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Economists wary but hopeful for Michigan in 2020

Fixing schools, new econ development strategies discussed

By: Tiffany Esshaki | C&G Newspapers | Published January 27, 2020

 Oakland County Executive David Coulter shared his thoughts on local economic development at The Townsend Hotel Jan. 24.

Oakland County Executive David Coulter shared his thoughts on local economic development at The Townsend Hotel Jan. 24.

Photo by Doug Ashley, provided by the Birmingham Bloomfield Chamber of Commerce

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OAKLAND COUNTY — In Oakland County, residents can expect municipal budgets to stay in the black, development to grow and property values to keep climbing through 2020.

But in terms of what to expect after the November election, we’ll just have to wait and see.

That was the big takeaway from the annual economic forecast hosted by the Birmingham Bloomfield Chamber of Commerce at the Townsend Hotel Jan. 24.

The chamber invited its members and local professionals to the breakfast event to hear remarks from economic experts on what we can anticipate in the coming months at the county, the state and even the global level.

Moderated by Nicholas Papasifakis, of Clark Hill, the morning’s event started out with a presentation from Paul Traub, a Federal Reserve Bank of Chicago senior business economist. Over the course of several slides — which can be viewed on the chamber’s website — Traub showed that consumer confidence is still high, and for the time being, the economy is in good shape.


Does yield mean a full stop?
However, Traub said that corporate leaders are showing some anxiety about certain political issues simmering that might eventually come to a boil.

“I think some of the policies, especially what’s going on with trade, are having a negative impact (in Michigan),” he said, citing “a lot of the rising costs, the uncertainty to businesses, the unwillingness to invest, their unwillingness to commit to things.”

“When I mention the yield curve 9 out of 10 times resulting in a recession, it’s usually not the inversion of the yield curve as much as it’s external shock. So what would that be? Brexit, maybe we end up in a war, some other kind of malady in the Middle East. Those are the kinds of shocks that if you go back through time and you look at dot com, the first war in Kuwait, the things that tipped us into recessions, it’s usually some kind of event like that.”

The yield curve inversion is a plotted graph of the payout of bonds at different maturities, like three months out to a decade out to 30 years out. The goal is for that curve to climb, making the longer-term bonds a better yield than the shorter-term bonds. In 2019, that graph inverted and the long-term bonds seemed to have slower yields than the relatively low-risk short-term bonds, indicating concern about slowing markets.

According to Fidelity Investments, the last seven times a yield curve inverted, a recession followed within about 14 months. That’s not always the case, but it’s enough to make economists’ brows furrow.

“Trade is a function of efficiencies. … You trade with her, she trades with you, you both come out better off. But if you put a tariff on an efficiency, it implies there is an inefficiency. And who pays for those inefficiencies?” Traub asked, adding that he thinks tariffs on trade with foreign countries could result in higher prices for consumers.


Will we max out Uncle Sam’s credit card?
Adding to higher prices in the marketplace is the risk of bigger tabs on our tax bills. Traub noted that while consumer spending has risen with a steady market, accounting for two-thirds of our overall economy, so has government spending.

“Is that a good thing or a bad thing? I talk to people and they say, ‘I like the way things are going; everything is wonderful. Look at the stock market; look at how well the job market is doing.’ I always say, ‘If I had the credit card, I could show you a really good time too,’” Traub said to a laugh from the crowd. “But when the bill comes, who’s going to pay it? Because you look at this deficit, in a time when the economy has been going through 10 straight years of growth, the deficit is now over a trillion dollars. And I start worrying about that.”

Not only does that mean interest rates could skyrocket, as Traub said, but as we move into the future, more of the money we send to the Capitol will be put toward solvency.

“For every dollar you spend, 60 cents will go to paying the interest on the debt. That’s not a good thing. Now your tax dollars are really not going to what you want them to do,” he said.

Does that mean spending in the public and private sectors should come to a halt so we don’t drain the piggy bank? That’s more of a political question than an economic one.

“You have two different people in the room, and they have two different ideas. One person says, ‘I want to save all my money,’ and the other says, ‘When I take my last breath, I want my last dollar to slip out of my fingers,’” Traub said. “But it’s also about, what are you buying for that money? Are you buying social benefits, or are you buying to create more business?”


Is now the time to invest in people?
There’s really only one area to focus on that could satisfy both sides of the aisle, and Traub said that’s human capital. In his opinion, focus should shift to making communities friendly to workers.

“You want to attract more people to Michigan? Fix the schools,” he said. “We’re at the bottom. You want people to stay in Detroit once they live there? Fix the schools. You want to invest in human capital. It’s where we put the money.”

Oakland County Executive David Coulter couldn’t agree more. He followed Traub as the second speaker of the morning, presenting ideas on how economic development is being encouraged at the local level.

“I think back to my experience as mayor more than anything else. We actually lowered taxes in Ferndale twice over the nine years I was mayor there, but at the same time we made strategic smart investments in certain things,” Coulter said, noting that as debts expired in the city, two bonds were approved to improve the Ferndale Area District Library and fund infrastructure improvements.

“We have been underprioritizing our human capital, our education, our students. It frustrates me that we make a huge investment in our children though our education system, because it takes a lot more than tuition to pay for an education. Our colleges and universities are subsidized by us. We’re making an investment in our kids, and then they graduate and they move away because we don’t have the things they’re looking for here and the quality of life they want here. We can’t change the weather, but we can change the other things they’re looking for, and we just need to do a better job at that, because we’re throwing all that investment out the window every time a kid graduates from one of our colleges and universities and moves somewhere else, and we need to do a better job of keeping them here in southeast Michigan,” Coulter said.

One way to do that, he suggested, is to improve conditions for first-time homebuyers in Oakland County, where property value increases have left a lack of affordable housing. Another would be to work harder to improve local transit options, he said, noting that comparable cities across the country — such as Atlanta, Pittsburgh and Indianapolis — have seen an average 17% population growth in recent years, while southeast Michigan has been stagnant.

In fact, Coulter said, if it weren’t for immigrant populations settling in the area and around $130 million being added to the tax coffers last year, the region’s population would probably have decreased. He touted the county’s diversity as one of its strengths.


What’s next?
While transit is a priority and improved roads are certainly at the front of the executive’s mind — he boasted about an additional $1 million the Oakland County Board of Commissioners was able to reallocate to roads recently — he said exploring changes is on his agenda, too. He gave a nod to county Senior Business Adviser Mike McCready, and said the longtime Republican legislator from Bloomfield Hills is helping him to refresh the county’s economic development strategy.

“The last time Oakland County retained experts to help us do this kind of an evaluation of our economic activities was back in the 2000s, which led (former Oakland County Executive L. Brooks Patterson) to launch that emerging sectors program you’ve probably heard about. It’s been a very successful program, and we’re going to continue to support emerging sectors in that program. But we’ve decided we also need to take a fresh look at where Oakland County businesses are headed into the future,” Coulter said. “I don’t want to assume the programs that we’ve had for decades are the ones that we need for the future, so we hired a consultant to determine which are the most robust sectors in our economy.”

The full event will be replayed on Bloomfield Community Television and is available online as well.

The next chamber forecast is set for Feb. 14, also at the Townsend Hotel, and will feature a presentation on the real estate market.

For more information on the Birmingham Bloomfield Chamber of Commerce, visit bbcc.com.


By the numbers …
• Oakland County attracted $575 million in foreign business investment last year, 41% of that coming from outside the U.S.
• Over the past six years, the county has realized more than $1.7 million in foreign investment and retained more than 24,000 jobs.
• The most successful sectors in total investment for Oakland County from 2004 to today are the health care, advanced electronics and control systems, communications and IT, alternative energy, advanced materials, chemicals and nanotechnology, and aerospace sectors.

Source: Oakland County Executive’s Office

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