills.
The U.S. Economy: The Myths vs. The Realities
Kevin M. Bahr CBEI Chief Analyst; Professor of Business School of Business and Economics
Much has been written and discussed about the current state of the U.S. economy. Some of it is accurate, some of it not so much. An unprecedented combination of factors that include a pandemic and an unprovoked military invasion by Russia against Ukraine has created a complex and dynamic set of variables that have impacted the U.S. economy. This report will attempt to explain what is going on economically, why it is going on, and differentiate the myths from reality.
Myth #1: Government spending has caused inflation to soar. The Reality:
Inflation has increased significantly due to a combination of factors. Primary factors include supply chain disruptions, increased consumer demand resulting from strong employment growth due to government spending and stimulus programs, and increased energy prices. Government Spending, Employment, and Consumer Demand Prior to the effects of COVID-19 on the economy, U.S. employment peaked at 152.5 million in February 2020. Two months later in April, employment dropped to 130.2 million. In two months, employment had declined by approximately 22.3 million jobs. The loss of 20.7 million jobs in April was the most significant drop in monthly employment since the Bureau of Labor Statistics began tracking monthly changes in employment in 1939. During the financial crisis, approximately 8.7 million jobs were lost over two years . During the COVID crisis in 2020, 22.3 million jobs were lost over two months . In two months the unemployment rate skyrocketed from 3.5% to 14.7%. Multiple rounds of fiscal stimulus (government spending) were used by both prior and current administrations to combat the negative effects of the pandemic on the economy. Under the prior administration, multiple relief and stimulus packages were passed by Congress in early 2020, the largest being the $2.3 trillion CARES (Coronavirus Aid, Relief, and Economic Security) Act. An additional $900 billion stimulus was implemented in December and included direct payments to taxpayers. Under the current administration, fiscal stimulus included the $1.9 trillion American Rescue Plan in March 2021. The fiscal stimulus programs contributed to a rapid recovery for the U.S. economy. Beginning in May 2020 the unemployment rate began a consistent downward trend and reached 6.7% by year end, still significantly higher than the 3.5% unemployment prior to the pandemic. The economy continued its recovery in 2021 and in March 2022 the unemployment rate had dropped to 3.6%. After bottoming out at 130.2 million in April 2020, U.S. employment was nearly 151 million in March 2022. The strong and quick economic recovery that occurred beginning in May 2020 contributed to a rapid increase in consumer demand though March 2022 employment was still 1.5 million fewer than the pre-pandemic level. In February 2020, the annualized inflation rate was 2.5% while in March 2022 it climbed to 8.5%. Relative to two years ago, inflation was significantly higher, yet employment was slightly lower. However, the increased consumer demand resulting from employment growth is not the sole factor accounting for inflation.
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The Supply Chain There are two broad factors that affect prices – supply and demand. Generally, inflation is caused when there is a change to one of these factors. If the supply of goods is reduced for a given demand, prices (inflation) will increase until a higher price level is reached that balances the demand to match the reduced supply. If the demand for goods is increased for a given supply, prices (inflation) will increase until a higher price level is reached that balances the supply of goods to match the increased demand. So far, we have focused on increased demand as a cause of higher inflation, but what about supply? The pre-COVID supply chain was much different than the supply chain since COVID. The COVID-related supply chain interruptions created significant imbalances in demand and supply. Demand increased, supply fell, and inflation resulted. U.S. manufacturing was hit hard by COVID, and the U.S. auto industry was perhaps the primary example of supply chain issues leading to inflation. Since the 1980s many U.S. firms turned to just-in-time inventory management, which focused on minimizing inventory levels and costs by receiving inputs just-in-time for the manufacturing process. That works if the supply chain works, but supply chain interruptions create product shortages and resulting inflation. Semiconductors are needed to manufacture cars. World-wide demand for semiconductors grew significantly in 2020 and 2021, as sales of consumer electronics ramped up and new technologies developed in the auto industry. However, the bulk of semiconductors are produced in Asia, including Taiwan, South Korea, China, and Vietnam. The impact of COVID on the supply chain contributed to a semiconductor shortage in 2021, particularly in the automotive industry. According to the Semiconductor Industry Association, the U.S. share of global semiconductor manufacturing capacity declined from 37% in 1990 to just 12% today. The drop in U.S. global semiconductor manufacturing capacity exacerbated COVID related sourcing problems. The shortage of semiconductors contributed to new car prices increasing 12.5% for the 12-months ended March 2022. And if consumers can’t afford or find the new car they want, demand for used cars goes up. For the 12-months ended March 2022, used car prices increased a whopping 35.3%. Energy Prices The table below shows the surge in energy prices for the 12-months ended March 2022. The overall March inflation rate of 8.5% was led by an overall increase in energy prices of 32%, with gas prices soaring 48%. According to the Bureau of Labor Statistics, the rise in gas prices accounted for almost a third of February’s increase in inflation and approximately half of March’s inflation. And that impact is understated, since rising gas prices affect shipping costs which in turn affect product costs.
12-Month Percentage Change in Prices for Period Ended March 2022 (Source: Bureau of Labor Statistics)
Energy
32.0 48.3 48.0 70.1 13.5 11.1 21.6
Energy commodities Gasoline (all types)
Fuel Oil
Energy Services
Electricity
Utility (piped) gas service
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Movements in oil prices are strongly tied to changes in gas prices. It is a global energy market, with U.S. and European oil prices strongly related. West Texas Intermediate (WTI) crude is the primary benchmark for United States oil prices and refers to oil extracted from U.S. wells. The chart below shows oil prices since January 2020. After beginning 2020 at nearly $60 per barrel, the price of oil tumbled with the onset of COVID and the resulting precipitous decline in economic activity, both in the United States and globally. In late April 2020, the price of WTI Crude had dropped to just over $16 per barrel, a drop of over 70% from its price at the start of the year. As economic growth and demand for energy returned, the price of oil began a fivefold increase from its April 2020 low of $16 to a high of just over $81 per barrel in October 2021. After peaking at $81 per barrel the price of oil declined to $71 per barrel in December. In 2022, Putin’s invasion of Ukraine has dominated energy market pricing, with concerns and uncertainty over supply leading to a spike in the price of oil to over $108 per barrel, an increase in price of over 50% since December. West Texas Intermediate Crude Oil Prices January 2020 – March 2022 Source: U.S. Energy Information Administration via Federal Reserve Economic Database
Inflation – It’s a Global Problem If it were only U.S. policies and issues causing inflation, then inflation would only be a U.S. problem. It’s not. Inflation has become a global problem. In January 2022 the World Bank stated: “Globally and in advanced economies, inflation is running at the highest rates since 2008. In emerging market and developing economies, it has reached its highest rate since 2011”. In April 2022 Eurostat indicated that annualized inflation in the European Union was approximately 7.5%. Similar to the U.S., energy was the driving force fueling the inflation, with energy prices increasing at an annualized rate of over 44% in March. The combination of exploding energy prices and lingering COVID driven supply chain issues have been the driving factors for global inflation. It’s not just a U.S. problem.
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Myth #2: Gas prices have risen significantly because U.S. oil production was limited by the government. The Reality: Gas prices increased in 2021 due to an imbalance in global energy demand and supply, driven by the rapid global economic recovery. In 2022, prices were driven by Putin’s war which created uncertainty over global energy supplies and Russia’s role as the second largest exporter of crude oil. The graph below shows U.S. crude oil production for nearly 150 years. Since 2008, U.S. crude oil production has generally increased significantly.
Source: U.S. Energy Information Administration
U.S. crude oil production more than doubled from 1.955 billion barrels in 2009 to a decade high of 4.466 billion barrels in 2019. Oil production declined significantly in 2020, dropping approximately 8% to 4.130 billion barrels. A variety of factors affect crude oil production, with a key factor being global demand for oil. COVID caused a global economic contraction in 2020 with global GDP declining by 3.3% according to the World Bank , and U.S. GDP decreasing 3.4%. The global economic decline in 2020 contributed to the drop in oil production as demand for energy decreased with the economic contraction. 2021 featured a global imbalance of demand and supply in the energy sector. The COVID driven collapse of energy consumption in 2020 prompted energy companies to cut investment and supplies. Energy supply was also impacted by weather, labor shortages, maintenance backlogs, and infrastructure issues. As global demand increased in 2021 due to economic growth so did U.S. oil production, but with a lagging effect as production ramped up. Although U.S. crude oil production declined slightly in 2021 to 4.083 billion barrels, production in the second half of the year increased 5% relative to the last half of 2020. 2021 U.S. oil production was still almost 20% higher than 2017 oil production. The U.S. Energy Information Administration forecasts that production will rise to an average 12.0 million barrels per day in 2022 compared to production of 11.6 million barrels per day in December 2021. Record-high production is expected for 2023 with an average of 13.0 million barrels per day. The previous record was an average of 12.3 million barrels per day in 2019. The United States is the world leader in the production of oil followed by Saudi Arabia and Russia. Combined, the three largest producers account for 43% of global production. The table below shows the five largest oil producers in the world and their share of global production.
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Largest Producers of Oil and Share of Global Production – 2020 (Oil includes crude oil, all other petroleum liquids, and biofuels) (Source: U.S. Energy Information Administrations)
Country
Share of world total
United States Saudi Arabia
20% 12% 11%
Russia Canada
6% 5%
China
A certain amount of energy driven inflation during an economic rebound following a decline is expected. The table below shows the change in gas prices that occurred over three events that caused economic downturns for the U.S. economy: 1) September 11, 2) the financial crisis, and 3) COVID. In each case, the peak of the price of gas is shown just prior to the onset of the event, the low of the gas price during the event, and the gas price approximately one year after the low occurred. Although there are various factors that affect gas prices, a significant factor is the demand for gas. In each case as the economy declined, the demand for energy (including gas) dropped and gas prices dropped significantly as energy supply exceeded demand. In each case as the economy rebounded, the demand for energy (including gas) increased and gas prices increased significantly as energy demand exceeded supply.
Change in Gas Prices: September 11, The Financial Crisis, COVID (Source: U.S. Energy Information Administration)
Event/Date
U.S. Regular Gas Price
Change in Gas Price
Sept. 11
Sept. 3, 2001 Dec. 17, 2001 Dec. 23, 2002
$1.54 $1.04 $1.37 $4.05 $1.59 $2.56 $2.49 $1.68 $2.79
-32.5% +21.2%
Financial Crisis
July 14, 2008 Dec. 29, 2008 Dec. 28, 2009
-60.7% +61.0%
COVID
Jan. 6 2020 May 4, 2020 May 3. 2021
-32.5% +66.0%
The rising gas prices in 2021 were not a result of government stipulated cutbacks in U.S. oil production. The strong rebound in global economic growth contributed to a significant rise in energy prices, and the U.S. is part of the global energy world. After declining 3.3% in 2020 global GDP growth strongly rebounded to 5.5% growth in 2021. And in 2022, Putin’s unwarranted invasion of Ukraine created uncertainty and supply questions in global energy markets, again contributing to increasing oil prices. Although differences exist between oil markets, the overall ups and downs of U.S. and European oil prices are strongly related, indicating a truly global energy market. Energy costs have been driving inflation, not only in the U.S. but also in Europe and globally. An annualized inflation rate of over 44% in energy contributed to the 7.5% annualized inflation rate in March for the European Union. In the U.S., for the 12 months ended March 2022 overall energy prices were up over 32% with gas prices up 48%.
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Myth #3: The U.S. economy has struggled since inflation increased in 2021. The Reality: Economic growth and the job market have remained strong since the economic recovery began in 2020. Inflation, not economic growth or employment, has been the problem for the U.S. economy. Economic Growth The table below shows quarterly and annual economic growth over the past five years when economic output is compared to the previous period. The Bureau of Economic Analysis (BEA) began tracking quarterly GDP growth data in 1947. The economic recovery that began in the second half of 2020 follows the worst quarterly decline on record, a drop of 31.2% in the second quarter of 2020. The 2020 second quarter decline was much greater than the worst quarterly decline during the financial crisis which was 8.5% in the fourth quarter of 2008. The 2020 economic recession (two consecutive quarters of negative GDP growth) was the shortest on record according to the BEA. The 3.4% decline in 2020 was the largest decline in annual economic growth since 1946. During the financial crisis the largest annual economic growth decline was 2.6% in 2009. Consistent, strong, quarterly economic growth returned in the second half of 2020. Economic growth was temporarily tempered by a COVID resurgence in the third quarter of 2021, but the strong growth returned in the fourth quarter at a rate of 6.9%. Annual GDP growth in 2021 was 5.7%, the strongest annual growth since 1984.
Percent Change from Previous Period in Real GDP – Annualized Rate (Source: Bureau of Economic Analysis) Q1 Q2 Q3 Q4
Annual
2017 2018 2019 2020 2021
1.9 3.1 2.4 -5.1
2.3 3.4 3.2
2.9 1.9 2.8
3.8 0.9 1.9 4.5 6.9
2.3 2.9 2.3
-31.2
33.8
-3.4
6.3
6.7
2.3
5.7
Economic growth declined at an annualized rate of 1.4% in the first quarter of 2022, a significant reversal of the prior year’s strong growth. To understand the economic growth reversal, the table below shows how changes in the four components of GDP contributed to the change in U.S. economic growth over the past three quarters. Over the past three quarters, the contribution of consumer spending to economic growth ticked up as the economy rebounded, and first quarter consumer spending remained relatively strong. Investment spending, particularly the build-up of business inventories, was extremely strong in the fourth quarter of 2021. Investment spending contributed to economic growth in the first quarter of 2022, but the contribution was significantly less (as expected) as inventories declined. Government spending had a modest impact on the first quarter economic decline. The primary driver of first quarter economic decline was an increasing trade deficit, as U.S. demand for imports significantly exceeded U.S. exports. The increased trade deficit contributed to a 3.20% decline in first quarter economic growth and was the most significant component of GDP causing the economic reversal. The U.S. trade deficit surged to a record $74.4 billion in March due to multiple factors, including a U.S. economy that recovered more robustly than foreign economies, and uploading of imports by business to avoid supply uncertainties created by the Russian invasion of Ukraine.
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Contributions to Percent Change in Real Gross Domestic Product– Annualized Rate (Source: Bureau of Economic Analysis) 2021 Q3 2021 Q4 2022 Q1
GDP
2.3
6.9
-1.4 1.83 0.43 -0.48 -3.20
Personal Consumption
1.35 2.05 0.17 -1.26
1.76 5.82 -0.46 -0.23
Investment
Government Spending
Net Exports
Employment The chart below shows the roller coaster for U.S. employment from January 2019 through March 2022. Prior to the effects of COVID-19 on the economy, U.S. employment peaked at 152.5 million in February 2020. Two months later in April, employment dropped to 130.2 million. Since employment growth returned in May 2020, over 20 million jobs have been added back to the economy. In March 2022 employment was nearly 151 million, although still 1.5 million less than the pre-COVID February 2020 peak of 152 million.
All Employees, nonfarm Payrolls (seasonally adjusted) Source: U.S. Bureau of Labor Statistics
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The table below details the monthly change in employment since January 2019. The onset of COVID in early 2020 caused a reversal of employment growth, with job losses occurring in March and exploding in April. The 20.5 million jobs lost in April was the most significant drop in monthly employment since the Bureau of Labor Statistics began tracking monthly changes in employment in 1939. Prior to 2020, the biggest drop in monthly employment was approximately 800,000 jobs in March 2009. Beginning in May 2020 employment growth returned, but employment gains lessened each month in 2020 beginning in August and job losses occurred in December. Strong employment growth returned in 2021, with monthly employment gains recorded each month and continuing in 2022.
All Employees, nonfarm Payrolls (seasonally adjusted) Change in Employment since Previous Month (thousands) (Source: U.S. Bureau of Labor Statistics)
Year Dec 2019 279 24 224 288 77 130 78 160 163 93 252 200 2020 339 376 -1498 -20493 2642 4505 1388 1665 919 647 333 -115 2021 520 710 704 263 447 557 689 517 424 677 647 588 2022 504 750(P) 431(P) 2021 6.3 6.7 2.3 6.9 5.7 P : preliminary Job Openings The strong economic recovery and job market is reflected by the surge in job openings that occurred in 2021. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov The chart below shows the number of U.S. monthly job openings over the last 10 years. Generally as the economy grew over the last decade, so did the number of job openings. Prior to 2014, the number of monthly job openings was generally below 5 million. The number of job openings steadily grew to a pre-COVID high of approximately 7.5 million in November 2018 before declining. As the economic recovery began in May 2020, the number of job openings steadily grew to 6.9 million by year end. However in 2021 the growth in job openings exploded, with the number of job openings peaking at nearly 11.5 million in December, a whopping 50% increase from one year earlier. Job openings remained strong in 2022, with the number of job openings exceeding 11 million.
U.S. Monthly Job Openings January 2012 through February 2022 (thousands) Source: U.S. Bureau of Labor Statistics
The post-COVID economic recovery in terms of economic growth and employment have been strong; inflation has been the problem.
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The Economic Reality: Summary and Moving Forward The potential of recession and stagflation have been raised by some economists and market analysts. A recession is two consecutive quarters of negative economic growth. Stagflation appears when relatively high levels of inflation occur during a period of relatively low economic growth. The greatest threats to the U.S. economy that could cause either to occur are primarily derived from two sources: 1) Putin’s invasion of Ukraine, and 2) a resurgence of COVID, not just domestically, but internationally. These two sources are the primary threats that could cause future relatively high inflation in the United States, through energy prices and supply chain interruptions. Continued high inflation can erode purchasing power, which in turn lowers real spending and economic growth. Inflation has been the recent plague on the U.S. economy due to a combination of factors, primarily driven by supply chain disruptions, increased consumer demand, and a dramatic rise in energy prices. Labor market issues, a modest increase in wages, and record corporate profits have also contributed. Economic and job growth have been strong. Economic growth returned in the fourth quarter of 2020 and was a robust 5.7% in 2021. After peaking at 14.7% in April 2020, the unemployment rate approached its pre-pandemic low and hit 3.6% in March. Job growth returned in almost every month since April 2020, with total employment reaching nearly 151 million in March 2022 after bottoming out at 130 million in April 2020. Job openings were at record levels in 2021 and remain at near record levels in 2022. Inflation began an upward trek in early 2021 and reached an annualized inflation of almost 8.5% in March 2022, the highest level since the early 1980s. The impact of rising energy prices and supply chain issues are not just U.S. problems, they are global problems. Increasing energy costs have been driving global inflation. An annualized inflation rate of over 44% in energy contributed to the 7.5% annualized inflation rate in March for the European Union. In the U.S., for the 12 months ended March 2022, overall energy prices were up 32% with gas prices up 48%. According to the Bureau of Labor Statistics, the rise in gas prices accounted for almost a third of February’s increase in inflation and approximately half of March’s inflation. And that impact is understated, since rising gas prices affect shipping costs which in turn affect product costs. The World Bank has indicated that inflation is a problem globally, for both advanced economies and emerging markets. Initially the strong economic recovery (rising demand) and supply chain issues contributed to an increase in energy prices. Most recently, the rise in energy prices has been driven by Putin’s war against Ukraine. Russian energy is important to the global energy market, but the global energy market is also important to Russia. Russia is the world’s third largest oil producer behind the United States and Saudi Arabia. According to the International Energy Agency (IEA), Russia is the second largest exporter of crude oil with 60% of exports going to Europe and 20% going to China. Russia is also a major exporter of natural gas. According to Eurostat , Europe relies on net imports for approximately 83% of its natural gas. In 2020, Russia provided 23.0 % of natural gas imports, with Ukraine and Belarus providing 12.8% and 10.3% of natural gas imports, respectively. Putin’s invasion of Ukraine has created uncertainties in global energy supply that will likely remain for an extended period of time. These uncertainties affect pricing, which can have a continued and prolonged effect on inflation and in turn negatively impact global economic growth. In 2022, Putin’s invasion of Ukraine has dominated energy market pricing, with concerns and uncertainty over supply leading to a spike in the price of oil to over $108 per barrel, an increase in price of over 50% since December. In addition to Putin, another threat to inflation is any resurgence of COVID, not just domestically, but globally. COVID played a major role in disrupting global supply chains, which caused supply shortages and exacerbated infrastructure problems. COVID driven product shortages contributed significantly to inflationary pressures. Supply chain disruptions of imported goods affect the supply of finished goods available to consumers and inputs used by manufacturers. Any global resurgence of COVID would have a detrimental effect on supply chains, contribute to inflation, and negatively impact economic growth. And it’s a global world. Global supply chain disruptions would impact U.S. exports, imports, and goods produced for domestic consumption.
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The Federal Reserve can’t do much about inflation caused by energy markets or supply chain issues. It can increase interest rates to temper consumer and business demand which would lower inflationary pressures, through its Open Market Operations. The goal of the Federal Reserve is to act autonomously to balance economic growth with an acceptable level of inflation through targeting the fed funds rate. If the Federal Reserve lowers the fed funds rate, then borrowing costs typically decrease for consumers and businesses resulting in increased spending and economic growth. Too much economic growth can lead to inflation, so the Federal Reserve typically increases the fed funds rate to lower economic growth through decreased consumer and business spending. The novelty of the COVID driven economy was the record-breaking volatility of the economy. The economic decline, in terms of both magnitude and quickness, was greater and quicker than any economic decline since the Great Depression. The economic recovery was greater and quicker than any economic recovery since the Great Depression. The speed of the economic recovery contributed to inflation, as consumer demand recovered quicker than supply chains and global energy supplies. After a robust economic rebound in 2021, the Federal Reserve announced that multiple interest rate increases were likely in both 2022 and 2023 to reduce economic growth, consumer and business demand, and consequently inflationary pressures. The dramatic economic decline caused by COVID prompted the Federal Reserve to reduce the fed funds rate to a historically low range of 0.00% - 0.25%. Interest rates were this low only one other time in the last 50 years, during the financial crisis. In March, the first of several expected rate increases occurred, with the fed funds rate increased to a target range of 0.25% - 0.50%. The Federal Reserve announced in March that the targeted level for the fed funds rate in 2023 was expected to be approaching 3.0%, as interest rates would be gradually raised to counter inflation. Current inflation has been significantly influenced by the double whammy of rising energy prices, fueled by Putin’s war on Ukraine, and lingering COVID driven supply chain problems. While the Federal Reserve can temper demand through increasing interest rates, the impact on future inflation is limited. The effect of Putin’s war on global energy prices and any resurgence of COVID are the biggest threats to drive future short-term inflation, which are not factors that the Federal Reserve can influence. Prolonged significant inflation can reduce purchasing power and consequently real consumer spending, which in turn would negatively affect economic growth and risk stagflation or recession. Due to the great uncertainty of Putin’s war and any future impact of COVID on supply chains, current economic forecasts may be subject to greater uncertainty than ever before.
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ECONOMIC INDICATORS
Scott Wallace, Ph.D. Director and Editor, CBEI; Professor of Economics School of Business and Economics
The steep plunge in real GDP in the second quarter of 2020 and the V-shaped recovery since was the result of the COVID-19 shock. As Kevin Bahr has described in his report, both the rapidity and the scale of these changes were unprecedented. Some economists have described the impact of the pandemic on the economy as being similar to that of a “natural disaster” on a geographic area. The latest economic indicators provided here characterize an economy that, with the aid of historic levels of fiscal stimulus, has quickly rebounded from the COVID-19 disaster but now faces serious supply side constraints resulting in higher price levels and worker shortages.
National Economic Statistics Table 1 Key Economic Indicators 2022 First Quarter
% ∆ Yr. Ago +10.6
Nominal Gross Domestic Product (in Billions) Real Gross Domestic Product (in Billions) Industrial Production (2017 = 100) Consumer Price Index (1982 - 84 = 100)
$24,382.00 $19,735.90
+3.6 +5.5 +8.5
104.6
287.504
Description: • Nominal Gross Domestic Product (in Billions): The dollar value of all final goods and services produced in a year, using current prices. • Real Gross Domestic Product (in Billions): The dollar value of all final goods and services produced in a year, using prices from a base year (2017) to adjust for inflation. • Industrial Production Index: Measures real output (as a percentage of actual output in 2017) produced in the United States in manufacturing, mining, and electric and gas utilities. • Consumer Price Index: Measures the average monthly change in the price of a representative basket of goods and services bought by consumers. Analysis: • The first quarter increase of Real GDP of 3.57% from 2021 Q1 reveals persistent growth as the economy continues to rebound from the pandemic disaster. The decline in the number and severity of COVID-19 cases with the omicron variant certainly will help the economy to move forward. • Industrial Production is an excellent indicator of changes in output in the manufacturing sector. Industrial production has increased by 5.5% over the last year showing that manufacturing activity is expanding at a robust pace despite major supply chain challenges. • Inflation certainly has accelerated with the CPI showing the overall price level increasing by 8.50% over the last year, the highest rate in over 40 years. As Kevin Bahr describes in his report, increases in demand from federal stimulus programs, reductions in supply from supply chain issues, and higher energy prices have contributed to the rise in the inflation rate.
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Table 2 Contributions to Percent Change in Real Gross Domestic Product (Seasonally Adjusted at Annual Rates) Line Percent Change at an Annual Rate 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 1 Gross Domestic Product Percentage Points at Annual Rates 4.5 6.3 6.7 2.3 6.9 -1.4 2 Personal Consumption Expenditures 3 Goods 2.26 7.44 7.92 1.35 1.76 1.83 4 Durable Goods -0.07 5.69 2.99 -2.21 0.28 -0.03 5 Nondurable Goods 0.10 3.50 1.01 -2.52 0.22 0.35 6 Services -0.17 2.19 1.98 0.30 0.06 -0.38 7 Gross Private Domestic Investments 4.01 -0.37 -0.65 2.05 5.82 0.43 8 Fixed Investment 2.92 2.25 0.61 -0.16 0.50 1.27 9 Nonresidential 1.57 1.65 1.21 0.22 0.40 1.17 10 Structures -0.22 0.14 -0.08 -0.11 -0.22 -0.02 11 Equipment 1.29 0.75 0.66 -0.13 0.17 0.79 12 Intellectual Property Products 0.50 0.76 0.62 0.46 0.45 0.40 13 Residential 1.35 0.60 -0.6 -0.38 0.10 0.10 14 Change in Private Inventories 1.10 -2.62 -1.26 2.20 5.32 -0.84 15 Net Exports of Goods and Services -1.65 -1.56 -0.18 -1.26 -0.23 -3.20 16 Exports 2.07 -0.30 0.8 -0.59 2.24 -0.68 17 Goods 1.59 -0.10 0.48 -0.39 1.64 -0.8 18 Services 0.49 -0.20 0.32 -0.19 0.59 0.12 19 Imports -3.73 -1.26 -0.99 -0.68 -2.46 -2.53 20 Goods -3.04 -1.21 -0.51 0.04 -2.16 -2.43 21 Services -0.69 -0.05 -0.48 -0.72 -0.31 -0.10 22 Government Consumption Expenditures and Gross Investments -0.09 0.77 -0.36 0.17 -0.46 -0.48 23 Federal -0.22 0.78 -0.38 -0.35 -0.29 -0.39 24 National Defense 0.22 -0.25 -0.04 -0.07 -0.24 -0.33 25 Nondefense -0.44 1.02 -0.34 -0.29 -0.05 -0.06 26 State and Local 0.14 -0.01 0.02 0.52 -0.17 -0.08 Bureau of Economic Analysis Description: • The above table decomposes percent changes in Real GDP into its components (consumption, investment, government, and net exports) and more specific subcomponents. Analysis: • At first glance, the 1.4% decline in Real GDP may seem confusing since in Table 1 we show that Real GDP increased by 3.57%. What’s the deal! It is important to remember that Table 1 shows the percentage change in Real GDP for a whole year from First Quarter 2021 to First Quarter 2022. The change in Real GDP here in Table 2 shows the percentage of Real GDP since the last quarter, from the Fourth Quarter 2021 to First Quarter 2022. • Is the decline in Real GDP a sign of an impending recession? Probably not. The decline was the culmination of a number of factors: decreases in private inventory investment, reductions in government spending, and increases in imports. • The fall in private inventories is not all that surprising given the dramatic 5.32% increase in the Fourth Quarter 2021. • The declines in government expenditure at the federal, state, and local levels reflect decreases in some government pro- grams related to COVID-19 as these programs expire. • Expenditures on imports is considered a leakage since consumers are spending on goods and services produced in other countries. The 3.2% decline in net exports (value of exports minus the value of imports) reflected a significant increase in spending on imports and a modest decline in exports. • On the bright side, personal consumption expenditures increased by 1.83 percent while overall investment spending increased by 0.43% despite the decline in inventory investment.
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Center for Business and Economic Insight
Table 3 Lifecycle of the Expansion
12
Q2 20
10
8
6
Q1 21
4
Q1 20
Q1 22
2
Q1 20
0
38.5
39
39.5
40
40.5
41
Average Weekly Hours
Description: • Table 3 plots the unemployment rate against average weekly hours in manufacturing on a quarterly basis since the beginning of the current economic expansion in September 2009. • There are four phases: 1. In the initial phase of an expansion, unemployment is stable and remains high while there is a sharp rise in hours per week. 2. In the second phase, the unemployment rate falls while hours per week tend to be relatively stable.
3. In the third phase, the unemployment rate is stable and hours per week decline. 4. A contraction occurs when unemployment rises and hours per week fallsa). Analysis:
• With respect to our current business cycle, the graph indicates that we continue to be in an expansionary phase. • Compared with the Fourth Quarter 2021, we see a modest decline in unemployment to 3.6% and an increase in the number of hours worked per week. • This development indicates that employers are having a hard time finding new employees so they are asking existing employees work more hours.
Central Wisconsin Report - Spring 2022
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Labor Market Statistics
Table 4 Labor Market Indicators from LAUS and retrieved from WisConomy
Labor Force
Unemployment Rate
Employment
Labor Market Area
2022 Q1 (000)
% ∆ Yr. Ago
2022 Q1
2020 Q3 2022 Q1 (000)
% ∆ Yr. Ago
Portage County
38,879 14,221 75,350 34,478
0.79 0.73 1.50 -0.92 0.42 2.35
3.3 2.7 2.7 3.9 2.8 3.6
4.6 4.1 3.8 5.8 4.3
37,611 13,839 73,326 33,131
2.23 2.24 2.66 1.09 2.02 4.99
City of Stevens Point Marathon County
Wood County
Wisconsin
3,144,673
3,056,157
United States
164,409,000
6
158,458,000
Description: • Labor Force: Includes all people over the age 16 who are either working or actively looking for work. • Unemployment Rate: The number of unemployed as a percentage of the labor force. Analysis: • The numbers show a red hot labor market at the national, state, and regional levels. • With unemployment rate below 4.0%, the national economy is approaching full employment and we are seeing wage competition among employers trying to attract new workers. • The unemployment rate in Wisconsin is 2.8%! Anecdotes from local employers suggest that it is becoming increasingly difficult in finding new workers which is not surprising given the record low unemployment rate.
Table 5 Wisconsin Employment by Industry Sector from Payroll Employment Survey - CES and retrieved from WisConomy
Trade, Transport and Utilities
Nonfarm Jobs
Construction Jobs Manufacturing Natural Resources and Mining
Information Jobs
2022 Q1 (000) 2,927.90
% ∆ Yr. Ago
2022 Q1(000)
% ∆ Yr. Ago
2022 Q1(000)
% ∆ Yr. Ago
2022 Q1 (000)
% ∆ Yr. Ago
2022 Q1 (000)
% ∆ Yr. Ago
2022 Q1 (000)
% ∆ Yr. Ago
2.10 130.6 3.70 478.3 3.00
3.7
5.70 539.7 0.90 46.3 3.30
Education and Health
Leisure and Hospitality
Finance Jobs
Business Services
Other Services
Government
2022 Q1 (000) % ∆ Yr. Ago 154.1 -0.40% 321.4 1.50% 444.8 -2.20% 274.6 15.10% 143.8 1.20% 390.6 0.90% Description: • Employment data are classified using the North American Industry Classification System (NAICS). The above table categorizes data according to major industry sectors. Analysis: • The above table shows employment gains in most industry sectors over the last year. • Unsurprisingly, the greatest percentage increase in employment is in Leisure and Hospitality at 15.1%. The fall in the number and severity of COVID-19 cases account for the rebound in jobs in this sector. % ∆ Yr. Ago 2022 Q1 (000) % ∆ Yr. Ago 2022 Q1 (000) % ∆ Yr. Ago 2022 Q1 (000) % ∆ Yr. Ago 2022 Q1 (000) % ∆ Yr. Ago 2022 Q1 (000)
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Center for Business and Economic Insight
County Economic Statistics Table 6 Help Wanted Advertising (First Quarter)
Stevens Point
Wausau
Marshfield
Wisconsin Rapids
Lincoln County
Adams County
Index Value 2022 Q1
% ∆ Yr. Ago
Index Value 2022 Q1
% ∆ Yr. Ago
Index Value 2022 Q1
% ∆ Yr. Ago
Index Value 2022 Q1
% ∆ Yr. Ago
Index Value 2022 Q1
% ∆ Yr. Ago
Index Value 2022 Q1
% ∆ Yr. Ago
2079 122.00 2525 96.00 1209 102.00 1683 116.00 2471 98.00 1571 111.00 Description: • Presents index values for on-line job advertising for Stevens Point, Wausau, Marshfield, Wisconsin Rapids, Lincoln County, and Adams County. Analysis: • Help Wanted Advertising is an important leading indicator of local labor market conditions. • The dramatic increases in the index values over last year for all four counties and Stevens Point indicate a very tight labor market. • Current conditions are consistent with record job openings nationwide. Table 7 Unemployment Claims - Portage, Marathon, and Wood Counties (Third Quarter) Portage Marathon Wood Weekly Average 2022 Q1 % ∆ Yr. Ago Weekly Average 2022 Q1 % ∆ Yr. Ago Weekly Average 2022 Q1 % ∆ Yr. Ago
New Claims Total Claims
90
-50.50 -56.40
199 869
-51.60 -59.50
112 598
-44.30 -56.60
524
Description: • New Claims: Weekly average of new claims for 2022 Q1. • Total Claims: Weekly average of total claims for 2022 Q1. Analysis: • Initial claims for unemployment insurance are an important leading economic indicator because it helps predict likely changes in the level of consumption. • Weekly averages of new claims and total claims are used because of the volatility of new claims from week to week. • The numbers show a significant decline in both new and total claims since 2021 Q1, another strong indicator of a red hot labor market. • These numbers are consistent with the record low initial weekly claims nationwide in recent weeks. Table 8 County Sales Tax Distribution Portage Marathon Wood 2022 Q1 (000) % ∆ Yr. Ago 2022 Q1 (000) % ∆ Yr. Ago 2022 Q1 (000) % ∆ Yr. Ago County Sales Tax Distribution $1,896.42 5.91 $3,668.00 7.08 $1751.69 10.52 Description: • The county sales tax rate of 0.5% is placed on retailers that make taxable sales. • Changes in county tax collections are a good indicator of changes in retail activity in Central Wisconsin. Analysis: • The significant increase in tax collections for Portage, Marathon, and Wood County reflects significantly higher levels of retail activity compared to one year ago. • Current state budget surpluses also reflect a much improved economic picture.
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Housing and Construction Table 9 National Affordability Index (Feb. 2022)
Years
Median Price Existing Single Family Home
Mortgage Rate
Monthly P & I Payment
Payment as % of Income
Median Family Income
Qualifying Income
Composite
2021
315,100 363,800
2.86 3.83
1,044 1,361
14.7 18.5
85,378 88,424
50,112 65,328
170.4 135.4
Feb. 2022
Description: • Composite Index measures affordability. An index of 150 means that a family earning the median family income has 150% of income necessary to qualify for a conventional loan covering 80% of a median price single-family home. First quarter data was not avaiable at time of publication. Analysis: • First quarter data was not available at the time of this report. • While the median home price increased by 15.5% over the last year, the current median price is about the same as it was in the Third Quarter of 2021. • Higher prices combined with higher mortgage rates has reduced the Composite Index from 170.4 to 135.4, indicating declining affordability. • Qualifying income has increased from $50,112 to $65,328. • This is data from February which does not include more recent hikes in mortgage rates which now are in the 5 percent range.
Table 10 Median Home Prices and Home Sales (First Quarter 2022) Wisconsin Marathon Portage
Wood
2022 Q1
% ∆ Yr. Ago
2022 Q1
% ∆ Yr. Ago
2022 Q1
% ∆ Yr. Ago
2022 Q1
% ∆ Yr. Ago
Median Home Prices
240,000 9.59 194,000 13.12 231,000 15.06 161,500 21.43
Home Sales
14,699 -4.30
262
-22.02
114
-14.93
165
2.36
Description: • Above table gives median home prices and home sales for the state of Wisconsin and the counties of Central Wisconsin. • If you list home prices from lowest to highest, the median home price is the one at the half way point. Analysis: • Percentage increases in median home prices in the state and Central Wisconsin region over the last year are in line with increases at the national level. • Home sales have fallen significantly in the state, Marathon County and Portage County, implying a decrease in the supply of homes available for sale. • Despite significantly higher prices, Wood County witnessed a modest increase in home sales, implying an increase in the demand for homes in Wood County. • The increase in home prices may be coming to an end with median home prices in Wisconsin, Marathon County, and Wood County now slightly lower than in Third Quarter 2021.
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Center for Business and Economic Insight
Table 11 Residential Construction: Stevens Point - Plover Area
Estimated Value of New Homes (000)
Number of Housing Units
Alteration Permits Issued
Estimated Value of Alterations (000)
Permits Issued
2022 Q1
2021 Q1
2022 Q1
% ∆ Yr. Ago 103.10
2022 Q1
2021 Q1
2022 Q1
2021 Q1
2022 Q1
% ∆ Yr. Ago
31
19
25
20
220
294 $2,490.00 68.36
$10,948.00
Description: • The above provides construction figures for both new homes and residential alterations. Analysis: • Both the construction of new homes and the estimated value of alterations increased significantly over the last year, rebounding from pandemic induced reductions in activity from last year.
Table 12 Nonresidential Construction: Stevens Point - Plover Area
Estimated Value of New Structures (000)
Alteration of Business Permits Issued
Estimated Value of Alterations (000)
Permits Issued
2022 Q1
2021 Q1
2022 Q1
% ∆ Yr. Ago
2022 Q1
2021 Q1
2022 Q1
% ∆ Yr. Ago 182.15
17
3
$13,036.48 193.87
73
74
$8,793.49
Description: • The above provides construction figures for new business and commercial structures as well as alterations. Analysis: • Nonresidential construction also increased dramatically, similarly bouncing back from the low levels of last year.
Business Sentiment Table 13 Business Confidence Survey: Central Wisconsin Area
Index Value April 2022
Recent Changes in National Economic Conditions Recent Changes in Local Economic Conditions Expected Changes in National Economic Conditions Expected Changes in National Economic Conditions
39 43 41 43 53
Expected Changes in Industry Conditions
100 = Substantially Better
50=Same
0=Substantially Worse
Description: • Diffusion index numbers are based on a survey of businesses from the Central Wisconsin region. Analysis: • Survey results of 39 and 43 signal that businesses believe that conditions at national and local levels are modestly worse than 6 months ago. • Results also show that businesses believe that national and local economic conditions will be a bit worse 6 months from now. • Local businesses believe that industry conditions will be substantially the same 6 months from now.
Central Wisconsin Report - Spring 2022
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