Michigan economy to continue growth, but more slowly

November 17, 1995
  • umichnews@umich.edu

ANN ARBOR—The citizens of Michigan are better off on average in 1995 than they have been in the past 25 years, as measured by real per capita income. But what does the future hold?

”The Michigan economy will continue to grow, but more slowly over the next two years than it has in the past two years,” said University of Michigan economists Joan P. Crary, George A. Fulton and Prof. Saul H. Hymans.

The forecast, compiled by the U-M Research Seminar in Quantitative Economics, was presented at the 43rd annual Conference on the Economic Outlook on Friday (Nov. 17) at U-M.

The economists noted that they expect ”continued but more moderate growth” in employment for 1996 and 1997. Job growth for 1995, which was estimated to be a ”healthy” 2.6 percent, ”is still almost a percentage point lower than the vigorous growth of 3.5 percent recorded for 1994,” they noted.

”Job growth continues to slow to 1.6 percent for 1996 and edges up to 1.8 percent for 1997—about on par with the average job growth over the past decade.”

In raw numbers, the economists forecast increases of 70,100 jobs for 1996 and 78,400 jobs for 1997.

Job growth will vary by sector. After two years of solid growth, including a 2.2 percent increase for 1995, employment in the manufacturing sector will register small declines of 0.5 percent (4,900 jobs) for 1996 and 0.1 percent (900 jobs) for 1997.

Weakness in the manufacturing sector in 1996 ”reflects our projection of little movement in vehicle production, coinciding with the auto industry’s continued push for productivity gains within its work force” and a ”considerable slowing” of industrial equipment investment. The slight improvement in 1997 is a reflection of a bit more growth in the U.S. economy for that year.

After an increase of 3.3 percent in 1995, private non- manufacturing employment will increase by 2.9 percent in 1996 and 2.8 percent in 1997—an addition of about 75,000 jobs each year.

The slowdown in 1996 in the private non-manufacturing sector ”can be attributed largely to the construction industry, which grew at a torrid and unsustainable pace of 10.6 percent in 1995.” The slight decline in non- manufacturing in 1997 is ”almost all due to smaller job contributions from retail trade.” The only private non- manufacturing industry that loses jobs over the forecast period is mining, in large part due to the closing of the copper mine owned by Copper Range Inc., in the Upper Peninsula.

Employment in the government sector has been stagnant throughout the 1990s, and the economists expect little change over the next two years. ”A year of modest growth in 1995, amounting to 0.5 percent, is followed by a decline of 0.1 in 1996, before a rebound to 0.7 percent in 1997,” they said.

The economists expect ”an upward drift in the unemployment rate from its October 1995 reading of 4.4 percent to an average of 5 percent for 1996 and 5.3 percent for 1997.” Despite the upward drift, ”the number of persons unemployed remains low and the labor market of 1996-97 is best characterized as moderately tight,” they pointed out.

Inflation, ”expected to rise somewhat” between now and the end of 1997, will ”remain in the comfort zone.” Local inflation will rise from 2.3 percent for 1996 to 3.5 percent for 1997.

Growth in personal income will slow ”from its vigorous pace of 7.1 percent estimated for 1995” to 4.6 percent in 1996 and 5 percent in 1997. The growth in real disposable income, or consumer purchasing power, will slip from 3.7 percent in 1995 to 2.6 percent in 1996 due to the moderating growth in income, and to 1.8 percent in 1997, as the increase in inflation dominates modest income growth.

Despite solid economic growth, recently enacted tax changes have reduced the state’s GFGP (General Fund General Purpose) revenues. The tax changes come under two broad categories: property tax reform, or Proposal A, and changes that were part of a tax cut package designed to keep fiscal 1995 state tax revenues below the ceiling defined in the Headlee Amendment.

The tax changes have produced a 1.6 percent decline in total GFGP tax revenues to $7.84 billion for fiscal 1995. The economists project ”meager growth” of 1.2 percent in 1996 to in 1997. Consequently, ”there will be little support for additional discretionary spending over the next two fiscal years,” they said.