University of Michigan Economists Expect Detroit’s Economy to Grow

Economists at the University of Michigan in Ann Arbor say they expect the city of Detroit’s economic picture to return to growth this year after a “challenging” 2024, as monetary policy eases and interest rates moderate.
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Economists at the University of Michigan say they expect the city of Detroit’s economy to return to growth this year and beyond. // Stock photo

Economists at the University of Michigan in Ann Arbor say they expect the city of Detroit’s economic picture to return to growth this year after a “challenging” 2024, as monetary policy eases and interest rates moderate.

U-M economists say resident employment declined in Detroit in 2024, but they predict a turnaround this year. Wages also are expected to grow for residents in the next few years — narrowing a still-large disparity in wage levels between Detroiters and jobs in the city.

Those are among the findings of the Detroit Economic Outlook for 2024-29, produced as part of the City of Detroit-University Economic Analysis Partnership between U-M, the city of Detroit, Michigan State University, and Wayne State University.

“Last year was a challenging one for Detroit’s labor market, as high interest rates and sluggish vehicle sales weighed on the city’s economy,” says Gabriel Ehrlich, the report’s co-author and director of U-M’s Research Seminar in Quantitative Economics. “Fortunately, we project the elevated inflation and high interest rates of recent history to give way to modest but steady gains in employment and real incomes.”

Ehrlich’s co-authors are Jacob Burton, Don Grimes, Daniil Manaenkov, Michael McWilliams, and Yinuo Zhang.

The economists caution the overall forecast comes with great uncertainty, particularly regarding the Trump administration’s policy changes, such as tariffs, as well as the pace of inflation and the Federal Reserve’s response.

Economists note the city’s unemployment rate dropped “considerably” from the early days of the pandemic in 2020 to 2023 — April of that year reached 5.7 percent, the lowest reading since monthly data started in 1990. Last year, however, was much more volatile: The rate ranged from 7.4 percent in April to nearly 14 percent in July.

The forecast says the recent run-up in joblessness likely “reflects partly statistical noise and partly a true cooldown in the local labor market.” It adds researchers “expect the city’s unemployment rate to decline in the months to come.”

Another upside from the findings: The unemployment rate gap between the city and the state has “significantly” narrowed from roughly 12 percentage points in 2010 to 3.6 percentage points in 2023. The researchers project the gap to stabilize at about 4 percentage points — aligned with some of the stronger economic periods in recent history.

Wage growth also decelerated last year for payroll jobs within the city and for Detroit residents, though they are projected to grow over the next five years: 3.4 percent annually for the first category and 3.8 percent for the second. Wage growth for city residents is expected to outstrip the average growth at jobs located in the city and state.

By 2029, the economists forecast, Detroiters’ average wages will rise to 53.3 percent of the average wage earned at jobs in the city. That’s still a large disparity, but the smallest since they started compiling these data sets in 2010.

“Despite the present uncertainty surrounding economic policy, we are forecasting Detroit’s economy to grow over the next five years,” Ehrlich says. “We project the elevated interest rates of recent history to give way to modest but steady gains in employment and real income.”

To review the full report, visit here.