The Snyder administration and the Michigan Legislature have made great strides to improve Michigan’s business climate, but there’s more work to be done.
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Special Report: 2012 Michigan Economic Forecast
At first glance, Michigan seems to be returning to a normal recovery mode. Households and businesses have been saving inordinate amounts of money over the past two years — which is a good sign, since saving is the precursor to renewed growth. As households rebuild their finances, they are able to spend money on cars and durable goods, and businesses use the added cash flow to restock inventories, expand into new markets, and invest in more productive equipment.
Another sign of an economic recovery in Michigan is the record-low cost of borrowing. Affordable mortgage and installment-loan rates usually presage housing and auto-financing booms. Late summer upticks in home prices and auto sales suggest the traditional patterns are reappearing. It is fortunate that Ford Motor Co. and General Motors Co. have capitalized on improved products, and focused and sustained their marketing efforts during 2011 — a year that has been pocked with turbulent events thanks to nature, revolutions, global financial uncertainty, and stock-market buffeting. Chrysler is also showing steady growth, and has reintroduced its Fiat brand to the North American marketplace in hopes of boosting further sales.
As much positive energy as these improvements may seem to bode for the year ahead, there remain too many unresolved issues to confidently forecast what otherwise would be robust growth in 2012 (using historical trends as a guide). Instead, there’s talk of a secondary recession even before Michigan or the country have returned to pre-2008 peaks in output, income, or employment.
So what’s souring the outlook? The University of Michigan’s consumer sentiment index reveals the wrench currently stuck in our economic gears. In one word, it’s “uncertainty.” The economic pessimism that enveloped Michigan’s automotive sector for most of the new century’s first decade now seems to engulf the entire nation. The pall is characterized by a prolonged lack of hiring in the private sector and by threats of financial chaos stalking nearly every government unit, from Washington to local school districts. These money worries pervade every facet of the market system, extending the “wait and see” attitudes geographically across the full spectrum of households and industries.
In Michigan, there are lingering questions concerning Lansing’s capacity for reforming our business climate enough to compete with other states and other nations, particularly in the automotive, construction, manufacturing, and IT industries. How resistant to a national double-dip recession would Michigan be? Has Michigan been strengthening its economic base?