Michigan’s economy is expected to remain strong through 2020, according to economic experts from the U.S. Federal Reserve Bank and the Michigan Department of Treasury.
The predictions were presented at the Fourth Annual Economic Forecast Forum, hosted last week in East Lansing by the Michigan Chamber of Commerce and the Michigan Bankers Association.
According to Martin Lavelle, a business economist from the Detroit branch of the Federal Reserve Bank, the likelihood of a recession in the state during 2020 is low unless there is a major negative event. The first six months for the state are expected to look like the last six months of 2019, with growth continuing at a slightly slower pace, according to the forum experts.
Michigan essentially is at full employment, and consumer confidence is high, according to Lavelle. Growth is expected to be at or just below 2019’s trend lines, despite the 40-day UAW strike at Detroit’s General Motors Co. last fall.
Factors boosting consumer confidence include a strong seller’s housing market, building wealth for homeowners; no significant job loss as Michigan is at full employment, or 4 percent unemployment; slightly lower but essentially steady auto sales for five years in a row; low interest rates; and higher wage growth for production-level employees.
Increasing certainty for businesses on trade through the passage of the United States-Mexico-Canada Agreement and continued progress toward trade agreements with China would help boost the economy. Potential negatives include more uncertainty in the U.S.’s trade relationship with China, increased incidents of conflict with Iran, or similar situations.
Demand for housing in the state is keeping prices high, but there has been a three-year reduction in new housing construction. This has contributed to a shortage of affordable housing for first-time buyers, but the demand exists, especially among millennials.
Rachel Eubanks, treasurer for the state of Michigan, and Jeff Guilfoyle, chief deputy treasurer, agree that Michigan is on track for continued expansion at a slightly slower pace in part due to the issue of effective full employment and a need for more skilled workers. Guilfoyle predicted that the state would see 0.5 percent employment growth in 2020.
The two also forecasted increased sales tax revenue growth in 2020, partly due to the Wayfair court decision. They also expect growth in state sales tax revenue and modest business tax growth this year.
Marijuana sales also are expected to bring a predicted $143 million in 2021 based on a predicted $1.4 billion in sales.
Guilfoyle says that Michigan has grown since 2010, but the state remains behind 2000 levels on many economic indicators. For example, employment across nearly every sector is higher today than in 2010 but lags behind 2000 levels.
Also, if Michigan had the same taxation levels and had grown at the same rate as the national average, state and local revenues would be $5 billion higher. Guilfoyle added that state and local tax as a share of personal income is at its lowest rate in 50 years at 9.1 percent of income. This comes as a result of measures such as Proposal A’s limitation on property taxes and the economy’s growth in the service sector, which is not taxed.
Eubanks and Guilfoyle say roads remain a significant issue. Michigan ranks last in per capita capital outlay for highways. Michigan Gov. Gretchen Whitmer is expected to again address the road funding issue in her upcoming state of the state address on Wednesday, Jan. 29.
The Michigan Chamber of Commerce is a statewide business organization representing nearly 5,800 employers, trade associations, and local chambers of commerce that employ more than 1 million Michigan residents. It was established in 1959 to be an advocate for Michigan’s job providers in the legislative, political, and legal processes.