ANN ARBOR—This year has been one of the most brutal years in a generation for Michigan’s economy and next year will still be difficult, say economists at the University of Michigan.

But the Michigan economy will begin to turn the tide with modest job gains by the end of 2011, and an extrapolation of U-M’s annual state economic forecast suggests continued job growth during 2012.

“As we look ahead to Michigan’s economic prospects over the next two years, the deck may seem stacked against any turnaround,” said George Fulton, director of U-M’s Research Seminar in Quantitative Economics. “But the Michigan economy is in a more encouraging position now than it was at the beginning of 2009.

“Since then, we have endured the worst U.S. economic recession since the 1930s, and the auto industry has recently emerged intact from its greatest crisis in history, yet dramatically different and still fragile. One might expect from this backdrop that we have left the worst behind us but still have some distance to travel before we see sustained job growth in the state, and that is indeed how we characterize our outlook for Michigan.”

In their forecast of the Michigan economy, Fulton and colleagues Joan Crary and Donald Grimes say the state will lose 283,000 jobs in calendar-year 2009, the largest single year of job loss in at least 70 years, which is as long as the data have been collected. This will be followed by shrinking calendar losses of 85,000 in 2010 and 36,000 in 2011.

They predict that unemployment will average 15.6 percent in the current quarter of this year, then drift up to average 15.8 percent in 2010, the highest annual rate in at least 40 years. The rate of 15.4 percent projected for calendar-year 2011 would be the third-highest rate.

“If our forecast proves correct, the job decline that started in mid-2000 would bottom out in the summer quarter of 2011, with an aggregate job loss of 937,000 over that 11-year period, or about one in every five jobs that existed at the beginning of the period,” Fulton said. “By the end of 2011, auto manufacturing in Michigan is forecast to employ just over a quarter of the workers it had on its rolls in mid-2000.”

According to Fulton and colleagues, manufacturing will account for 36 percent (or 91,000) of the state’s total job losses over this year, with just under half of those losses in motor vehicle manufacturing. With downsizing efforts not yet complete, the beating will continue, but losses will slow significantly over the next two years as auto companies move toward a lower cost structure, a lighter debt burden and improved sales, they say.

In all, Michigan is slated to lose 24,000 manufacturing jobs from the end of this year to the end of next year and another 16,000 during 2011.

The trade, transportation and utilities sector (which includes some auto-related activity but mostly retail trade jobs) will be down about 16,000 jobs next year and 8,000 more during 2011, after losing 55,000 jobs during 2009.

“Five out of eight jobs in this sector, however, are in retail trade, which has been lethargic for several years now,” Fulton said. “With the local economic environment continuing to be weak, consumers more hesitant to spend, and with more motor vehicle dealerships scheduled to close over the forecast period, we see no meaningful turnaround in retail employment in the next few years.”

The service industries, which lost 49,000 jobs during 2009, are expected to shed 4,000 jobs during 2010 and add 11,000 jobs during 2011. While most of the losses will continue to be in professional and business services (reflecting weakness in the commercial environment as well as the loss of white-collar workers related to the auto industry) private education and health services will once again account for nearly all of the job gains in the service sector over the next two years.

Construction, which lost 27,000 jobs this year, is projected to lose 3,000 more during 2010, but then gain them back the year after.

While the next two years will mark a run of 11 straight years of job losses in the state (after averaging 58,000 new jobs annually in the preceding 30 years) the U-M economists are hopeful.

“In Michigan, prolonged difficulties have become a way of life,” Fulton said. “But we are nearly done with one of the worst economic years in our modern history, maybe the worst. The progress that’s being made, however, does reflect improvements in fundamentals.

“The national economy appears to have turned the corner, Chrysler and General Motors have emerged from a quick bankruptcy and although job loss is forecast to continue in Michigan, it is expected to do so at a much-reduced pace.”

Related Links:

• Recession may be over, but recovery will be gradual