OEDA 2009 - Ned Hill


Published on

"The 3 Rs: Recession, Resources + Recovery" - speech by reknown economist and Dean of the Maxine Goodman Levine College of Urban Affairs at Cleveland State University...Dr. Ned Hill. Given at the 2009 Annual Meeting of the Ohio Economic Development Association (OEDA).

Published in: Economy & Finance, Technology
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • The 12-month percent change in GDP (in red and read from the right-hand axis) continues to be negative and it has declined in real dollar terms. The US has lost real GDP during the major “double dip” recessions of 1980 and 1981-1982 and the short 1990.
  • The unemployment rate increased sharply in late 2007 and accelerated after the credit markets froze in the early fall of 2008. The unemployment rate is at a level that has not been seen since the recession of the early 1980s. The rate for the nation in June was 9.8%. About 6.5 million Americans have lost work since the recession started in November of 2007. NOTE: BLS’ SERVER IS DOWN NEED TO FIND NUMBER OF JOBS LOST
  • The drop in the 4 week average of new claims made for unemployment insurance drops at the bottom of recessions. The relationship has held up in all recent recessions, with the exception of the 1973 to 1975 recession. Step drops have been unambiguously associated with the beginnings of an economic recovery. Claims have been dropping since the first week of April 2009.
  • OEDA 2009 - Ned Hill

    1. 1. The 3 Rs: Recession, Resources, and Recovery Edward (Ned) Hill Dean, Levin College of Urban Affairs Cleveland State University Ohio Economic Development Association October 14, 2009
    2. 2. Quarterly Real GDP and 12-month percent change in Quarterly Real GDP from 1979(1) to 2009(2) Edward (Ned) Hill Source: US Bureau of Economic Analysis, National Income and Product Accounts, Retrieved Oct 14, 2009 from FRED, St Louis Federal Reserve Bank. Released Sept 30,2009. Recessions are shaded. Real GDP in billions of $2000 12-month Percent Change Real GDP in Billions of $2005 12-month percent change in Real GDP General performance Quarterly data, last data point second quarter of 2009
    3. 3. Number of people employed in the economy and the Unemployment Rate, monthly 1979 to 2009 Edward (Ned) Hill Source: US Bureau of Labor Statistics, Current Population Survey, retrieved from FRED, St Louis Federal Reserve Bank, Oct 14, 2009. Recessions are shaded Number of Jobs Unemployment Rate General Performance Number employed (000) Unemployment rate (%) Since the recession started: 7.2 million jobs lost (-5.2% of total) Unemployment rate: 4.9% to 9.8%
    4. 4. Recession over? 6 month percent change in GDP Forecast data from July 2009 on Edward (Ned) Hill Source: HIS Global Insight and USA Today retrieved September 25,2009 Forecast data Forecast 2.8% 1/07 1/08 1/09 US GDP
    5. 5. forecast of annual percent change in GDP; improving over time Edward (Ned) Hill Source: The Economist , electronic edition, retrieved October 12, 2009 from http://www.economist.com/markets/indicators/displaystory.cfm?story_id=14365843 Global GDP
    6. 6. Edward (Ned) Hill Source: Wall Street Journal Sept 25, 2009 Global GDP
    7. 7. The 4-week moving average of new unemployment insurance claims usually trends down at the end of recessions—this is encouraging Edward (Ned) Hill 4 week average of number of claims Source: Bureau of Labor Statistics, Unemployment Insurance Weekly Claims Retrieved Oct 12, 2009 from FRED, St Louis Federal Reserve Bank . Weekly data Jan 1968 to Oct 3, 2009 2001 1990-91 2007-09 1980-82 1973-75 1969-70 Labor market
    8. 8. A more localized look at the 4 week moving average of new unemployment insurance claims Edward (Ned) Hill Peak: April 4, 2009 Labor market Source: Bureau of Labor Statistics, Unemployment Insurance Weekly Claims Retrieved Oct 12, 2009 from FRED, St Louis Federal Reserve Bank . Weekly data, January 2005 to October 3, 2009 November 2007 Oct 3, 2009
    9. 9. Employment growth will lag Edward (Ned) Hill <ul><ul><li>1990 recession 9 months long: employment recovered in 32 months </li></ul></ul><ul><ul><li>2001 recession 9 months long: employment recovered in 48 months </li></ul></ul><ul><ul><li>We are in month 23 of the 2007 recession & will it will last for last 22-24 months. When will employment be fully recovered? A guess is 5 years or 60 months from December 2007—this means 2013. </li></ul></ul>Labor market
    10. 10. Consumer confidence: Weak recovery begins Dropping since January 2004; Increase March to August Edward (Ned) Hill Source: St. Louis Federal Reserve Bank, FRED, from University of Michigan, http://research.stlouisfed.org/fred2/series/UMCSENT/downloaddata?cid=98retrieved Oct 12, 2009 1966(1)=100 Monthly data 01/90 to 08/09 Recessions are shaded Confidence: C
    11. 11. CFO economic confidence Feeling better in May. Time for the next quarter’s data Edward (Ned) Hill Source: The Economist, June 3, 2009 http://www.economist.com/markets/rankings/displaystory.cfm?story_id=13781864 The latest quarterly poll of over 1,000 CFOs, conducted in late May by Duke University in America, Tilburg University in the Netherlands and CFO, a sister publication to The Economist. Confidence: I
    12. 12. Trade weighed value of the dollar reflects its role as a reserve currency—but gravity is reasserting itself due to trade Edward (Ned) Hill Peak Feb 2002 129.5 Bottom July 2008 95.4 Feb 2009 111.8 Value of the dollar Source: St Louis Federal Reserve Bank, FRED, retrieved Oct 3, 2009 Credit markets freeze Sept 15 2007 China floats Yuan
    13. 13. Dollar increases as a reserve currency against major industrial currencies; Gains moderate in 2009 Edward (Ned) Hill $ increases in value $ decreases in value Monthly data Jan 1999 to June 2009; Indexed to relative values in January 199 when Euro was floated Source: St Louis Federal Reserve Bank, FRED, retrieved Oct 14, 2009 Value of the dollar China floats Yuan Credit markets freeze € :$ CA$:US$ £:$ ¥:$
    14. 14. Dollar in managed decline against Yuan Drops in value against currencies of industrializing nations Edward (Ned) Hill Monthly data Jan 1999 to Sept 2009; Indexed to relative values in January 1999 when Euro was floated Source: St Louis Federal Reserve Bank, FRED, retrieved Oct 14, 2009 $ increases in value $ decreases in value China floats Yuan Credit markets freeze Value of the dollar Brazil:$ India:$ Mexico:$ Korea: $ China: $
    15. 15. Auto & light truck sales walked off a cliff with a cash-for-clunkers rebound Decline starts in January 2006; accelerates September 2007; falls apart September 15, 2008; cash for clunkers worked; Annualized monthly auto and light truck sales Edward (Ned) Hill Source: St. Louis Federal Reserve Bank, FRED, from US Bureau of Economic Analysis , retrieved October 12, 2009 Aug 09 Feb 09 Aug 07 June 05 Jan 06 Autos
    16. 16. Cars and trucks will be made in the United States North America remains a big market US & Canadian production numbers drop; Mexico climbs Edward (Ned) Hill Source: International Organization of Automobile Manufactures (OICA) http://oica.net/category/production-statistics/2007-statistics/ retried July 1, 2009
    17. 17. In 2008 UAW and CAW membership produced 6.5 million vehicles in North America (52%); Nonunion assembly plants produced 5.9 million (48%) units Edward (Ned) Hill Source: International Organization of Automobile Manufactures (OICA) http://oica.net/category/production-statistics/2007-statistics/ retried July 1, 2009 It is likely that less than 50% of North American production will come from plants organized by the UAW and CAW in 2009 and going forward.
    18. 18. A tale of 4 clusters: Auto assembly in North America Old domestic heartland; New Domestic center I-70 – I-75 crosshair; Southeast Corridor Edward (Ned) Hill Source: Ohio Department of Development, Office of Strategic Research Autos
    19. 19. Ohio’s economic performance Edward (Ned) Hill Economic performance: Ohio is America’s economic battleground
    20. 20. The economic challenge for the region and Ohio was in late 1990s until the end of the 2001 recession Edward (Ned) Hill United States Ohio Cleveland-Akron CSA Economic performance: GDP growth rates trail the nation Source: Economy.com
    21. 21. Why will job growth be slow? The big 5 forces <ul><li>Tyranny of the product cycle </li></ul><ul><ul><li>Unbalanced product portfolio weighted toward older products </li></ul></ul><ul><ul><li>Changing competitive advantage of firms </li></ul></ul><ul><li>Creative destruction —fewer recalls, job growth comes from job creation not revitalization. In the US & Ohio capital investment may be the job creation driver. </li></ul><ul><li>Productivity Growth —better, faster, smarter, fewer, cheaper; a combination of technology, management and global supply chain integration </li></ul><ul><li>Legacy work practices and cost uncertainty </li></ul><ul><ul><li>Work rules </li></ul></ul><ul><ul><li>Cost uncertainty—health care, torts, mandates, & energy </li></ul></ul><ul><ul><li>Benefits wedge </li></ul></ul><ul><li>Failed business strategies of three key employers </li></ul>Edward (Ned) Hill Economic performance: Legacy of place
    22. 22. Four facts explain the performance of this market area Edward (Ned) Hill Changing economic advantage Low rates of innovation & entrepreneurship Failed corporate strategies and old products Place-based legacy costs Economic performance : Four observations
    23. 23. Threats and challenges to Ohio <ul><li>Low to declining population growth </li></ul><ul><ul><li>Does this make economic sense? Is cause and effect backwards? </li></ul></ul><ul><ul><li>Role for targeted talent recruitment—remember the labor agents of the early 20 th Century </li></ul></ul><ul><li>The threat of becoming an increasingly commodity-driven economy, dominated by global competitors (China and possibly India) </li></ul><ul><ul><li>Why the China model for industrial production is beginning to break down </li></ul></ul><ul><ul><li>How this can fit into Ohio’s revival </li></ul></ul><ul><li>A legacy of outdated labor practices: work rules, legacy costs, and the Industrial Commission </li></ul><ul><ul><li>The antidote is new firms; new industries; new business culture </li></ul></ul><ul><li>An overall perception of the region as dominated by industries under stress or in decline (“rust belt” image) </li></ul><ul><ul><li>The response has to be opportunity </li></ul></ul>Edward (Ned) Hill Economic perceptions: Site location professionals
    24. 24. Lessons learned <ul><li>No “silver bullet” that will turn a slow-moving traditional-based economy into a vibrant, high performance one </li></ul><ul><li>A skilled workforce and strong business dynamics are most highly correlated with regional economic growth </li></ul><ul><li>The pursuit of societal goals, such as racial inclusion and income equality, can enhance growth </li></ul><ul><li>While positively related to growth, locational amenities are not as important as other factors </li></ul><ul><li>A region must overcome “legacy of place” costs </li></ul>Edward (Ned) Hill Source: W.E. Upjohn Institute, NEO Dashboard Indicators Conclusions: From the academic literature
    25. 25. The competitive advantage of Ohio <ul><li>Required areas of product improvement </li></ul><ul><ul><li>Education & workforce (incumbent workers) </li></ul></ul><ul><ul><li>Entrepreneurial management </li></ul></ul><ul><ul><li>Workplace flexibility </li></ul></ul><ul><li>Areas of demonstrated competitive competence </li></ul><ul><ul><li>Portfolio of products </li></ul></ul><ul><ul><li>Portfolio of technologies </li></ul></ul><ul><ul><li>Portfolio of regions </li></ul></ul>Edward (Ned) Hill Competitive advantage: Managing portfolios, not betting on silver bullets
    26. 26. What’s next: Realities <ul><li>Keys to survival for companies and plants </li></ul><ul><ul><li>Flexible workforce and flexible work rules </li></ul></ul><ul><ul><li>Company & supply chain culture will continue to be important </li></ul></ul><ul><ul><li>No debt—leverage is now the company killer </li></ul></ul><ul><ul><li>Long term value of the dollar will influence the health of assembly clusters </li></ul></ul>Edward (Ned) Hill Edward (Ned) Hill
    27. 27. Edward (Ned) Hill
    28. 28. The region’s economic health depends on corporate strategies and the portfolio age of the region’s products. Five categories of companies: <ul><li>Product innovators — Grow the top line of their income statement without blowing up their cost structure . Can manage continuous product innovation and own intellectual property or have proprietary knowledge. </li></ul><ul><li>Process innovators and global competitors — Manage the middle of their cash statements and ride their product catalogs. Have deployed IT to tighten supply and customer chains. Developing global supply chain. </li></ul><ul><li>Lifestyle firms — Goal is not growth but owner’s control and earning target income . Are not profit maximizers . Frequently have no intellectual property or proprietary competitive advantage. </li></ul><ul><li>One trick ponies — Commodity business dependent on a single business or production relationship. </li></ul><ul><li>Dead and dying companies — Job shops in auction markets. </li></ul>Edward (Ned) Hill Conclusion: Where is your firm?
    29. 29. What’s next Reading the dust storm on the horizon “ Hard to tell from here. Could be buzzards. Could be economic development consultants. Most likely the chase for stimulus cash” Edward (Ned) Hill