June 30, 2012
REGIONAL ANALYSIS / MIDWEST
THE STATE OF THE MIDWEST ECONOMY
Contact:
Jim Glassman
jglassman@jpmorgan.com
212-270-0778
June 30, 2012
Great Lakes’ economic forecast
ECONOMIC OUTLOOK
United States
Real GDP
$ billions (fourth quarter)
% change over the four quarters
Nonfarm employment
Job count (fourth quarter)
% change over the four quarters
Average monthly change
2007
2008
2009
2010
2011
2012
2013
2014
$13,326
2.2%
$12,884
-3.3%
$12,814
-0.5%
$13,216
3.1%
$13,429
1.6%
$13,751
2.4%
$14,233
3.5%
$14,802
4.0%
137,885,333 135,087,333 129,447,000 130,225,667
0.9%
-2.0%
-4.2%
0.6%
98,778
-233,167
-470,028
64,889
131,985,000
134,101,595
136,180,377
138,481,392
1.4%
146,611
1.6%
176,383
1.6%
146,611
1.7%
176,383
$1,836
2.3%
$1,889
3.3%
$1,960
3.9%
Great Lakes
Real GDP
$ billions (fourth quarter)
% change over the four quarters
$1,859
-0.5%
$1,813
-3.9%
$1,739
-2.3%
$1,767
2.9%
$1,801
1.6%
Nonfarm employment
Job count (fourth quarter)
% change over the four quarters
Average monthly change
21,517,900
0.0%
164
21,009,933
-2.4%
-42,331
19,909,833
-5.2%
-91,675
20,111,900
1.0%
16,839
20,286,433
0.9%
14,544
20,563,667 20,846,016 20,961,281
1.4%
1.4%
0.6%
23,103
23,529
9,605
Note: GDP figures are based on quarterly values that are interpolated from annual GDP estimates using quarterly employment changes.
Unbolded figures are reported actual figures and bold figures represent forecasts.
Sources: US Department of Commerce; US Department of Labor
REGIONAL ANALYSIS / MIDWEST
What the table shows …
State forecasts begin with the national forecast that is then allocated to each of the 50 states
based on employment shares. So, forecast misses reflect surprises in the aggregate forecast
as well as unexpected shifts in a state’s GDP share.
The economies of the Great Lakes region began to expand in 2010, in line with the national
economic trends and have continued to track the nation’s performance.
Key messages …
The mid-section of the US economy, where much of the nation’s manufacturing base has an
outsized footprint, is expected to speed up a bit in 2012.
2
June 30, 2012
REGIONAL ANALYSIS / MIDWEST
Timely economic indicators
3
June 30, 2012
FRB of Chicago manufacturing survey
Midwest real GDP (% change from four quarters earlier)
8
6
Factory index (2002 = 100.0)
Updated through 2012 Q1 (GDP) and April 2012 (Fed survey)
150
Illinois real GDP (left scale)
FRB Chicago's manufacturing survey (right scale)
125
4
2
100
0
75
-2
-4
50
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
Real GDP in the Great Lakes region and the Federal Reserve Bank of Chicago’s index of
manufacturing conditions.
Survey data point to a revival of manufacturing activity.
Key messages …
The region’s outlook is promising.
Sources: US Department of Commerce; Federal Reserve Bank of Chicago
4
June 30, 2012
Private surveys of business conditions
Real GDP (% change from 12 months earlier)
6
Purchasing Managers (50 = steady)
Updated through 2012 Q1 (GDP) and May 2012 (business survey)
5
90
80
4
70
3
60
2
50
1
40
0
-1
Real GDP in the Great Lakes region (left scale)
-2
Business Barometer Index, Mid-America Purchasing
Managers (right scale)
-3
30
20
10
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
The Mid-America Business Barometer Index, based on the survey of purchasing managers, and
real GDP growth in the Great Lakes region (a reading above 50 means the economy is
growing, while less than 50 means the economy is shrinking.
The index, which is a timely measure of the strength of business activity in the Midwest, has
bounced back up again.
Key messages …
This index will be a useful leading indicator of the direction of the economy and hints at an
improving regional economy.
Source: US Department of Commerce; Chicago Purchasing Association
5
June 30, 2012
Layoffs
Ratio of jobless claims to the 2007 Q4 level
2.25
Updated through May 28, 2012 (US) and May 21, 2012 (state)
2.00
1.75
1.50
2.25
Midwest
(Illinois,
Indiana,
Kentucky,
Michigan,
Minnesota,
Wisconsin,
Ohio)
2.00
1.75
1.50
US (solid area)
1.25
1.25
1.00
1.00
0.75
2007
0.75
2008
2009
2010
2011
2012
2013
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
Applications for unemployment insurance, a tracking of new layoffs, in the Midwest versus
the nation.
Weekly layoffs, both the state and national tallies, are illustrated in the figure above as a
ratio to the level of layoffs in the fourth quarter of 2007, the “best of times” level just prior
to the recession.
Layoffs have fallen back to pre-recession levels in the Great Lakes region.
Key messages …
The Midwestern states are benefiting from the recovery in the motor vehicle industry and
industrial sector more generally.
Source: US Department of Labor
6
June 30, 2012
REGIONAL ANALYSIS / MIDWEST
State of the Great Lakes economy
7
June 30, 2012
Economic growth
Real GDP (% change from four quarters earlier, thin lines or altered shading are forecasts)
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
Updated through 2012 Q1 (US); 2011 (state data); quarterly state data interpolated from employment data through May 2012
Midwest
US
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
Real GDP growth in the Great Lakes region compared with the national economy.
The Midwest lagged the national economy for most of the 2000s decade, but now is beginning
to pace the national economic recovery.
Key messages …
The Great Lakes area is expected to speed up further in 2012.
Source: US Department of Commerce
8
June 30, 2012
Economic output
Real GDP (ratio to the 1990 Q4 level)
1.50
Updated through 2012 Q1 (US); 2011 (state data); quarterly state data interpolated from employment data through May 2012
1.50
1.45
1.45
1.40
1.40
1.35
1.35
US
1.30
1.30
1.25
1.25
1.20
1.20
1.15
1.15
1.10
1.10
1.05
1.05
1.00
Midwest
0.95
1.00
0.95
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
Cumulative gains in real GDP since 2000 Q4.
The level of real GDP in the Midwest lagged behind the national level of real GDP by about
10% by 2007.
Key messages …
The Midwest is expected to parallel the national economic trends and gradually to close the
gap that opened versus the national economy earlier in this decade.
Source: US Department of Commerce
9
June 30, 2012
Economic output, Take 2
Real GDP (ratio to the 2000 Q4 level)
1.50
Updated through 2011 Q3 (US); 2010 (state data); quarterly state data interpolated from employment data through October 2011
1.50
1.45
1.45
1.40
1.40
1.35
1.35
1.30
1.30
1.25
US
1.25
1.20
1.20
1.15
1.15
1.10
1.10
1.05
1.05
1.00
Midwest excluding Michigan
0.95
1.00
0.95
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
Cumulative gains in real GDP since 2000 Q4.
The Midwest’s shortfall with the rest of the nation is less striking, excluding the performance
of Michigan’s economy.
Key messages …
Midwest has struggled more than most, but the underperformance in the Midwest goes
beyond Michigan.
Source: US Department of Commerce
10
June 30, 2012
Employment growth
Employment (percent change from 12 months earlier)
4
4
Midwest
US
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
-7
Updated through April 2012 (state data) and May 2012 (US)
-7
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
Employment growth in the Midwest, compared with the national employment picture.
Employment growth in the Midwest now is matching the national job market rebound.
Key message …
States whose economies are heavily dependent on the manufacturing sector are faring better
than others, as the sector revives.
Source: US Department of Labor
11
June 30, 2012
Employment level
Employment (ratio to the 2000 Q4 level)
1.10
1.10
1.05
1.05
US
1.00
1.00
0.95
0.95
Midwest (Illinois,
Indiana, Michigan,
Ohio, Wisconsin)
0.90
0.85
0.90
Updated through April 2012 (state data) and May 2012 (US)
0.85
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
The cumulative gain in employment since 2000 Q4, the peak of the previous business
expansion.
Similar to the picture for real GDP, employment in the Midwest lagged the national trend by
about 8% at its worst point in 2007.
The payroll count currently is 8% below the number of jobs at the peak of the 2000
expansion.
Key messages …
Employment in the region has been expanding since 2009.
Source: US Department of Labor
12
June 30, 2012
Unemployment
Unemployment rate (percent of the labor force)
14
Updated through April 2012 (state) and May 2012 (US)
14
12
12
10
10
8
Great Lakes
8
6
6
4
4
US (shaded)
2
2
0
1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
0
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
Unemployment rate trends in the region compared with the national average.
The Great Lakes economies are faring better than many, judging by the fast-paced recent
drop in the region’s unemployment rate.
Key messages …
The unemployment rate is the single best indicator of the relative economic performance of a
region and by this standard the Great Lakes region is beginning to grow.
The decline in the unemployment rate in the Great Lakes area likely indicates that the
economy is strengthening, reflecting the recovery in the motor vehicle industry and
manufacturing more broadly.
Source: US Department of Labor
13
June 30, 2012
Relative house prices
Existing house prices (ratio of selected indexes to national index, 1995 Q4 = 1.0)
1.50
1.50
New England
Pacific
Mid-Atlantic
1.40
1.40
1.30
1.30
South Atlantic
1.20
1.20
West South Central
West North Central
East South Central
Mountain
1.10
1.10
1.00
1.00
0.90
0.90
East North Central
0.80
0.70
0.80
0.70
Updated through 2012 Q1
1990
1992
1994
1996
1998
2000
2002
2004 2006 2008 2010
2012
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
House prices in selected regions relative to the national average, normalized so that 1995 Q4
is set to 1.0.
Inflated real estate conditions generally were found in states whose house prices matched
national trends (the line in the figure would hold steady) or rose faster than the national
average (the line in the figure rises). States that did not suffer from speculative conditions
would be identified by a decline in the relative price of houses in this last decade.
Prices in the Midwest rose 10-20% slower than the national average into 2007, but corrections
in inflated markets are narrowing the divergences somewhat.
Key messages …
Real estate in the Midwest remains more affordable than most regions.
Source: Office of Federal Housing Finance Authority.
14
June 30, 2012
Real estate markets
Existing house prices (ratio of selected indexes to national index, 1995 Q4 = 1.0)
1.10 Updated through 2012 Q1
1.10
1.05
1.05
1.00
1.00
0.95
0.95
West North Central
0.90
East North Central
0.90
0.85
0.85
0.80
0.80
0.75
0.75
0.70
0.70
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
House prices in two slices of the Midwest relative to the national average.
House prices in the western regions of the Midwest have lagged those to the east.
Key messages …
House prices in the Midwest remain near the most affordable level they have been relative to
the national average.
Source: Office of Federal Housing Finance Authority.
15
June 30, 2012
New home building
Housing starts (ratio to the July 1990 level)
2.0
2.0
Updated through April 2012
1.5
1.5
US
Midwest
1.0
1.0
0.5
0.5
0.0
0.0
2000
2003
2006
2009
2012
2015
REGIONAL ANALYSIS / MIDWEST
What the chart shows …
Housing starts in the Midwest, compared with the level of new home building nationwide,
measured in relative terms, relative to the 1990 pace of construction.
Housing activity in the Midwest is almost a carbon copy of the national trend in new home
building and is trending up this year.
Key messages …
Home building remains depressed, but is expected to begin to recover in 2012.
Source: US Census Department
16
REGIONAL ANALYSIS / MIDWEST
June 30, 2012
The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please
note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of
other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such.
Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above
summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or
completeness. © 2012 JPMorgan Chase & Co. All rights reserved.
17