Michigan economy poised to grow in 2020 after a ‘disappointing’ year

A combination of factors came together in 2019 to weigh on Michigan’s economy.

The six-week strike at General Motors, job cuts at GM and Ford in early 2019, a slowing manufacturing sector and relatively stable auto sales have collectively held back the state’s growth this year.

As 2020 approaches, Gabe Ehrlich and his colleagues at University of Michigan expect the effects of these one-off factors to wear off and the state to return to moderate economic growth after a “disappointing year” in 2019.

“The sun has kind of stopped shining on Michigan’s economy this year, but we’re holding on. We are holding on and expect growth to pick up over the next two years, ”said Ehrlich, associate director of the University of Michigan Research Seminar in Quantitative Economics.

The most recent State Outlook from the University of Michigan projects a return to a “moderate trend” in 2020 with 1.3% real GDP growth in the state, followed by growth of 0.9 % in 2021.

For 2019, the state’s real GDP grew only 0.4% due to one-off events during the year, such as the GM strike that directly cut 31,500 salaried jobs from the economy this fall and generated ripple effects on the auto industry supply chain, Ehrlich mentioned.

This annual growth would be the weakest for Michigan since the Great Recession.

“I think the outlook is still good. We believe that many of these obstacles are temporary, ”he said. “There were a lot of one-off things that we saw that we hope not to see again over the next couple of years. “

However, a manufacturing slowdown “is kind of a new normal” through 2021 for Michigan, Ehrlich said.

The University of Michigan predicts employment will return to a “moderate but sustained” growth trend, with the state’s economy generating 23,300 new salaried jobs in 2020 and 25,900 in 2021, according to the outlook. This is about half the pace of job creation in 2017 and 2018.

Amid moderate economic growth, Michigan’s unemployment rate will remain low and decline further, and the labor market is expected to remain tight. The University of Michigan predicts that the statewide unemployment rate will drop to 3.9% in 2020 and 3.7% in 2021.

In October, unemployment in Michigan stood at 4.1%. Three of the four lowest county unemployment rates for the month were in western Michigan: Ottawa County, 2.3 percent; Allegan County, 2.4%; and Kent County, 2.5 percent.

“A fairly good race”

Comerica Inc.s most recent outlook also projects “cooler growth in Michigan’s economy in 2020”.

The state’s real GDP growth is expected to stand at 1.7% for all of 2019, which includes a hard hit in the fourth quarter resulting from the GM strike. Comerica forecasts real GDP growth of just 0.5% for Michigan in 2020.

“Cooler auto sales later this year and early next year would contribute to near-stagnant overall job growth for Michigan by 2020,” Comerica economists wrote in their report. perspectives.

Given the combination of easing auto sales and a slower manufacturing sector due to the uncertainty generated by trade tariffs, the state is still expected to fare economically in 2020, Martin said. Lavelle, business economist in the Detroit branch of Federal Reserve Bank of Chicago.

“It’s reasonable to expect slow and steady growth from the state, but we might be a bit more vulnerable given our even higher relative exposure to the manufacturing and goods-based side of the economy,” Lavelle said.

Lavelle covers this expectation as to whether consumer spending remains strong and unaffected “by these other issues that are kind of hanging around.”

Slower growth next year would follow a period from 2010 to 2018 in which Michigan overtook other states due to the strength of the auto industry and its greater economic diversity, Lavelle said.

“We had a pretty good race,” he said. “Overall, we have performed relatively well compared to other states.”

Mixed messages

In the Grand Rapids area, an annual overview of the Kalamazoo-based company WE Upjohn Institute for Employment Research predicts moderate growth next year with slower overall job gains after years of solid expansion.

“The messages are a bit mixed for next year,” said Jim Robey, director of regional economic planning services at the Upjohn Institute.

From an economic perspective presented this month with The good place inc., Robey predicts 1.8% growth in total gross regional product for 2020 in the Grand Rapids area, slightly below the expected growth of 2% in 2019.

The service sector will lead the way with 2.2% growth in gross regional product after rising 2.4% this year, Robey said. The region’s goods-producing sector is expected to grow 1.1% in 2020, compared to 1.3% expected this year.

“We’re really looking to get back to the trend a bit. There has been so much growth, ”said Robey.

As economic growth in the western Michigan area slows, employment gains are also expected to weaken. Employment in the service sector will continue to grow in 2020, albeit at a slower pace than in recent years, while manufacturing employment is expected to decline slightly. This will translate into an overall employment growth of 0.7% for the region which includes the counties of Kent, Ottawa, Barry and Montcalm.

The Upjohn Institute’s outlook is for a 0.7% decline in goods-producing employment in 2020. Service-producing jobs in the Grand Rapids area are expected to increase by 1.1% , said Robey.

For 2021, Robey expects overall employment in the region to decline 0.1%, or about 460 jobs, an amount he called “not that important.” Employment in goods-producing could decline by nearly 1,000 jobs in 2021, which is expected to be partially offset by growth in the service sector, he said.

Industrial weakness

In western Michigan, key sales, buying, production and employment indices all remained in negative territory for November, although each improved from the previous month, according to a survey of industrial purchasing managers at Grand Rapids and Kalamazoo released this month.

The short-term and long-term business outlook has also improved compared to the previous month.

The long-term outlook among survey respondents for the next three to five years improved in November to 35, up 10 points from October. The near-term outlook for the next three to six months was 11, which compares to a record minus 2 for October.

According to Brian Long, director of supply chain management research at Grand Valley State University‘s Seidman College of Business.

“So far, the weakening of these three industries has been relatively stable,” Long said. “We are probably looking at a decrease of only a few percentage points and that is what we hope to continue to progress here.”