Michigan’s economy: Onward and upward

November 21, 2014
Contact: Bernie DeGroat bernied@umich.edu

ANN ARBOR—After five years of steady job growth, the Michigan economy will continue to move forward at a solid clip over the next two years, say University of Michigan economists.

In their annual November forecast of the Michigan economy, George Fulton and colleagues Joan Crary and Donald Grimes say the state will add more than 132,000 jobs over the next two years.

All told, Michigan will have added nearly 463,000 jobs during the economic recovery from summer 2009 through the end of 2016—returning the job count to levels posted at the end of 2006 and a little more than halfway back to job levels posted in mid-2000.

“When we judge the progress of Michigan’s economy from a big-picture perspective, there are several positive story lines,” said Fulton, director of U-M’s Research Seminar in Quantitative Economics. “More than 300,000 jobs were created over the past five years, the unemployment rate is about half of what it was five years ago, and the auto industry is booming with vehicle sales at their highest level in eight years.

“With the court’s approval of Detroit’s plan for the adjustment of its debts, the city is about to exit bankruptcy, creating excitement about a fresh start for Michigan’s largest city. And three major credit-rating agencies have upgraded Michigan’s outlook in the past few years.

“What all of this suggests is that the Michigan economy has gone some distance from the dire straits it was in five years ago, at least overall, but there is still a fair way to go.”

The U-M economists predict employment gains of 59,400 jobs during 2015 and 73,200 jobs during 2016, both in excess of the average yearly gain of 57,000 jobs from 1971 to 2000—prior to the downturn of the past decade.

About 33,000 job gains over the next two years will be in the professional and business sector, which contains professional, scientific and technical services; management of companies; and administrative support services (including temporary help).

“About two-thirds of the job additions in this sector originate in the highly compensated knowledge-based professional, scientific and technical subcategory,” Crary said. “Growth in the sector is supported by a continuing favorable commercial environment locally and further expansion of the manufacturing sector.”

The trade, transportation and utilities sector—which includes wholesale and retail trade, transportation, warehousing and public utilities—will account for 29,000 job gains through 2016. Nearly three-fourths will be in retail trade.

The construction industry will add 18,000 jobs over the next two years, while manufacturing is expected to gain 12,000 jobs during that time—down from an annual average of about 22,000 job gains from 2010 through 2014.

“As is typical in Michigan, manufacturing was one of the two sectors that led the state recovery during its earlier stages,” Grimes said. “The deceleration reflects the more mature stages of the recovery overall and our forecast of a smaller increase moving forward in Detroit Three light vehicle sales.”

Other major sectors projected to add jobs during 2015 and 2016 include health care (11,000 jobs)—the only major sector that has posted job gains every year since 1999, despite sluggish hiring the past two years—and government (1,000 jobs). All of the latter’s employment gains will occur in 2016, the first time since 2002 that government has added jobs.

Overall, Fulton and colleagues say that Michigan’s sustained recovery will help lower the state’s unemployment rate from the current rate of 7.2 percent to 6.7 percent at the end of next year and 6.3 percent at the end of 2016.

While their forecast is cause for optimism, the U-M economists caution that Michigan continues to be among the states with the highest jobless rates, ranks in the bottom third in per capita personal income, lags in population growth among the young and college-educated adults, and is home to numerous residents not yet vested in the recovery.

“In all, the Michigan economy has certainly come a long way in the past five years, and that progress should be celebrated,” Fulton said. “As the CEO of appliance-maker Whirlpool said of the Michigan economy, ‘In the past four years, we’ve stabilized the patient because we had kind of hit rock bottom. So now we have momentum.’

“The issues now are to sustain that momentum and also to have it be more inclusive of a far greater number of Michigan’s residents.”

 

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