Published on March 5, 2009
June 2007 Northeast Ohio Economic Review Welcome to the June installment of Team NEO’s “Quarterly Regional Economic Review” for Northeast Ohio. Our key quarterly indicators – employment, wages and GRP – have been updated through the first quarter. Bottom line: Our economy continues the trends of last year. Northeast Ohio continues to grow, although moderately. 2007 is expected to be the sixth consecutive year of growth in regional economic output. In addition to our standard indicators, in this edition we look more deeply at the make-up of our economy. If you have wondered which sectors contribute most to our economy, both in terms of output and in terms of total salaries and wages, you will find it here. We then take a deeper look at the longer-term trends in output, employment and productivity for some key sectors. For example, the data show that while manufacturing jobs are down from the late 1990s, productivity (output per worker) has improved dramatically. Manufacturing output has been more stable than is popularly recognized and still represents 21% of our economic output. Employment has suffered certainly, but the great boost in productivity is keeping this sector globally competitive and a differentiator for the region. We hope you enjoy this edition as it is structured to meet your needs. Thomas A. Waltermire, chief executive officer, Team NEO
2006 Industry Sector Salaries/Wages and GRP as Percent of NEO Totals Manufacturing Leads NEO in Output and Payroll This chart shows the sectors that make up the Northeast Ohio economy. It displays each sector’s share of economic output (Gross Regional Product) and its share of the region’s wages/salaries. Manufacturing continues to play the lead role in both output and wages. NEO’s manufacturing sector provides 21% of our output and almost 20% of regional payroll. Wholesale and retail trade is #2 in output. Government and education is #2 in wages/salaries. The rank order of NEO’s top five sectors is similar to the U.S. However, for the U.S., manufacturing is only 14% of output and the other top segments are each about 12-14% of the total economy. Percent of NEO 2006 Totals Source: Moody’s Economy.com GRP Wages
A competitive region is mad Manufacturing: 1992 - 2007 Productivity Gain Keeps Output Steady This chart shows the 15-year trend in regional 1.60 output from manufacturing, the total number 1.50 GRP per Worker of workers and the output per worker. Contrary 1.40 Indexed Value (1990 = 1.00) to popular perception, manufacturing output 1.30 has been relatively flat. Today it is higher than 1.20 15 years ago, but still below the late 1990s. 1.10 Across the U.S. manufacturing employment GRP 1.00 has been in decline and that has also been 0.90 the case in NEO with total manufacturing jobs 0.80 down 25% from the late 1990s. Productivity Employment (output per worker) has improved dramatically. 0.70 This has kept NEO manufacturers globally 0.60 competitive. When we measure manufacturing 0.50 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 by employment, it is down considerably. When Source: Moody’s Economy.com we measure it by output, it is nearly as strong as ever. Manufacturing continues to be a vital driver of regional wealth creation. Wholesale/Retail Trade: 1992 - 2007 Output Growth Fueled by Productivity Gains Output from wholesale/retail trade has 1.70 grown steadily the last 15 years. Employment 1.60 GRP per Worker growth has been minimal, declining after GRP 1.50 Indexed Value (1990 = 1.00) Sept. 11, and has been flat since 2002. 1.40 Productivity gains in this sector have been 1.30 just as impressive as for manufacturing. 1.20 Innovations in service methods, logistics 1.10 (the Wal-Mart business model) and Employment 1.00 information systems have fueled this 0.90 productivity boom. The benefit has largely 0.80 gone to consumers in the form of lower or 0.70 stable prices for most consumer goods. 0.60 0.50 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Moody’s Economy.com
e of competitive industries. Finance/Insurance: 1992 - 2007 Strong Growth Sector The finance and insurance sector has 1.90 been a source of strong growth for the 1.80 region, up nearly 80%. Total workers GRP 1.70 Indexed Value (1990 = 1.00) grew steadily during most of this 1.60 1.50 period and productivity gains have GRP per Worker 1.40 been regularly achieved. More recently 1.30 output has continued to grow and 1.20 Employment productivity has jumped, allowing that 1.10 growth to be achieved with slightly 1.00 0.90 fewer workers. If productivity continues 0.80 to improve at these rates, this could be 0.70 another sector with limited employment 0.60 gains longer term. 0.50 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Moody’s Economy.com Healthcare/Social Services: 1992 - 2007 Strong Employment Growth; Productivity Gains Modest Healthcare and social services 1.70 contribute significantly to the Region’s 1.60 GRP (8% of GRP for NEO versus 6.5% GRP 1.50 Indexed Value (1990 = 1.00) for the U.S.). Output has been steadily Employment 1.40 climbing with little volatility. In 1.30 contrast to the other sectors, there 1.20 has been only modest improvement GRP per Worker 1.10 in output per worker. So, as output or 1.00 demand grows, employment grows with 0.90 it. This has been one of the strongest 0.80 sectors for employment in NEO and 0.70 nationally. National data actually 0.60 show a decline in output per worker 0.50 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 with employment growing faster than Source: Moody’s Economy.com output. Limited productivity gains translate into faster rising costs.
Unemployment Tracks Normal Seasonal Trends The increase in unemployment from 7.5 Q4 06 to Q1 07 is a typical seasonal event, due to post-holiday layoffs 7.0 Percent of Labor Force and seasonal industries such as 6.5 construction. Note the Q1 increases 6.0 in prior years. NEO (and Ohio) 5.5 unemployment rates are similar to last year and also remain about 5.0 three quarters of a point higher than 4.5 the U.S. The unemployment rate is defined as the proportion of people 4.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 in the workforce who are not working 2006 2003 2004 2005 2007 and are actively looking for work Source: Ohio Labor Market Information or awaiting recall. The NEO average U.S. Ohio NEO rate of roughly 5.4% for the last four quarters is relatively low by historical standards. Employment at Highest Level in Five Years Total regional employment remained 1.96 18.0 at a level higher than any time in the last five years. Total jobs are up 1.95 17.5 about 2% from the trough two years Wages (billions U.S. $) ago. Total real wages and salaries Workers (millions) 1.94 17.0 ($17.5 billion per quarter) declined slightly in the fourth quarter of 1.93 16.5 2006. Real wages/salaries (after 1.92 16.0 subtracting inflation) have been rising at about 2.7% per year the last 1.91 15.5 five years. This is a good indicator that our region’s wealth is improving. 15.0 1.90 Q2 Q4 Q1 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q3 Q2 Q3 2002 2003 2004 2005 2006 2007 Sources: Ohio Labor Market Information and U.S. Bureau of Labor Statistics Avg Employment (4-Qtr Avg) Wages (4-Qtr Avg)
NEO Economy Continues to Expand Despite the many challenges the Northeast Ohio economy has faced, our economic output is now 32% Annual % Change higher than 15 years ago. 2007 is expected to be the sixth consecutive year of growth in gross regional GRP (billions 2006 $) product. However, growth has been slow, averaging only about 1% the last two years compared with the U.S. growth rate of 3.3% during 2005-6. 2007 is currently estimated to continue to grow slowly at 1.2%, but this could be revised still lower based on recent downward revisions in growth estimates for the U.S. as a whole. 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Moody’s Economy.com; 2007 data are estimated Annual Percentage Change Data Sources Team NEO uses a number of data sources for the Regional Economic Review. One of the primary sources is Moody’s Economy.com (www.economy.com) regional modeling system. This firm is a leading independent provider of economic, financial, and industry research and data that specializes in national and metropolitan economic growth forecasts. Moody’s Economy.com county level output, employment and payroll historical data are estimated from several publicly available sources and are summarized into the Team NEO regional footprint. It is important to understand that data provided by Economy.com are estimates of economic activity. Team NEO also uses data from federal and state sources as part of the report. As with Economy.com, the information for the Team NEO footprint are derived from data reported at either the county or metropolitan level. We rely heavily on data from the U.S. Bureau of Labor Statistics (www.bls.gov) and Ohio’s Labor Market Information (lmi.state.oh.us) for information on wages, unemployment and both general and industry-specific employment. In addition, Team NEO uses data from the Census (www.census.gov) to track housing-related activity including the number of single and multi-family permits, as well as their values. 737 Bolivar Road, Suite 2000 Cleveland, Ohio 44115 www.teamneo.org 1.888.NEO.1411 This report made possible through the generous www.clevelandplusbusiness.com support of Charter One Foundation.
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