Michigan Economic Recovery Lags Behind Other Midwest States

Michigan’s economic recovery is lagging behind other Midwest states as the COVID-19 pandemic continues, according to the Anderson Economic Group in East Lansing.
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While Michigan’s economic recovery is falling behind other Midwest states, Michigan was an epicenter of the virus and had stay home orders in place longer than other states. // Stock photo

Michigan’s economic recovery is lagging behind other Midwest states as the COVID-19 pandemic continues, according to the Anderson Economic Group in East Lansing.

Between February and April, Midwestern states recorded unprecedented job losses as policymakers worked to contain the virus. Most states saw strong employment rebounds in the spring, but recovery has slowed significantly in the last two months and remains short of February employment levels.

“The Midwest is far from recovered, especially in Michigan, which still has 10 percent fewer jobs now than it did in April,” says Andrew Miller, a senior analyst with AEG. “The losses we have seen in the last six months have been more severe than anything we have seen in the last century, including the Great Recession.”

Miller also notes that while employment has grown for three straight months, the pace of recovery is slowing down.

“These new employment numbers show that some jobs have come back, but most states are still far from their February 2020 peaks, and policymakers should be concerned that the recovery may be petering out.”

August unemployment across all industries is down between four and 10 percent since February. Employment in Indiana, which reopened most of its economy well before its peers, is at 96 percent of its pre-recession peak, while Minnesota and Illinois are at 93 percent. In Michigan, employment is at 90 percent of its pre-recession peak.

“The fact that Michigan has lost one out of every 10 jobs and also saw relatively slow employment growth this summer suggests that a full recovery for the state is still quite far off,” Miller says.

Miller attributed the differences among states to varying severity of their COVID-19 outbreaks, the unique mix of industries in each state, and the relative restrictiveness of stay-at-home orders. Indiana lifted its stay-at-home order nearly one month earlier than Michigan did and has allowed indoor bars to open. Wisconsin’s emergency stay at home order was declared unconstitutional by the state’s Supreme Court in mid-May, nearly two weeks before the order was set to expire.

“Some states saw more severe initial outbreaks than others, which may have led to longer and more restrictive stay-at-home orders and, consequently, greater job loss,” Miller says. “Michigan was an early epicenter of the COVID-19 outbreak, and its economy was hit particularly hard and has been slower to recover than other states.”

During the Great Recession, national employment declined 6 percent, while employment in Midwestern states declined between 13 and 24 percent between February and April of this year.

Trends show differences among jobs lost in different sectors of the economy. Leisure and hospitality, retail trade, and manufacturing were hit especially hard. All Midwestern states except Indiana lost more than half of their leisure and hospitality jobs, while Michigan saw the biggest decline, losing nearly 60 percent of its jobs.

In manufacturing, states such as Illinois, Wisconsin, and Minnesota saw dips of less than 10 percent between February and April, while Michigan lost nearly 30 percent of its jobs.

Retail job losses were between 10 and 15 percent in most states, except in Michigan, where 25 percent of retail jobs were lost between February and April.

Professional services and government saw smaller employment losses. Employment in professional services has nearly reached its pre-recession peak in Indiana (99 percent), while states such as Wisconsin and Michigan reached 90 percent of their pre-recession employment level last month.

Government employment in all states was between 94 percent and 98 percent of its pre-recession peak in August.

While Midwest states have seen several months of employment growth, Miller cautioned that the employment recovery could slow or reverse in the coming months if policymakers reintroduce restrictions on businesses in response to rising COVID-19 case numbers. Miller also says the end of government stimulus programs potentially slowed down the recovery.

“Some of the employment growth in late spring was supported by the CARES Act stimulus checks, supplemental unemployment insurance, and the Paycheck Protection Program,” he says. “Now that most federal relief programs have drawn to a close, some employers may struggle to stay in business.”

Anderson Economic Group is a research and consulting firm that specializes in economics, public policy, commercial damages, market analysis, and tax and regulatory policy.