MSU Extension Center for Local Government Finance & Policy

Even with the rich data at his disposal, it is reported that former Chairman of the Federal Reserve Alan Greenspan monitored men’s underwear sales to predict recession—under the premise that it is the least seen, and least attended to by wearers and that the expense of new underwear would be postponed amidst an economic downturn. Local elected officials and public administrators should aspire to the same level of creativity in their analyses.

And creativity is what is needed. There are plenty of economic measures such as GDP, per capita income, consumption, rates of employment and unemployment, etc. But these data are often collected at the national level. There are some state-level measures. For example, there are estimates of state GDP. However, the lower or smaller the polity, the less economic data tends to be available. Moreover, of the data that are collected, the data are collected less frequently than nationwide-level data.

Efforts to understand local economies are frustrated by this dearth of data. Data relevant to Detroit, for example, is often collected at the county-level or aggregated with nearby jurisdictions, such as the U.S. Census Bureau’s Detroit-Warren-Dearborn metropolitan statistical area.

Understandably, local elected officials, public administrators, and citizens would like data an analysis to answer economic questions, such as whether local unemployment will increase. Detroit entered a partnership in 2019 with the University of Michigan, Michigan State University, and Wayne State University (the University Economic Analysis Partnership) to produce city-specific economic data and analyses. The Partnership developed a measure of city-specific payroll-based employment with the state Department of Technology, Management, and Budget’s Bureau of Labor Market Information and Strategic Initiatives. Absent those sophisticated means, other jurisdictions must look elsewhere to understand their local economies.

Economic data for local economies

Herein are a series of data that may be used by local jurisdictions in lieu of more well-known measures such as GDP, unemployment rate, and consumption. Each measure was chosen because it was (1) jurisdiction-specific, and (2) likely had less than a six-month delay between the date measured and date reported. In order, the focus is on job loss and income loss, and business, construction, and traffic activity.

Job loss and income loss

Job loss and the resultant income loss are what most think of when the word recession comes to mind. Two measures are presented here to capture job loss and income loss. One is informal but timely. The other is delayed but is more formal in its connection to economic conditions.

First: layoff announcements by top employers. Data on top employers can likely be obtained from the local Chamber of Commerce, development authorities, or business publications such as Crain’s Detroit. Lansing Economic Area Partnership (LEAP), a not-for-profit dedicated to economic development in Clinton County, Eaton County, and Ingham County, for example, has a list of the top employers in the City of Lansing.

The measure is timely in that all one needs to do to collect data is look at the daily newspaper and see if any top employers have announced layoffs. Like any other economic measure, the indicator is imperfect. Some top employers may be headquartered or have a heavy presence in the jurisdiction but are national or international in breadth. For example, GM, which sells cars worldwide, has tried to reduce payroll cost this year. GM’s most recent announcement that it had terminated “several hundred” contracted workers specifically affected the company’s facilities in Warren. Observers should be careful to discern what division of a corporate entity is subject to layoffs, and whether that division is locally based.

Prominent layoff announcements may mislead, however. Layoff announcements from Amazon, Goldman Sachs, Walt Disney Co., etc., have heavily influenced popular commentary that has soured on the American economy. Layoffs did rise in March of 2023. However, the national unemployment rate has stayed at or below 3.7 percent this year. Likewise, the state’s unemployment rate has stayed at or below 4.3 percent this year.

In two recent data releases, for April and May, the U.S. Labor Department has announced that employers added substantially more jobs than expected. Still, layoff announcements are a useful if imperfect measure that provide information faster than other more staid and precise measures.

To supplement the first measure is the second: tax collections. Specifically for those jurisdictions that collect income tax, income tax is one of the most sensitive to economic fluctuations. If people are laid off and lose their incomes, there is no income to tax and tax receipts fall. Comparatively, it may take a while for an economic downturn to be discernible in property tax collections as properties (the base on which the tax is levied) are assessed on a periodic basis, unconnected from the business cycle.

Chief fiscal officers—treasurers, controllers, finance directors, etc.—should be asked to produce monthly or quarterly financial reports. Within these periodic financial reports may be data on income tax collected in the month/quarter at hand, taxes collected year-to-date, tax receipts separated by payer-type, and the number of tax filers subject to tax withholding by their employer. If sufficient historical data is available, a jurisdiction may compare monthly/quarterly collections relative to what was collected at the same time last year, and what was collected in previous fiscal years relative to projections.

While the income-tax based measures are less attuned to the local economy than layoff announcements, the information is not as quick or convenient. There may be a delay between when financial information is recorded and when it is reported. Latency lessens the usefulness of the data.

On the other hand, layoff announcements may not, in and of themselves, indicate recession. The sense of dread that these announcements invoke may be corroborated or contradicted by city income tax collections. When combined, these two measures, layoffs and income tax-based data, provide a reasonable base from which to assess a local economy. For those jurisdictions that do not collect income tax, other internal data related to business, construction, and traffic activity will have to be more heavily relied on to detect an economic downturn or upturn.

Business, construction, and traffic activity

At the national-level business activity may be measured by corporate profits or consumption (both how much money was spent, and what money was spent on). Alas, this data is sometimes collected at the metropolitan or county-level, but rarely if ever at the local-level. Instead, business licenses and construction permits may be useful proxies. With sufficient historical data, the number of current applications for either licenses or permits may be compared to the number of applications in previous years, and it may be discerned whether business or construction activity is elevated or depressed. Of course, these data should be seasonally adjusted. There are likely to be fewer construction permit applications in the wintertime relative to the summertime, for example. Likewise, these data should be observed with their limitations in mind. For example, only some business activities require business licenses; there may be sole proprietors that operate a small business without a corporate structure.

Less direct than business licenses and construction permits are data derived from transportation or public works departments. Either the number of drivers on local roads or local transport ridership may be used to estimate economic activity. Like business licenses and construction permits, this data may need to be seasonally adjusted. Traverse City, for example, has a population of 15,678. Most of the year this is likely a true estimate of the people within the city. But once the warmer months come in, the city fills up with vacationers. It would be a mistake, for example, to calculate an uptick in traffic activity or citations in downtown between March and April and conclude an economic boom is around the corner.

Conclusion

To be sure, national and state-level data are important. It is unlikely that if the broader American economy faces economic headwinds that local economies will remain unaffected. In the last two nationwide recessions, the “Great Recession” (December 2007–June 2009) and the COVID-19 recession (February 2020–April 2020), the state’s economy declined too, as did the economies of constituent jurisdictions. Nonetheless, local elected officials, public administrators should develop measures of timely and jurisdiction-specific economic indicators.