The Michigan economy this year has seen the slowest annual growth since the Great Recession due to the United Auto Workers strike against Detroit’s General Motors Co., job cuts at GM and Ford Motor Co. in Dearborn, and the trade war, according to a new report from the University of Michigan in Ann Arbor.
The state’s gross domestic product fell from 2.5 percent in 2018 to 0.4 percent in 2019. Growth is expected to return next year, rising to 1.3 percent and then another 0.9 percent in 2021, according to U-M economists Gabriel Ehrlich, Donald Grimes, and Michael McWilliams, along with researcher Jacob Burton.
“The sun stopped shining on Michigan’s economy this year, but fortunately we are used to capricious weather,” says Ehrlich, director of the research seminar in quantitative economics at U-M. “We expect the economy to change from very challenging to more neutral over the next two years with moderate job growth.”
The analysis also takes a look at the city of Detroit’s economy as part of the city’s University Economic Analysis Partnership, a five-year agreement among U-M, East Lansing’s Michigan State University, and Detroit’s Wayne State University to create city-level forecasts.
The preliminary forecast projects the household employment count among Detroit residents to grow by an average of 1.1 percent in 2020 and 2021, outpacing the expected growth in Michigan.
“There are two major reasons that we expect Detroit’s economy to grow more quickly than the overall Michigan economy,” says Grimes. “First, Detroit has a higher unemployment rate and lower labor force participation rate than the state overall, which translates into a higher proportion of Detroit residents available to be hired for jobs. And second, the increased economic activity in Detroit is creating a substantial number of new jobs.”
The forecast expects the unemployment rate in Detroit to decrease from 9 percent in 2018 to 8.6 percent in 2021. This is similar to the predicted unemployment rate for Michigan from 4.1 percent to 3.7 percent for the same period.
“We expect the ongoing economic recovery in Michigan’s largest city to be a key driver of the state’s economic growth over the next few years,” says Ehrlich.
An expected 23,300 jobs are expected to be added this year, 29,000 in 2020, and 25,900 in 2021, about half the pace seen in 2017-2018. The forecast is close to the maximum rate the state’s labor market can sustain given the state’s low unemployment rate and aging workforce.
U.S. light vehicle sales have slowed from recent years, and the Detroit Three’s share of sales has also decreased to 41 percent from 41.7 percent a year ago. The economists forecast sales to decline from 17.2 million units in 2018 to 16.7 million units by 2021. The Detroit Three’s light vehicle sales are forecast to decline from 7.2 million units last year to 7 million this year and 6.8 million in 2020 and 2021. These totals are the lowest for the Detroit Three since 2012, but more than 50 percent higher than the recessionary level of vehicle sales in 2009.
The UAW-GM strike is projected to bring Michigan’s job growth rate into negative territory in the fourth quarter, or a forecasted decrease of 0.8 percent at an annualized rate, as the strike reduced the state’s payroll job count by 31,500 jobs in October.
Manufacturing is expected to add 2,100 jobs this year, 2,000 in 2020, and 1,600 in 2021.
Leading sectors for gains in 2019 have been government, professional, and business services, leisure, and hospitality. The professional business services sector is expected to add 11,600 jobs by 2021.
Michigan’s government sector lost jobs from 2013-2015 but has been adding them since 2016. It will add about 3,900 jobs this year and 7,000 next year when the 2020 Census drives the hiring of temporary workers. Then it will lose 300 jobs in 2021 as these workers come off the payroll.
The state’s unemployment rate will average 4.1 percent in 2019 and then will drop to 3.7 percent by 2021. The rate would be on par with 1999 and 2000, the lowest annual average unemployment rate since the current data series began in 1976.
Personal income growth is expected to fall from 4.9 percent in 2018 to 4.1 percent this year, along with slower job growth. The forecast is for income growth to moderate in the 3.6 percent-3.7 percent range over the next two years.