Executive Summary
Over the past decade, Ohio has wavered from either the 7th or 8th largest economy amongst the states according to GDP. On the positive side, Ohio has maintained a lower cost of doing business than most, if not all, of its neighbors. Ohio is centrally located with many major manufacturing facilities in the United States. Secondly, the state of Ohio has the lowest tax rate on new capital investment in the Midwest and the third lowest in the U.S. for most of the last decade. Negatively speaking, the heavy reliance on manufacturing related employment is not going to be good, long-term. There will continue to be limited gains in service jobs due to slow population growth. Combine that with the elevated level of out migration and Ohio is going to be dealing with a smaller population percentage.
The outlook for Ohio is mild at best. Total employment is expected to increase 9.3 percent over the 3-5 years, resulting in over 489,000 jobs. Personal income should also see an uptick of around 3.5 percent for the next year. As far as employment goes, the number of jobs will continue to be a problem, especially amongst neighboring states. Total employment is still 2 percent below the prerecession peak. It is also very important to look at home price growth as well. It has slowed down of recent, and growth over the next year is only expected to be between 2-3%. Ohio’s recovery has accelerated over the past few quarters, but it still trails the Midwest and nationwide averages. I would think it wise to choose another state over Ohio if you were to develop a business. The state relies too heavily on manufacturing, and is losing the population battle. As the rest of the country improves, Ohio will certainly ride on the coattails. Tax reform has helped increase financial gains for business, but that may not be enough. As far as breaking out and rapidly growing GDP, those days may be over. A tepid future is coming.
The Current State of the Ohio Economy
Depending on who you ask, you will most certainly get a differing opinion on the economic outlook for the state of Ohio. Many might bring up the state’s poor performance over the past 10 years. On the other hand, many might bring up the fact that the current unemployment rate (5.1%) is lower than the national average (5.5%). Anyone can “spin” certain information one way or another. Numbers never lie, however. It is important to not only analyze the numbers, but understand which numbers are in fact relevant. To know where we are headed, we should take a look at where we came from. The past two decades have covered a “dot com” bubble and the “great recession.” We must understand what makes Ohio’s economy different from the other states (Economy at a Glance, 2015).
Over the past decade, Ohio has wavered from either the 7th or 8th largest economy amongst the states according to GDP. How and what got Ohio here? Its roots are entrenched in the rust belt. The manufacturing industry is huge in the state. Ohio ranks fourth among the states in manufacturing GDP. The state’s factories lead the nation in the production of plastics, rubber, fabricated metals, and electrical equipment and appliances.
The well-being of the automobile industry has always gone hand in hand with the state as well. Ohio outputs every state in production of motor vehicles except for the obvious, Michigan. More recently, the healthcare industry has become one of the leading employers throughout the state. Cleveland Clinic Health System, The Ohio State University Medical Center, and University Hospitals employ nearly 100,000 people. In total, 9 Ohio hospitals rank in the top 50 for the country. With all that being said, from 2003-2013 cumulative growth was only 32.6 percent, ranking 47th out of 50. The future should beam a little brighter (healthgrades, 2015). What are some of the strengths of the state in comparison to our region? First and foremost, Ohio has maintained a lower cost of doing business than most, if not all, of its neighbors. Ohio is centrally located with many major manufacturing facilities in the United States. 59 percent of the U.S. and Canadian populations are within 600 miles of Ohio. This is vital to cutting transportation costs and avoiding expensive delays. Combine that with a skilled manufacturing workforce as well. Secondly, the state of Ohio has the lowest tax rate on new capital investment in the Midwest and the third lowest in the U.S. for most of the last decade. There are certain tax breaks Ohio has employed recently as well; no tax on investments in machinery and equipment, and no tax on inventory or corporate income. Both are helpful in accelerating growth. (Moody's Analytics, 2015) There are several weaknesses as well. The heavy reliance on manufacturing related employment is not going to be good, long-term. In this day and age, jobs will continue to go to overseas competitors who remain cheaper, or they will be lost through robot automation. A second weakness is two handed. There will continue to be limited gains in service jobs due to slow population growth. Combine that with the elevated level of out migration and we are dealing with a smaller population percentage. Ohio consistently loses more people than it takes in. Both are long-term hindrances. From a forecasting perspective, it would be pertinent to judge Ohio against the rest of the country as a whole. The last few quarters are a great representation of what is to come. The country had a solid, if not impressive, gain in GDP to end last year. This was then followed up by a very damning .2% growth for this past quarter. We will continue to see ups and downs as it seems the country is not fully out of its recovery quite yet. Job gains should continue to exceed 200,000 month to month for at least the rest of this year. The unemployment rate should remain in the low 5 percent for the near future. More importantly, when will employee wages start to see an increase? Companies will most likely act on the pressure they are receiving, and wages should see an increase over 2% by the end of 2015. Another important economic benchmark is the state of the housing market. Existing-home sales have jumped in March to their highest annual rate in over 18 months, marking six consecutive months of an increase in sales (Payne, 2015) The outlook for Ohio is mild at best. The state will feel the ups and downs, but it should remain far from the bottom compared to the other 49 states. Total employment is expected to increase 9.3 percent over the 3-5 years, resulting in over 489,000 jobs. Personal income should also see an uptick of around 3.5 percent for the next year. As far as employment goes, the number of jobs will continue to be a problem, especially amongst neighboring states. Total employment is still 2 percent below the prerecession peak. Job creation isn’t the problem. The problem Ohio faces is the supply and demand of labor. Many Ohioans have simply stopped looking for work, manipulating the numbers. Last but least, it is important to look at home price growth. It has slowed down of recent, and over the next year is only expected to be between 2-3% of growth (Economic Overview: Ohio, 2015). Ohio’s recovery has accelerated over the past few quarters, but it still trails the Midwest and nationwide averages. I would think it wise to choose another state over Ohio if you were to develop a business. The state relies too heavily on manufacturing, and is losing the population battle. As the rest of the country improves, Ohio will certainly ride on the coattails. Tax reform has helped increase financial gains for business. As far as breaking out and rapidly growing GDP, I think those days are over. A mild, tepid future is coming.
Works Cited
Economic Overview: Ohio. (2015). Retrieved April 28, 2015, from development.ohio.gov: http://development.ohio.gov/files/research/E1000.pdf
Economy at a Glance. (2015). Retrieved May 1, 2015, from Bureau of Labor Statistics: http://www.bls.gov/eag/eag.oh.htm healthgrades. (2015). Top Hospitals 2015. Retrieved April 26, 2015, from www.healthgrades.com: http://www.healthgrades.com/quality/top-hospitals-2015
Moody's Analytics. (2015). Ohio Economic Outlook. Retrieved April 2015, from www.economy.com: https://www.economy.com/state/precis-snapshot.aspx?g=OH
Payne, D. (2015, May). Kiplinger's Economic Outlooks. Retrieved May 1, 2015, from www.kiplinger.com: http://www.kiplinger.com/tool/business/T019-S000-kiplinger-s-economic-outlooks/