What Does The Future Hold?

As state and local businesses large and small grapple with the effects of COVID-19, we provide forecasts for 10 industry sectors, including automotive, banking, real estate, health care, and logistics.
What The Future Holds
Illustrations by Edel Rodriguez

Detroit and Michigan have survived fires, pandemics,invasions, racial tensions, energy blackouts, tornadoes, and economic recessions. We will survive COVID-19, and whatever else comes our way. If we’ve learned anything through this crisis, the thought of our devices overtaking our lives proved to be unfounded. There is great value in one-on-one meetings, business sessions, conferences, and events. While we will need to be mindful of safety and take precautions, the life we knew will return, but in a different form. The North American International Auto Show, Detroit Grand Prix, and Rocket Mortgage Classic will return, along with everything else we missed or had planned to attend. Treatments, early testing, and personal responsibility will carry the day until a suitable vaccine is developed. At some point there will be time for reflection, especially as an exercise to improve upon our collective future. There have been few points in our history when we truly understood what our forefathers fought so valiantly to achieve — the strength to rally when the times got tough. If the past becomes prescience, we will make our region and state the best it has ever been. — R.J. King


AutomotiveAutomotive

The bottom has dropped out on the U.S. new-vehicle market. After tumbling by more than a third in March, demand was expected to plunge at least
80 percent year-over-year in April, due to the nationwide lockdown implemented to bring the coronavirus pandemic under control.

The question is, what will happen going forward?

For now, most scenarios paint a bleak picture, with a full recovery as much as a year away. Even the most optimistic forecasts see vehicle sales in a Great Recession-level slump through mid-2020 and, says Tom King, chief data officer for J.D. Power in Troy, “we anticipate demand for vehicles in the second half of the year will be depressed by 10 percent to 30 percent, so demand won’t be restored to pre-virus levels until at least next year.”

Dealerships have been hard hit by the pandemic. Many states banned sales entirely, while others allowed retailers to operate only online. Mega-chain AutoNation alone laid off 70,000 employees in April. Expect to see big changes going forward in automotive retailing, including more of a shift to online sales, Michelle Krebs, an analyst at Cox Automotive, said during a recent webinar sponsored by the Automotive Press Association.

For manufacturers like the Detroit Big Three, shutting down both sales and manufacturing is putting a strain on cash that’s as severe — and perhaps even worse — than what was felt during the Great Recession, industry analysts warn.

We anticipate demand for vehicles in the second half of the year will be depressed by 10 percent to 30 percent, so demand won’t be restored to pre-virus levels until at least next year. — Tom King

Lessons learned a decade ago may be helping the industry weather the coronavirus storm, but the longer it takes things to get back to normal the bigger the risk, warns Jeff Schuster, an analyst with LMC Automotive. Among other things, he expects that costly EV programs “will be pushed out and altered by the virus.” As the industry gets back to work, Schuster believes there will be a focus on the highest
-profit products, such as pickups and large SUVs.

Suppliers often take the brunt of a crisis, and that’s likely here. They will come under pressure to get parts rolling out quickly once manufacturing restarts, analysts suggest, while at the same time, automakers likely will squeeze suppliers for price concessions.

The auto industry was expected to go through some dramatic changes over the coming decade, including the debut of autonomous vehicles, as well as the shift from personal ownership to ride-sharing.

But companies like Lyft and Uber could face their own challenges if consumers start to question whether getting into a ride-share vehicle might pose a health risk. The pandemic very well may “put a damper” on the growth of the ride-sharing business, Krebs cautioned.

The bottom line, King says, is that the pandemic “will be extremely damaging to all industry constituents,” including automakers, parts suppliers, tool-and-die shops, dealers, investors, and pretty much anyone else linked to the car business.

— Paul Eisenstein


ManufacturingManufacturing

Even as the demand economy forgot its manners this spring and became downright obstreperous, new opportunities emerged for innovation in manufacturing. After first stumbling, manufacturers turned on a dime to address unexpected shortages in the marketplace.

Meanwhile, they also likely sped up the ongoing process of bringing more manufacturing activity back onshore and providing a nice kick to the GDP. 

One key to the industry’s agile response is 3-D printers. These vital elements in additive manufacturing enable the cheap and quick creation of complex parts that would normally be forged or molded. What’s more, a desktop 3-D printer can be purchased for less than $500, meaning more homes, businesses, and schools will mill their own prototypes and products.

The quick pivot to make PPE in response to the COVID-19 crisis was seen at every level of industry — from the cottage variety to Ford Motor Co., according to National Public Radio — as more than 100,000 makers worldwide downloaded open-source designs for face shields and masks from Prusa Research, a 3-D printing company in Prague. Elsewhere, members of the HackThePandemic forum on Thingiverse, a site for the 3-D printing community, proffered dozens of digitized designs for shields, masks, and adapters.

The Wohlers Report 2019 forecasts a global $15.8 billion market for additive manufacturing products and services this year, and it will grow to $35.6 billion by 2024. According to 3Dprintingindustry.com, as many as 1.5 million printers will be sold worldwide this year. By 2030, sales could reach 100 million units.

Manufacturers will be able to produce in large volume from their digitized blueprints while also enjoying once unattainable levels of flexibility. “(Goods) might be designed so that I can manufacture discretely with dozens of 3-D printers in people’s homes,” says Tom Kelly, executive director of Automation Alley, the nonprofit technology and manufacturing business association in Troy. “Manufacturing is going to continue down the cycle of being distributive.”

The greater mobility and adaptability of the technology is already restructuring supply chains. Kelly points out that the process of bringing operations back to the United States, or “reshoring,” will accelerate “just for the simple fact that no manufacturer wants to be caught flat-footed like this again.”

At the same time, the principles of Industry 4.0 — where sensors monitor nearly every piece of equipment on the factory floor — will proliferate. The technology boon will allow managers to control more operations remotely. Rather than wait for humans to adjust assembly lines, a few swipes of a smartphone or tablet will do the trick in an instant. 

— Ronald Ahrens


BankingBanking

As the country emerges from COVID-19, the savings rate is expected to rise across the board. By how much is uncertain, although some economists have projected it could reach 10 percent or more. In January, the personal savings rate in the United States was 7.8 percent, up from 6.3 percent in 2015, according to Statista.com. The last time the savings rate hit double digits —  12 percent — was in 2012.

At the same time, non-financial corporations in the U.S. had $4 trillion in cash reserves as of January, compared to $2.7 trillion a decade ago and $1.6 trillion in 2000, based on research from the Harvard Business Review. That’s a good sign the nation’s businesses can weather the storm brought on by an invisible enemy.

Moving forward, essential banking services will continue. Though many banks offered branch and ATM operations during the crisis, while adopting additional safeguards to protect customers and workers, a correlated push to expand mobile channels only goes so far. Given older clients are less likely to embrace digital platforms, even as it is safer, physical banking will continue. At the same time, more alternatives to regulatory criteria — like in-person sign-offs — will rise, according to McKinsey and Co.

Still, lending institutions will monitor customer-service capacity against demand and reduce branch operations as needed. Most banks have fewer branches than they did a decade ago, and they’ve reduced the size of existing branches by moving to smaller spaces.

As many Americans scooped up their office computers and headed home to work, the need to ensure appropriate controls are in place to prevent fraud and cybersecurity attacks will be front and center for the foreseeable future. A rise in home-based businesses and the potential for future pandemics adds to the risk factor.

Bank managers must continue to pressure-test and update business continuity and disaster recovery plans as at-home working arrangements continue.

On the operations side, as more businesses fail or struggle, fee incomes will fall, net interest margins will remain compressed, and credit losses will be elevated across most sectors. Smart banks will use the current crisis as a test bed for balancing demand with labor. 

At the national level, David Littmann, former chief economist at Comerica Bank, calls for lowering the federal debt — $24.2 trillion in accumulated debt as of April 15, atop a total of $139.4 trillion in unfunded liabilities (usdebtclock.org).

The bottom line is this: Today, no business, organization, or individual wants to be caught without sufficient cash reserves. 

— R.J. King


Real EstateReal Estate

Real estate markets will take time to recover from the COVID-19 crisis, although industrial properties will likely be the first to recover. Consider the following projections offered by experts from our region.

Residential: Given single-family homes and condominiums are often the largest purchase families and individuals will ever undertake, potential buyers will be wary of taking on higher mortgage payments at a time when the state and the nation are recovering from the virus. Thousands of people have filed for unemployment, others have been furloughed, and many businesses have either closed or will struggle to recover.

“I think 2020 will be a year where we just pause,” says Susan Carter, associate broker of Sine and Monaghan Realtors Real Living in Royal Oak. “I think we’ll see what normally happens with a recovery — the comeback will be led by first-time homebuyers, followed by bargain hunters, and then everyone else.”

Rents are expected to decline between 5 and 10 percent, based on various estimates. In turn, Carter worries how landlords with mortgages will be able to make payments if their tenants fall behind on rent.

Retail: Other than grocery stores and pharmacies, the nation’s $5.5-trillion retail market came to a screeching halt once stay-at-home orders went into effect. Home deliveries picked up some of the slack for essential items and entertainment offerings, but most buyers have put off big-ticket items.

“The enclosed mall will be challenged, and big anchors won’t open all of their stores at once; rather, they’ll bring the best ones back first,” predicts Jim Bieri, principal with Stokas Bieri Real Estate in Detroit. “Anything made in the USA will be good sellers.

“Another thing is the apparel stores will need to replenish their merchandise. I don’t see retail rebounding until next year. You’ll also see a lot of emphasis on buying from local and smaller businesses.”

Office: The professional work environment will change considerably this year. Office layouts will be more spread out, and collaborative work areas will be less populated until social distancing subsides. Many landlords are working with their tenants to extend or reduce lease payments, as well.

“Lease rates will hold steady for the foreseeable future. I don’t see things turning around until next year,” says Andy Farbman, CEO of Farbman Group/NAI Farbman, a full-service commercial real estate firm in Southfield.

Industrial: The wave of offshore manufacturing that occurred over the last three decades is over. Building up domestic manufacturing will take time, given the demand for available industrial space was strong before COVID-19 hit our shores.

“You’ll see more critical components built and stockpiled, which will add to the demand for warehouse and light industrial space,” says Doug Fura, senior vice president at Farbman Group/NAI Farbman.

“You’ll also see more domestic production of antibiotics and other critical drugs, as well as rare earth minerals, electronics, and military items. The future looks good for industrial real estate.”  

— R.J. King


Health CareHealth Care

Look for a manufacturing revolution in health care that will see smart factories added within or near hospitals and medical centers once the COVID-19 virus is mitigated. As the crisis put on full display, no one was prepared for a pandemic.

Compounding the lack of surgical masks, gowns, face shields, medicines, ventilators, and other vital medical equipment and supplies was a dangerous reliance on a global supply chain. Within the first two weeks of the crisis, more than 50 nations had imposed some form of restrictions on producing or distributing needed drugs and supplies.

Paramount to the future of health care will be “having advanced manufacturing on U.S. soil that can leapfrog other countries so we don’t have to worry about competition against cheap sweatshop labor, different tax regimes, and the massive subsidies of foreign governments that are directly attacking our industrial base,” Peter Navarro, the top trade official in the White House and the point person overseeing the Defense Production Act, said during an April briefing.

Since the act was invoked by President Trump in late March, Navarro has been working with manufacturers from multiple sectors to streamline regulations and open up supply chains to speed the production of medical equipment, drugs, and materials. The goal is to build up a strong and lasting domestic supply base should another pandemic return or emerge.

If we learned anything from the crisis, never again should we depend on the rest of the world for essential medicines and equipment. — Peter Navarro

In recent years, more than 200 hospitals and medical centers, both here and around the country, began setting up in-house 3-D labs to produce limited health care equipment and components through a layer-by-layer technique called additive manufacturing. The 3-D printers are also used to build equipment prototypes, full-size anatomic models to improve surgical outcomes, and implants. Investments in this technology will now grow considerably, providing a boon to domestic manufacturers, logistics firms, and industrial developers.

Another growing trend in health care is virtual medical exams. Doctors and medical professionals, along with patients, have become fairly adept at meeting remotely to review health conditions, determine treatments, and approve prescriptions. As the technology improves, more and more patients won’t need to visit a doctor’s office, thereby lessening the strain on health care facilities.

In turn, stockpiles of temporary relief units in the form of steel cargo containers like those designed by Three Squared Inc., an architectural firm in Detroit, will become more prevalent and permanent as hospital rooms or climate-controlled housing units for doctors and nurses. The units, which will need utility hookups, can be set up on hospital grounds.

“If we learned anything from the crisis, never again should we depend on the rest of the world for essential medicines and equipment,” Navarro said. 

— R.J. King


AgricultureAgriculture

Michigan’s farmers and food processors are dealing with challenges similar to those faced by every industry in the state during the COVID-19 pandemic, but unlike most businesses, they can’t work from home and can’t stop production, lest the Great Lakes State and the rest of the country go hungry.

“Production agriculture is one of the few segments of society that can’t simply post a notice to temporarily close for a two- or three-week period to minimize COVID-19,” wrote Carl Bednarski, president of the Lansing-based Michigan Farm Bureau. “Livestock still need daily care. Equipment still needs to be readied for planting season, and hopefully soon, crops will still need to be planted.”

Agriculture is one of Michigan’s largest industrial segments, with 47,600 farms that employ 805,000 people That’s 18 percent of the state’s overall employment. In addition to supplying the state and much of the nation with soybeans, sugar beets, wheat, apples, blueberries, cherries, milk, and cheese, the state also exports nearly $2 billion in goods annually.

“We’re all concerned about COVID-19 but are working diligently to provide a safe, abundant, and affordable food supply,” says Ernie Birchmeier, manager of commodity, farm, and industry relations for the Michigan Farm Bureau.

Michigan’s food and agriculture industry contributes more than $104.7 billion annually to the state’s economy, according to the Michigan Department of Agriculture and Rural Development.

One area where the COVID-19 crisis may have a negative impact on Michigan’s farmers is the availability of H2A seasonal guest workers, due to travel restrictions.

New innovations from companies like Exlterra Inc. in Hazel Park couldn’t come at a better time. The sustainable environmental technology company recently launched NEPS — Nutrient Enrichment Passive System, a simple subsoil product that enhances the growth, vitality, and yield of trees and vineyards in a sustainable way.

NEPS is a series of specially-designed plastic tubes that are installed underground around a tree, regardless of the type of soil, climate, or elevation. Four 7.5-foot-long extrusions are set around each tree, though two NEPS tubes can be used in areas where trees are set closer together.

The system gives trees and vines access to nutrients that are present deep in the soil but are normally inaccessible to roots. As a result, a tree with NEPS grows stronger, healthier, and generates better yield in both quality and quantity, the company states.

“The system works for fruit, nuts, coffee, rubber, and olives,” says Frank Muller, CEO of Exlterra. “We have another product, called BSTR, that’s used in fields to enhance the growth of corn, wheat, soybeans, vegetables, and beets. And we have light and agile drill rigs called HAZL and MAZL to speed installation of the tubes.”

— Tim Keenan


LogisticsLogistics

Traditionally one of the nation’s busiest passenger hubs, Detroit Metropolitan Airport in Romulus has been largely silenced by the coronavirus pandemic. The situation is completely different 20 miles away, at Willow Run Airport in Ypsilanti Township.

Pete Sanderlin, COO for Kalitta Air, a cargo carrier, says the company is “busier than ever.” That may come as a surprise, considering Kalitta’s primary business is moving auto parts. “Right now we’re only shipping relief supplies,” he says. The switch has driven up the carrier’s business by around 25 percent.

The North American automotive production network has been virtually shut down since mid-March, but, with Detroit being one of the hot spots for COVID-19, emergency supplies have been flooding into the Motor City by truck, rail, and air. At the same time, Detroit’s Big Three automakers and suppliers have stepped in to fill critical shortages for medical supplies like masks, respirators, and ventilators needed locally and nationwide.

For Kalitta, keeping its fleet of aircraft flying requires a staff of 1,000 people. “They’re all essential personnel and we’re keeping them pretty busy,” Sanderlin says. The company’s expertise is reflected across the region’s logistics network, as the impact of the pandemic is felt at every level, down to the post office and individually owned stores run by shippers like FedEx and UPS.

Even the growing, company-owned delivery fleet operated by Amazon has had to adapt. The online retailer is prioritizing medical, food, and personal grooming goods over shipments of electronics and other products. But, if anything, having much of America working from home puts even more pressure on shippers.

Amazon and other shippers have turned to robots in recent years to speed the flow of products and reduce labor strains. That trend will continue, complemented by advanced sensors powered by AI that help automate and predict consumer and industry needs. Shippers are projected to add more advanced warehouse space, as well.

“Access to important packages, supplies, and business material is challenged by the restrictions imposed in response to the coronavirus, ranging from delivery of prescription medications to industrial parts and supplies and legal and business documents,” says Brandon Gale, president of Retail Shipping Associates, a 7,000-member trade association based in Richardson, Texas. Logistics operators are waiting to see when things will return to anything close to normal — and how quickly. Automakers had hoped to resume production in late March, then mid-April; now they’re hoping to fire up sometime in May. But, as has become abundantly clear, beating the coronavirus won’t be easy, and the logistics industry will remain an essential lifeline to the supply chain as the battle plays out. 

— Paul Eisenstein


AerospaceAerospace

Prior to the COVID-19 pandemic, the aerospace industry in Michigan was on a rocket-like trajectory with more than 800 companies and organizations, representing some 100,000 jobs, doing business globally. Officials were making plans for a launch facility and a command-and-control station in the state, as well.

The Great Lakes State had attracted some $750 million in aerospace supply chain investment over the previous 18 months, making it the nation’s fourth-ranked state in the category. Aerospace had grown at a 15.3 percent clip between 2013 and 2017, compared to just 6 percent nationally over the same period.

Like the rest of the national economy, Michigan’s aerospace industry is poised to take a significant hit as a result of COVID-19. Gavin Brown, executive director of the Sterling Heights-based Michigan Aerospace Manufacturers Association, says the negative impact should be short-lived for some elements of the industry, longer for others.

“The workforce health issues affect all manufacturing sectors of aerospace,” Brown says.  “Ensuring the health of those in all aspects of manufacturing and assembly — shorter-term for commercial (airlines) — is the grounding of 70 percent to 90 percent of the fleet. That will have an enormous impact on the employment of both service and maintenance employees.

“The rebound will be one to two years in the future. Business jet travel, however, may increase due to the concerns of traveling with public ports of travel. Helicopters may not be as adversely impacted, since they’re primarily used by private concerns.”

Drones will become more advanced, and will proliferate due to lower costs and greater mitigation of safety. In turn, urban air mobility will literally take off with the introduction of VTOL aircraft developed by companies like ASX at Detroit City Airport and others. A 60-minute trip by car becomes a 10-minute trip by air, and at the same relative cost of executive transportation services. As the rollout plays out, look for more landing sites atop urban parking decks.

The space sector will continue on pace, or provide more opportunities that will increase with the Michigan Launch Initiative. — Gavin Brown

Looking toward a post-COVID-19 world, Brown says he expects the commercial aerospace business to show a 25 percent to 50 percent decline (including tooling, components, and maintenance) by the end of 2020. The market is expected to recover in 2021. “The space sector will continue on pace, or provide more opportunities that will increase with the Michigan Launch Initiative,” Brown adds.

Individual aerospace companies like Atlas Space Operations in Traverse City are doing as much as they can from home. Atlas provides satellite communications networks for multiple clients.

“Atlas was already prepared for a situation such as this, in that we began as a distributed company, and we operate 24/7/365 globally,” says Mike Carey, founder of Atlas Space Operations.

Carey says Atlas has the ability to conduct its satellite communications operations remotely. “Our colleagues in the Michigan space sector have operations in multiple locations,” he says. “Although they have their challenges, (they) aren’t at work stoppages. We’ve learned of a launch delay in French Guiana that will impact one of our customers by delaying them for about six months.” 

— Tim Keenan


TechnologyTechnology

“The problem was this,” says C. J. Chung, computer science professor at Lawrence Technological University in Southfield. “Everyone in the lab was afraid of touching the head of the hand sanitizer dispenser.”

Paralleling the sudden refocusing of priorities throughout society due to the COVID-19 pandemic, Michigan businesses, research centers, and labs, including Chung’s LTU students, have recently occupied themselves with questions of AI deep-learning techniques in diagnostics.

Going forward, new solutions for treating and enhancing consumer lives will be paramount, and technology is poised for a new revolution with AI, robotics, machine learning, Big Data, cybersecurity, and more.

On the health care front, new advances will be coming in indoor air purification, medicines, medical devices, and microrobots that can travel through the human body and deliver drugs, perform very precise surgeries, and provide more accurate reports of a person’s vital signs or specific organ performance. The tiny robots will be powered by electric energy and contain sensors, actuators, antennas, and microelectronic circuitry.

Other technologies that will come to the forefront include quantum computing (Google reported last October it achieved a long-sought breakthrough called quantum supremacy), silicon photonics to speed the delivery of data faster than copper or electrical impulses, stacked memory chips, and cleaner nuclear power generation.

Another promising advancement, as reported in February by the journal Nature, is a thin-film device made from nanometer-scale wires found in a common microbe (Geobacter sulfurreducens) that can generate continuous electrical power.

The technology, called Air-gen, short for air-powered generator, uses exposure to humidity in the air to produce small electrical currents.
Researchers from the University of Massachusetts Amherst, who discovered the energy source, say that small senors, at first, will power smartphones and other devices. Down the road, they plan to develop larger systems that can create  sustainable energy.

“This is just the beginning of a new era of protein-based electronic devices,” said Jun Yao, an electrical engineer at UMass Amherst, who partnered on the research with his colleague, microbiologist Derek Lovley.   

Other advances are being made in automized farming equipment. Right now, autonomous pickers, planters, and surveyors help limit back-breaking labor while boosting yields. In turn, look for the increased use of small drones equipped with advanced cameras that provide multispectral images.

Once the data is downloaded to a computer, farmers can literally see how red-shaded areas of their fields highlight struggling plants. From there, they can mitigate issues days before the leaves wither.

The solution to the LTU problem, Chung explains, was to automate the process. Student Joe Schulte took up the challenge in March, drafting three designs and building two prototypes. He used a Lego Mindstorms Education EV3 robotics kit. “Since we’re using Lego pieces, it’s easy to adjust the cage in the robot to hold any size of sanitizer bottle,” says Schulte, who plans to graduate in December with degrees in mathematics and computer science. A 100-page manual was created to share the process.

Chung says he and his students see the COVID-19 crisis as an opportunity to think about the future use of technology. While telemedicine has enjoyed a big uptick, for example, there are obvious deficiencies. “Currently there’s no standardized way to measure patients’ vitals such as heart rate, blood pressure, and even temperature,” he says. His son, a doctor, has informed him that devices to measure blood pressure are unreliable. “We need to apply AI technologies to develop devices to measure blood pressure correctly.”

As founder and director of LTU’s annual Robofest competition, Chung has engaged 28,000 students from around the globe since 1999. The competition started last October and was to have culminated with the 2020 Robofest World Championship in May, but it has been canceled. Still, he expects accelerated development in RoboMed, a new category this year for intelligent and interactive robotics and devices.

“Already some researchers have developed the diagnosis of chest X-rays to confirm coronavirus,” he says. Notably, in March, the FDA cleared an AI “instant triage” program that helps pinpoint COVID-19 abnormalities in chest X-rays. Behold.AI, the British company that developed the algorithm, says it offers better than 90-percent accuracy with a 30-second turnaround — a relief for overwhelmed hospital emergency rooms.

Meanwhile, work goes on in Southfield, too. “One of my students is working on some coronavirus-related projects to predict the number of patients in the future based on the data,” says Chung, who echoes the theme of new opportunity that is sounding anew throughout many fields of endeavor. “So many things are ongoing.” 

— Ronald Ahrens


Resorts and TourismResorts and Tourism

Tourism spending in Michigan totaled $25.7 billion in 2018, the latest figures available, but all the virtual tours of our majestic beaches, sand dunes, and forests won’t begin to replace the economic impact of nearly 125 million visitors who cross our borders to snowboard, golf, snorkel, and sip award-winning beer, wine, and spirits.

If there’s a silver lining to the COVID-19 outbreak for hotels and resorts, the winter season was winding down and the summer workforce had yet to arrive. At the same time, resorts use the colder months to complete expansion and renovation projects to maximize the peak summer months.

Once the stay-at-home order is lifted, Gov. Gretchen Whitmer and the Legislature should approve spending to bring back the popular Pure Michigan campaign. The successful series of TV and radio ads, narrated by Hollywood star and near-native son Tim Allen, have been running for years, but they were cut by Whitmer last year in a budget standoff she ignited with the Republican-led Legislature.

In February, she held out the chance of providing $15 million for Pure Michigan in the next budget, as long as the tourism industry matched the proposed outlay. If a deal can be consummated, it would come close to the $37.5 million in funding for the campaign Whitmer cut last year.

To help generate spending this summer, tourism operators are counting on an end to the stay-at-home ban in May. From there, don’t look for tourists to book accommodations all at once; rather, the comeback will be a small ripple at first before the tide (hopefully) rises and waves of families, golfers, boaters, and vacationers hit the road. 

“There is a lot of pent-up demand to get away, and people who weren’t able to visit Florida or other warmer climates in early spring will likely stay closer to home once we get the all-clear,” says David Lorenz, vice president of Travel Michigan, part of the Michigan Economic Development Corp., the quasi-public agency that oversaw the Pure Michigan campaign. “We have plenty of great destinations that will take a lifetime to explore.”

One of the three largest industries in Michigan, behind automotive and agriculture, tourism dollars are the bedrock of hundreds of businesses across the state. From the Upper Peninsula to Traverse City, and Mackinac Island to Lake St. Clair, hotel and resort owners may be able to tap a patriotic rally cry to encourage Michiganders and our neighbors to load up their vehicles and get away from it all, Lorenz says.

According to the MEDC, tourism spending supports 6 percent of all jobs in Michigan, and in 2018 the industry generated $2.8 billion in state and local taxes. In addition, one out of every 16 workers in Michigan is supported by tourism.

“People likely won’t feel comfortable with air travel for a period, and there may be social distancing (on flights),” Lorenz says. “We believe the message for everyone to focus on is vehicle travel, both from Michigan and neighboring states. It will be a slow buildup, and we need to get summer workers here. I think people can’t wait to get out and explore everything Michigan has to offer. ” 

— R.J. King


Economic Recovery: What’s in store for our region?

The unemployment rate in metro Detroit will rise commensurately with the national average, peaking around 8 percent in short order, likely by the end of the third quarter if the local rate of job losses maintains its recent trend relationship with national figures. Job losses will be heaviest among industries that rely upon face-to-face service provision, such as leisure and hospitality and retail sales. If a medical resolution to the crisis can be established, Michigan will be capable of laying the foundation for recovery, having had relatively more workers continuing to earn wages and, by force, accumulating savings and pent-up demand to be redeployed into the economy.”

Ric DeVore, Regional President, PNC Bank, Troy

It’s far too early to tell whether the impact will be short-term or not.  We’re encouraged by the stimulus measures that will impact consumers and small businesses in a very positive way.  If you look how people and businesses have adapted, including TCF Bank, I would say our collective response has been remarkable. I’m betting on the people and businesses in our region to come back stronger than ever. In 2008, we had a situation that was more like a ticking time bomb.  When it happened, financial institutions had no liquidity, capital wasn’t flowing to businesses, and everything came to a screeching halt. Back then, nobody knew when we would be able to pull out of it. With this downturn, we know what caused it, and when new infections will peak and ultimately decrease. We can start to see the light at the end of this tunnel, which was very hard to do in 2008 and 2009.”

— David T. Provost, Chairman, TCF Bank, Detroit

To the extent that there’s any good news, the upside of this is that we come out of it much faster. There’s a wide range of forecasts for how bad it will be in the second and perhaps third quarters of 2020, but most forecasters, ourselves included, anticipate growth getting back to its pre-recession peak by the end of 2021. The rebound after the 2008-09 recession took until the middle of 2011, and the job losses were not fully recovered until 2014. Hopefully, this rebound will be much faster. It’s a larger contraction in economic activity, but it occurs over a shorter period of time. Our latest forecast has a peak-to-trough decline of about 5.5 percent in real GDP. That would be larger than any other postwar economic contraction, and it would all occur in the span of just one or two quarters.”

— Tim Quinlan, Senior Economist, Wells Fargo, Economics Group

Southeast Michigan has clearly diversified its economy in recent decades, but we continue to have a heavy concentration of automotive. Because of that, our region will likely feel the emerging downturn more than the national average, but there’s the  backend effect of a much broader shockwave affecting consumer demand and confidence. This isn’t the financial crisis of 2008-09. The extraordinary levels of fiscal and monetary stimulus will cushion the decline. This downturn should be shorter than the Great Recession and the recovery more rapid, as the economy doesn’t have to work through any particular imbalances. This will not look like the after-effects we saw in the early 2010s, when consumers needed to work through excessive debt and the construction sector had to work through a huge inventory of homes.”

— David Girodat, Regional President, Fifth Third Bank, Detroit


Michigan’s Outcome

It’s fortunate for Michigan that record-breaking domestic economic growth, spanning from 2010 to 2020, provided a formidable buffer against unforeseen calamity. Income and employment expansion infused more strength into our state’s personal, business, and governmental financial statements than had been experienced in prior decades. 

The coronavirus toppled this economic edifice and blew through entire reserves of savings and optimism within the span of a few weeks. Where, when, and how do we recover our economic optimism and vigor?

In many states, densely populated metro areas comprise roughly half of the entire population. Metro Detroit accounts for 43 percent of Michigan’s population. In reviewing flu-related pandemics over the past 130 years, tightly packed regions of states and nations exhibit the greatest likelihood for becoming points of incubation, illness, and death.

Our region, including Oakland County, has ranked fourth in the U.S. as a hotpoint for incidence, spread, and fatalities attributable to COVID-19. Even so, our metro area has only 426 persons per square mile, in sharp contrast to 929 in New York’s metro region. Clearly, other factors are at work: The early adoption of preventive and containment measures, strictly observed and enforced, moderates both the frequency and severity of bad outcomes.

As of early April, experts projected Michigan’s casualty rates would follow the geometric pattern emerging elsewhere. They placed the third week of April as a realistic approximation date for Michigan’s peak rate of fatalities from coronavirus. When that peak turns downward, a more positive expectation of further medical success should translate into a self-reinforcing outlook for healthier financial markets.

A focused implementation of nationwide testing, especially targeted on the 41 percent of U.S. counties experiencing severe ravages from coronavirus, will clear portions of America’s workforce to return to producing goods and services, perhaps by early May. Michigan’s start date for individuals returning to their battle stations — their workplaces — should align closely with other states. Renewed engagement hopefully will occur in conjunction with cautions and caveats internalized during quarantine.

The U.S. economy will likely recover at an accelerating pace, so long as large portions of our tested workforce are cleared to go. Productivity, output, retailing, and investment activity should ramp up, improving consumer sentiment correspondingly.

This constructive view of U.S. economic prospects for the second quarter and second half of 2020 includes two basic elements. First, it’s easier to restart an economy when absence from one’s usual workstation lasts a single month versus a full quarter or half a year. If the worker who performs a task is the same individual who held that position before a lockdown (or if replacement hires are better), then the new scenario might prove even more advantageous.

Second, Washington’s infusion of trillions of dollars in cash-equivalent packages is intended to significantly augment existing “hold-harmless” grants, such as the Paycheck Protection Program and myriad other initiatives defeasing overdue liabilities: rents, taxes, insurance, interest, etc. For firms and individuals alike, legislation and emergency policies have authorized subsidies, monetary stimuli (money printing and zero interest rates), debt forgiveness, and loans.

National Debt Forecast graph

Still, many industries face a difficult road back to health. Restaurants, airlines, cruise lines, entertainment, and energy sectors will be watched closely as litmus tests for signs of recovery. Banks have traditionally been among the finest and most accurate indicators of overall health and economic growth.

Banks are synthesizers of creditworthiness. They allocate depositor savings to firms and individuals in need of loans to finance productive activity. In this capacity, banks function as stabilizers that truly fortify foundations of prosperity. Most medium-size and small community banks will find the environment difficult in two major respects: loan demand has subsided, and there’s a negligible interest rate spread between interest paid to depositors and rates charged to borrowers.

When the economy expands on its own steam the interest rate spread widens, providing bigger profit margins for the industry. In normal times, lending rates rise faster than deposit rates, reflecting both the vigor of loan demand and the added risk in lending operations.

For Michigan, the pathway upward is similar, but less robust. One reason is Michigan’s reliance on automotive products. Recent years have witnessed the strongest vehicle sales and auto industry profits ever, and vehicles increasingly embody better quality and technologies.

As a result, the average age of a car on the road as of 2019 neared 12 years, far exceeding anything in our history. But in the context of our current crisis, consumers will postpone taking on a large expense, particularly when they figure their vehicle still has a long life. And that deferred purchase decision is only partly offset by the enticing confluence of record-low gasoline prices, zero financing rates, and other promotional activities.

Over the past two years, even prior to the pandemic shock, vehicle sales had been on the down side of the business cycle.

Michigan’s chances for re-entry onto the U.S. economic growth curve that left us in early March are realizable. Once the nation has sheltered in place and been adequately tested and found ready for active duty, it’s utterly essential for the preservation of our competitive economic system that Washington’s policies unleash the dynamic, innovative spirits inherent in the private sector.

Washington has demonstrated to us and to the world how intelligent governance can mobilize and marshal resources with incredible swiftness, direction, and logistics. The Trump administration found and deployed capable medical and transportation personnel and networks, and its Task Force sped the application of live-saving drugs, devices, and techniques to the arena of American health care, thereby eclipsing the time frame that skeptics had presented for blunting the COVID-19 threat. 

Now it’s imperative that these victories empower the vast and latent talents residing in our private sector. After all, this is the sole source of reinforcements on our economic home front — our ticket of strength for winning the inevitable battles that lie ahead. Michigan, yet again, is destined to be a pivotal part of America’s economic ingenuity and excellence.  

— David Littmann

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