ANN ARBOR—Although more than 100,000 new jobs will
be created in Michigan over the next two years, the state’s
continued economic growth will lag somewhat compared with
that of the current decade, say University of Michigan
economists.

“We believe that the Michigan economy will continue to
expand at least through the end of 2001, but at a slower
pace than in recent years,” says U-M economist Joan P.
Crary.

“Employment growth is constrained by an extremely
tight labor market characterized by record-high labor force
participation rates and record-low unemployment rates.”
In their annual forecast of the Michigan economy,Crary and U-M economists George A. Fulton and Saul H.Hymans say that the continued expansion through 2001 would give the state 10 straight years of job growth—the longest streak in half a century. But, they say, the slower pace of job creation predicted for this year and the next two years will include further declines in manufacturing jobs and will cause unemployment to rise ever so slightly.

While they expect the unemployment rate to hover
around 3.5 percent through 2001, the researchers predict
that jobs will grow by 1.2 percent this year, 1.4 percent
next year and just under 1 percent the year after. This
translates into about 63,000 new jobs in 2000 and 42,000
new jobs in 2001, after a gain of 54,000 jobs this year.

“In such a tight labor market, increases in the labor
force can’t run very far ahead of the growth in the
working-age population,” Fulton says. “The increasing
squeeze of available workers has put a lid on growth in
certain sectors of the Michigan economy. In fact, labor
shortages could become the most significant problem
affecting the fortunes of the local economy, not only in
the next few years but well into the future.”

According to the forecast, manufacturing employment is
expected to decrease by 0.3 percent this year and a little
more than 1 percent each year in 2000 and 2001, due to a
drop in light vehicle sales and declining investment in
industrial equipment. Virtually all of the 22,000
manufacturing job losses in the next two years will be in
durable manufacturing, with motor vehicle manufacturing
accounting for slightly less than half of the job cutbacks.

In non-manufacturing, the researchers predict
employment growth to rise from 1.8 percent in 1999 to 2.2
percent (65,000 jobs) next year, before slipping back to
1.8 percent (54,000 jobs) in 2001. Most of the job gains
in this sector, they say, will be in services, construction
and wholesale trade.

“Although we expect two of the three new casinos in
Detroit to be operating by the end of this year, the timing
of their openings places most of the annual job growth
generated by the casinos in 2000,” Crary says.

“Construction employment next year reflects the major
renovation and upgrading of facilities by General Motors,
the expansion of Detroit Metro Airport and new stadium
construction by the Detroit Lions.”

Besides employment growth in non-manufacturing, the
state will increase its government work force by 9,500 in
2000—when census workers add an average of 5,000 new jobs
for the year, the economists say. However, once the census
work is done, the government sector will show a decline of
1,000 jobs in 2001 (without the census workers, jobs in
this sector would increase by 4,500 next year and 4,000 the
year after).

In addition to predicting moderate overall job growth
for the state, the U-M forecast indicates that local
consumer price inflation will rise from 2.5 percent in 1999
to 2.9 percent in 2000 to 3.2 percent in 2001—all higher
than expected national inflation rates because of
Michigan’s tighter labor market.

Further, personal income will accelerate from 4
percent this year to 5.2 percent next year, before
retreating to 4.3 percent in 2001, while growth in real
disposable income, or consumer purchasing power, will
increase from 1.1 percent in 1999 to 2.1 percent in 2000,
before falling back to 0.8 percent the year after—due to
weaker personal income growth and rising inflation forecast
for 2001.

In all, while the U-M economists, historically, have
been accurate in forecasting Michigan’s economic outlook,
they acknowledge the existence of concerns and
uncertainties that may affect the accuracy of any forecast.

This year, these include the sensitivity of Michigan’s
economy to federal monetary policy and interest rates
and other durable goods industries), the uncertainties in
international economic prospects (Michigan is a leading
export state), and risks associated with overcapacity of
facilities in the auto sector and with overall labor
shortages in the state.