CBEI Central Wisconsin Spring 2022 Report

CBEI Central Wisconsin Spring 2022 Report

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.

Central Wisconsin Report - Spring 2022

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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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Center for Business and Economic Insight

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 >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28

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