U-M Forecast: Michigan Economy to Rebound After Job Losses

Michigan’s economy has slowed, with job losses and higher inflation creating challenges for workers and consumers, but economists at the University of Michigan say the state should return to moderate growth over the next two years.

“We are cautiously optimistic that Michigan’s economy will begin picking back up as we move further into the year. We expect the ongoing AI boom to support national economic growth this year, and we believe that last year’s uncertainty surrounding the trade and tariff landscape is giving way to a bit more clarity alongside lower average effective tariff rates,” states the university’s Research Seminar in Quantitative Economics research group in its May 2026 report.

Researchers reported that Michigan lost 6,100 payroll jobs between April 2025 and April 2026, while the number of employed residents fell by 90,100. Despite those losses, the state’s unemployment rate has remained at 5% for six months, which researchers call a “silver lining.”

Researchers forecast Michigan will lose 5,900 jobs on a calendar-year basis in 2026 before gaining 13,400 jobs in 2027 and another 9,300 in 2028. Most of the future job growth is expected to come from automotive, healthcare and government employment. Manufacturing, retail, transportation and other business sectors are expected to struggle this year before improving modestly later in the forecast period.

The reports states, “While it is still too early to see the full effect of higher gasoline prices in the light vehicle sales data, we recognize that rising fuel costs and still-elevated financing rates are weighing on demand.”

The report says inflation has accelerated recently, driven largely by higher energy prices linked to the war in Iran. However, economists forecast inflation of 3.2% in 2026 before easing to 2.6% in 2027 and 2.2% in 2028.

“Inflation has moved higher recently amid the ongoing war in Iran,” the report said. “Our forecast assumes that the war deescalates soon—we would expect a larger price impact the longer the war persists.”

For Michigan households, income is expected to continue rising, though at a slower pace. Personal income per person increased 4.1% in 2025 and is projected to grow by about 3.3% to 3.4% annually through 2028. By then, personal income per capita is expected to reach $73,400.

After accounting for inflation, spending power is expected to grow only modestly. Real disposable income per person is forecast to increase 0.5% in 2026, 0.9% in 2027 and 1.2% in 2028.

Researchers said Michigan faces headwinds from an aging population, with labor force participation expected to continue declining as more residents retire. Even so, they expressed confidence the state can weather current challenges given the stability of Michigan’s unemployment rate.

“We believe this stabilization reflects a more resilient economy than the state possessed at the start of the millennium,” the report said. “This hard-earned resilience should allow Michigan to pivot from the current economic soft patch toward moderate growth over the next two and a half years.”

Source: University of Michigan Research Seminar in Quantitative Economics, Michigan Economic Outlook 2026–2028.