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posted on 07 May 2017

Tracking Detroit's Economic Recovery After Bankruptcy

from the Chicago Fed

-- this post authored by Scott A. Brave,

This article presents evidence that Detroit’s economy is doing noticeably better than before the city filed for bankruptcy in July 2013. In order to track the city’s economic recovery following its bankruptcy, we use a new index that quantifies Detroit’s overall economic performance from 1998 to the present.

Since Detroit’s exit from bankruptcy in December 2014, there have been signs that its economy is improving.1 These include increased private investment, higher employment, less unemployment, rising incomes, and improving real estate values. Putting all of these signs together to form an overall impression of the city’s economic progress out of bankruptcy is the goal of this Chicago Fed Letter.

The Detroit Economic Activity Index

One way to measure Detroit’s economic progress since exiting bankruptcy would be to use the Federal Reserve Bank of St. Louis’s monthly Economic Conditions Index for Detroit - Warren - Dearborn, MI. The St. Louis Fed’s index - which we’ll refer to as the ECI for short - is constructed using a dynamic factor model that includes 12 data series measuring various aspects of growth in economic activity in the Detroit metropolitan statistical area (MSA) and is calibrated to its gross metropolitan product (GMP) growth.2 However, the ECI does not measure the economic conditions of the city of Detroit separately from those of the broader MSA. Because of this, we construct a new measure of Detroit-specific economic conditions that we call the Detroit Economic Activity Index (DEAI).

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