U-M Economists Predict Slower Growth but Continued Resilience for Michigan’s Economy
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A recent economic forecast from the University of Michigan’s Research Seminar in Quantitative Economics (RSQE), authored by Jacob T. Burton, Gabriel M. Ehrlich, and Michael R. McWilliams, offers a cautiously optimistic view of Michigan’s economic future. Although signs of a slowdown are evident, the forecast suggests the state will maintain growth amid national economic challenges.
Employment Trends and Challenges
Michigan’s job growth, which saw a robust start in 2023, began to cool in the latter half of the year. The state’s household employment is currently 2.7% below its all-time high, while payroll employment is 4.1% below its peak. The authors noted, “Although Figure 1 paints an optimistic picture of Michigan’s employment trends, there is cause for concern in the monthly data for June and July.” During these months, household employment declined by 15,800 residents, while payroll employment dipped by 9,800 jobs, pushing the state’s unemployment rate up from 3.9% in May to 4.4% by July.
Despite this, the authors remain hopeful that the Federal Reserve’s efforts to control inflation will lead to lower interest rates, stabilizing the job market. “We are not hitting the panic button just yet,” they said. “Our view is that inflation has retreated decisively enough for the Fed to deliver significant relief on interest rates soon.”
Sector-Specific Outlooks
The forecast reveals divergent trends across various sectors. Michigan’s construction industry, for example, has added 14,700 jobs in the first two quarters of 2024 despite high mortgage rates. The authors project that “the decline in mortgage rates we are projecting will come just in time to prevent a significant downturn in this sector.”
However, the transportation equipment manufacturing industry is expected to face continued challenges, with job losses projected for the next three years. They explain, “Stellantis’ recent announcement that it will lay off up to 2,450 workers at its Warren Truck Assembly plant is emblematic of the industry’s challenges in Michigan.”
On a brighter note, the leisure and hospitality industry is anticipated to recover gradually. After shedding jobs in the third quarter, the sector is expected to grow steadily from the end of 2024 through 2026, although it may not return to pre-pandemic employment levels until 2026.
Inflation and Personal Incomes
The report highlights the volatility of local inflation rates, particularly in the Detroit area, where the shelter cost index has seen significant fluctuations. “We hope this year’s sharp increase in local shelter costs will prove to be another anomaly, followed by a similar decline,” commented the team.
Despite these inflationary pressures, Michigan’s personal income per capita is forecasted to grow by an average of 3.4% annually between 2024 and 2026. “Our forecast brings Michigan’s personal income per capita to approximately $65,800 in 2026, or 35% higher than in 2019,” they added.
Looking Ahead
The RSQE team offers two interpretations of their forecast. The first suggests a challenging economic environment with slowing job growth, rising unemployment, and limited income gains. The second, more optimistic perspective, sees continued growth despite high inflation and interest rates. The authors lean toward the latter view, citing Michigan’s diversification and resilience. “If our forecast proves accurate, Michigan will have added jobs in every year but one in the 16 years from 2011–2026,” they noted, emphasizing the state’s ability to weather economic storms better than in the past.
While Michigan’s economic future remains uncertain, the RSQE’s latest forecast provides a nuanced view that balances caution with optimism, acknowledging the challenges ahead while highlighting the state’s potential for continued growth.
