More than a decade after the onset of the 2008 recession, Michigan still faces a challenging environment for economic growth. Nonetheless, the state’s economy is expected to recover over time, albeit slower than the Michiganders would like.
So say top economists at the University of Michigan and state tax analysts, who presented their economic findings and projections as part of the state’s annual report. Consensus conference on income estimation (CREC) which determines the amount of money available to the State.
General economic trends
Trends show Michigan’s economic situation has improved since the last recession, but still has not fully recovered.
Although job growth will increase over the next two years, this is a very modest increase and is seen to be well below a good pace of recovery from the recession. In other words, it will take even longer before Michigan fully returns to pre-recession levels.
In 2018, the state’s real gross domestic product (GDP) grew 2.5%, which was just below the 2.9% real GDP growth recorded by the United States. However, due to a slowdown in the local labor market and the UAW’s strike at GM this fall, GDP growth slowed to around 0.4% in 2019.
Low-income households on the rise in Michigan
The last time Michigan experienced such weak real GDP growth was over a decade ago in 2007 and 2008 (although growth numbers then fell into the negative).
Models from the U of M Quantitative Economics Research Seminar (RSQE) predict that this number will increase in 2020, although growth will still not reach 2018 levels. Growth will slow slightly thereafter.
Wage and employment growth were also affected by the UAW strike, falling below -0.5% at the time of the strike. However, now that the the strike is over, economists predict a more favorable outlook for the sector in the years to come.
Employment and unemployment
RSQE has yet to receive final employment figures for 2019, but so far forecasts about 24,100 jobs in Michigan last year. This is a marked drop from 2018, when the number of job growth was around 50,000. Ehrlich cites tax cuts, additional spending from Washington and other factors as the reason. of the increase in 2018, which he said has clearly faded since then.
Job gains are estimated to increase to 31,300 in the coming year, before declining slightly to 30,000 in 2021 and then falling back to 24,300 in 2022.
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“Labor shortages will increasingly limit job growth here in the state of Michigan,” said Gabriel Ehrlich, director of RSQE.
In fact, since mid-2017, the number of job openings in Michigan has exceeded the number of unemployed. This trend is unique in Michigan’s recorded history and is expected to continue until 2022.
On their own, unemployment rates, which also continue a historic trend, are expected to continue on the downward trend they have seen since mid-2009. Unemployment is expected to be around 3.8% in 2020, decrease slightly until 2021 to 3.6% and fall again to 3.5% in 2022.
If those predictions are correct, unemployment levels in 2021 and 2022 would be “the lowest all-time for Michigan’s unemployment rate since the current statistical series began in 1976,” Ehrlich said.
In 2019, Michigan’s manufacturing sector felt the effects of auto layoffs at GM and Ford, the UAW strike, the international trade war and more.
Dem presidential candidates support UAW workers’ strike
Ehrlich said the UAW strike ultimately affected 31,500 jobs in October and will end up costing the state $ 36 million – an amount which he says is actually relatively small given the scale of the the situation.
Vehicle sales for Detroit’s largest automakers have also declined slowly in recent years and are expected to continue on this downward trend.
âIt’s a decline. It’s not a cause for panic, âEhrlich said of the drop in auto-related indicators.
Flattened auto sales also contributed to Michigan’s sluggish revenue growth.
Across the United States, a slight drop in auto sales is also expected. In 2019, around 17 million vehicles were sold; in 2020, around 16.8 million will be sold, followed by 16.6 million and then 16.5 million in 2021 and 2022.
Nationally, Chief US Economist Dr Joel Prakken of London-based IHS Markit spoke of the slowdown in US GDP, before allaying fears of a national recession.
âWe don’t see any predictions that a recession is imminent in the next 12 months,â Prakken said.
The likelihood of a recession has gone from around 25% to 35% last year to âvery, very lowâ in 2020, Prakken said. A model that accurately predicted the last six recessions now shows that the chances of an impending recession are almost nil.
Prakken also appeared to warn of the potential effects of implementing a “wealth tax,” referring to a policy proposed by progressive Democratic U.S. presidential candidates Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) in an attempt to reduce extreme wealth inequalities.
The impact of the UAW strike is felt everywhere
Prakken referred to Warren’s wealth tax rate of 6% (which apply only to people rich over $ 1 billion) as “confiscation” and said “no doubt it would shake the financial markets” if passed.
But Warren and Sanders both argue that such a tax is necessary to bridge the gap between the richest 1% of Americans and the remaining 99%.
For Warren’s part, she “The tax of ultra-millionaires” seeks to generate $ 3.75 trillion in income over a 10-year period by imposing a small annual tax (2%) on households with net worth over $ 50 million, and a slightly higher tax (6% ) on households with assets over $ 1 billion.
Sanders’ plan is more aggressive, starting with a 1% wealth tax of over $ 32 million and gradually increasing to an 8% household tax of $ 10 billion and above. His “Extreme wealth tax” would bring in $ 4.35 trillion over a 10-year period.
Warren says this extra income would pay for his plan to quadruple federal funding for public education and rebuilding the middle class. Sanders wants to use the money to pay for universal health insurance, universal child care, and affordable housing.
Polls show that the majority of Americans – Republicans included – are favorable a 2% wealth tax over $ 50 million.