This report contains a long-range economic
forecast for Wisconsin
for the period 1985 to 1995. It was developed using the Department of
Development's econometric forecasting and simulation model. This model is an
input! output type which also embodies a system of equations modeling the
effects of Wisconsin
wages, prices, industrial supply and demand. The model was constructed by
Regional Economic Models, Incorporated of Amherst, Massachusetts. Operation
of the model required the use of a national industry forecast. This study
used a 1986 long-term national industry forecast purchased from Data
Resources, Incorporated of Lexington, Massachusetts.
The health or performance of the
Wisconsin economy can be
analyzed from three different perspectives: employment, income and
production. This study provides long range economic forecast for each of
these areas. The most salient features of the forecast in this report are
that:
-
Wisconsin's
economy can be characterized as likely to experience moderate economic
growth over the next decade, both in terms of income and employment.
-
Manufacturing should see a
rebound in both employment and real output terms.
-
Non-manufacturing activities, notably
services and retail trade, should add the most new jobs during the next
decade continuing their strong past performance. In addition, the
financial side of the
Wisconsin economy
should be the fastest growing major sector in terms of growth rate.
-
From a production perspective, the state's economy
should have a healthy dynamism. Almost all industrial sectors should
experience real output increases over the next years.
These observations are based on the major
conclusions throughout this report. Chapter V contains a comprehensive list
of these conclusions. The following material provides a basic overview in
the areas of forecasted
Wisconsin employment, output or
production, and income.
Wisconsin
Employment Forecast
Figures ESI and ES2 display the long-range
forecast for Wisconsin Employment. Total non-farm employment in Wisconsin
should grow 11.8 percent between 1985 and 1995, in the process creating
nearly 238,000 new jobs. These new jobs would bring the state's total
non-farm wage and salary employment to 2,257,000 in 1995.
Wisconsin total non-farm
employment should grow more slowly than the national projected growth rate
of 16.4 percent. Part of the explanation for this result is that Wisconsin's
population and labor force are not expected to grow as fast as the nation's.
Total non-farm wage and salary employment
can be divided into three primary categories; manufacturing,
non-manufacturing, and governmental employment. According to the
Wisconsin model forecast,
manufacturing should experience a turnaround during the next decade, adding
nearly 38,000 jobs to the 1985 employment base of 511,000. This translates
into a rate of growth of 7.4 percent. (See also Figures ES3 and ES4 below.)
In 1995,
Wisconsin's manufacturing
employment should equal nearly 549,000. For comparison purposes,
manufacturing employment increased only slightly more than 2,400 jobs in the
past decade, 1975 to 1985.
The turnaround in manufacturing is
expected mainly because the value of the U.S. dollar has dropped on
international currency markets. A cheaper dollar should make domestic
manufactured goods cheaper abroad and imported goods more expensive in
Wisconsin.
Within manufacturing, the forecasted rebound should occur most in durable
goods areas. In
Wisconsin,
non-electrical machinery should add over 11,000 jobs, fabricated metals
should increase over 9,000 jobs, and electrical equipment by more than 7,000
jobs.
In contrast to these potentially positive changes in
manufacturing, international competition, the advent of new substitute
products, and increased automation could reduce employment in several
specific industrial areas. These include: motor vehicle assembly, leather
processing, primary metals which includes foundries, food and kindred
products, textiles, apparel, and non-auto-assembly transportation equipment.
The second primary category for
Wisconsin employment is
non-manufacturing. Non-manufacturing activities cover a broad list. Figures
ES3 and ES4 display historical versus forecasted Wisconsin employment
changes and growth rates by major sector in non-manufacturing as well as for
the manufacturing and government sectors. All together, non-manufacturing
activities should increase by more than 168,000 jobs over the next decade, a
rate of growth of 14.3 percent.
Of all major employment sectors, including
manufacturing and government, the state's services sector should add the
most new jobs between 1985 and 1995, growing nearly 16 percent. More than
69,000 new jobs combined should be created in the areas of business,
personal, health, legal, educational, and social services. In 1995, Wisconsin's
services sector would then employ more than 507,000 individuals. Of the
services areas, business and medical services should add the most new jobs.
Each should add more than 28,000 and 15,000 jobs respectively.
The financial side of the
Wisconsin economy should be
the fastest growing major employment sector in terms of growth rate. This
sector, which includes finance, insurance, and real estate, should grow over
22 percent, considerably faster than the state average of 11.8 percent. The
financial side is likely to add almost 23,000 new jobs. Credit and finance
agencies, holding organizations, and real estate are likely to be the
fastest growing financial areas. As in the recent past, the financial side
of the state's economy should continue its impressive performance.
Another component of non-manufacturing is retail trade.
Retail trade should add more than 47,000 new jobs between 1985 and 1995. In
terms of new jobs to be created, retail trade should be second only to
services of all major employment sectors. Within retail trade, eating and
drinking establishments are expected to add more than 29,000 new jobs.
The remaining non-manufacturing areas are wholesale
trade; utilities which is a shorter title for transportation,
communications, and public utilities; and construction. Wholesale trade is
expected to grow slightly more than 19,000 jobs; economic performance in this
sector is likely to match the strong, consistent performance displayed in
the previous decade. The utilities sector should experience employment
growth of 4.1 percent or slightly less than 3,800 new jobs. The construction
industry should do better over the next ten years. Construction employment
should grow nearly 6,600 jobs between 1985 and 1995; between 1975 and 1985
this sector added just under 4,000 new jobs.
Two relatively small sectors are not graphed in the above
figures due to space limitations. Mining presently employs about 1,800
workers; the forecast indicates a minimal decline of less than 100 jobs. The
agricultural services, forestry, and fishing sector presently employs about
8,900. This sector could lose up to 300 jobs over the next decade. Due to
the small magnitude of these changes, the forecast for these two sectors is
best characterized in a holding pattern neither declining nor growing in a
significant manner.
The third and last primary category for
Wisconsin
employment is government. The growth rate in government employment at the
state, local and federal levels should slow over the next ten years to a
growth rate of about 9.5 percent. This compares to governmental employment
which expanded nearly 12 percent between 1975 and 1985. Nonetheless, the
forecast indicates that total government employment should increase slightly
less than 32,000 jobs.
Wisconsin
Output Forecast
A second way of gauging the health or
performance of an economy is by examining production trends. From this
perspective, the Wisconsin economy
should have a healthy dynamism.
Total
Wisconsin real
output measured using the purchasing power of a dollar in 1967 should
increase more than $8.7 billion between 1985 and 1995, expanding at an
annual average rate of 2.32 percent. With the exception of the agricultural
services, fishing and forestry sector each other major industrial group in
Wisconsin
is expected to see an increase between 1985 and 1995 in real output larger
than that which occurred in each group during the past decade. The
production groups embrace manufacturing; mining; construction;
transportation, communications, and public utilities; finance, insurance,
and real estate; retail and wholesale trade; and services.
Most real output growth should occur in the
manufacturing, services, and finance related industrial groups. These
industrial groups are expected to expand real output measured in 1967
dollars $3.14, $1.94, and $1.46 billion respectively.
Figures ES5 and ES6 demonstrate these aspects.
Manufacturing output should experience a strong turnaround. Once again, the
lower value of the dollar is the basic reason. In the past, the
manufacturing sector was affected adversely by the strong dollar as well as
the deep recession of 1981-1982.
In the future, four important manufacturing industries
should register large absolute increases in real output. These are
non-electrical machinery ($714 million), paper ($571 million), fabricated
metals ($429 million), and electrical equipment ($409 million).
Three individual services-related sectors are expected to
increase real output significantly in absolute terms. These are medical
services ($599 million), business services ($528 million), and professional
services ($394 million).
Over all major Wisconsin sectors, the specific industrial
sectors which should experience the fastest rate of real output growth
include credit and finance agencies (including holding organizations),
professional services, business services, insurance, air transportation,
miscellaneous transportation services, rubber and plastics, amusement and
recreation, eating and drinking establishments, and hotels. Individual
industries with the fastest potential real rate of production growth are
either services-oriented or associated with leisure-time (or
tourist-related) activities. Expected increases in real income and
purchasing power are the basic explanation.
Income and Prices Forecast
The third measure used to analyze the
performance of an economy is income. According to the model forecast,
Wisconsin personal income
should increase nearly 6.4 percent annually between 1985 and 1995. In
inflation-adjusted terms, real personal income should increase at an average
annual rate of 1.98 percent for the forecast period. During the preceding
ten years, the average annual rate of increase in real personal income in
Wisconsin
was 1.79. Thus, in the future, residents should have marginally more income
to spend and save.
Finally, consumer prices should increase
at an average annual rate of 4.3 percent between 1985 and 1995. During the
past five years, the average annual rate of inflation has been 3.3 percent.
As of this writing, the
U.S.
rate of inflation for 1987 is nearly 6.0 percent based on evidence for the
first four months of the year.
Long Versus Short-Range Forecasting
As indicated, this report contains a
long-range forecast for
Wisconsin.
As such, this report deals with pervasive economic forces. This is in
contrast to short-run forecasting which concentrates on economic changes
associated with the business cycle, essentially expansions and contractions.
Users of this report should be aware that forecasted trends in the report do
not reflect potential cyclical fluctuations brought on by changes in U.S.
fiscal and monetary policies or by other factors.
ACKNOWLEDGEMENTS
This report was produced by the Wisconsin Department of
Development, Division of Research and Analysis, Loren Anderson,
Administrator. Project direction was provided by Randall Wade, Director of
the Bureau of Research.
This report was written by Randel A. Pilo,
Lead Economist. Beneficial comments were received from Economists Andrew
Krikelas, Gary Krueger, and
Frank Place,
as well as from Research Analysts Kurt Bauman and Carol Tank, all with the
Division of Research and Analysis.
Special thanks go to Yolanda Armstrong, Division of
Administrative Services, who managed the word processing. Beverly Haberman
of the Division of Research and Analysis took care of all details regarding
final report printing.
This research was funded, in part, by a Section 302 (a)
grant from the Economic Development Administration, U.S. Department of
Commerce, Grant Number 06-2502172-60.
