ANN ARBOR—Michigan’s economy has turned very cold this year as the United Auto Workers strike against General Motors, the trade war and job cuts at Ford and GM all contributed to the annual growth the slower since the Great Recession.
But sustained growth should return for 2020 and 2021, albeit at a modest pace compared to 2017-18, say University of Michigan economists Gabriel Ehrlich, Donald Grimes and Michael McWilliams and researcher Jacob Burton.
Michigan’s gross domestic product fell from 2.5% in 2018 to just 0.4% in 2019. Growth is expected to return next year to 1.3% and then to 0.9% in 2021.
“The sun has stopped shining on Michigan’s economy this year, but thankfully we’re used to fickle weather patterns,” said Ehrlich, director of UM’s Quantitative Economics Research Seminar. “We expect the economy to move from very challenging to more neutral over the next two years with moderate job growth.”
Their analysis of the state‘s economy also takes a first look at the economy of the city of Detroit as part of the city’s University Economic Analysis Partnership. UM’s RSQE, Michigan State University and Wayne State University have entered into a five-year agreement to work with the city to create city-level forecasts.
Their preliminary forecast calls for the number of household jobs among Detroit residents to grow an average of 1.1% in 2020 and 2021, outpacing expected growth for Michigan.
“There are two main reasons why we expect Detroit’s economy to grow faster than Michigan’s overall economy,” Grimes said. “First, Detroit has a higher unemployment rate and lower labor force participation rate than the state as a whole, which translates to a higher proportion of Detroit residents available to be hired for And second, the increased economic activity in Detroit is creating a substantial number of new jobs.
Forecasts predict that the unemployment rate in Detroit will drop from 9% in 2018 to 8.6% in 2021. This is similar to the drop in Michigan’s unemployment rate from 4.1% to 3.7% that they forecast for the same period.
“We expect the ongoing economic recovery in Michigan’s largest city to be a key driver of the state’s economic growth over the next several years,” Ehrlich said.
Other Michigan 2020-21 prediction results include:
Works: The state will create 23,300 jobs this year, 29,000 in 2020 and 25,900 in 2021, about half the pace seen in 2017-18. The forecast is close to the maximum rate the state labor market can sustain given low unemployment and an aging workforce.
Automotive industry : Sales of light vehicles in the United States have slowed compared to recent years, and the Detroit Three’s share of sales also fell to 41%, from 41.7% a year ago. UM economists predict sales will rise from 17.2 million units in 2018 to 16.7 million units by 2021. And Detroit Three light-duty vehicle sales are expected to rise from 7.2 million units last year to 7 million this year and 6.8 million units in 2020 and 2021.
Those totals would be the lowest for the Detroit Three since 2012, but more than 50% above the slump in vehicle sales in 2009.
The UAW-GM strike is expected to push Michigan’s job growth rate into negative territory in the fourth quarter – a forecast of -0.8% at an annualized rate – as the strike reduced the number of salaried jobs by the state of 31,500 jobs in October.
The manufacturing sector is expected to create 2,100 jobs this year, 2,000 in 2020 and 1,600 in 2021.
Main growth sectors: The main sectors with gains in 2019 were government, professional and business services, and leisure and hospitality. The professional and business services sector is expected to create 11,600 jobs by 2021.
Michigan’s government sector lost jobs from 2003 to 2015, but has been adding jobs since 2016. It will add about 3,900 jobs this year and 7,000 next year when the 2020 census results in the hiring of temporary workers. Then it will lose 300 jobs in 2021 as those workers are taken off the payroll.
Unemployment: Michigan’s unemployment rate will average 4.1% in 2019 and then drop to 3.7% by 2021. This rate would be comparable to 1999 and 2000 as the lowest average annual unemployment rate since the beginning of the current data series in 1976.
Income: Personal income growth is expected to decline from 4.9% in 2018 to 4.1% this year, as job growth slows. Revenue growth is expected to moderate in the 3.6-3.7% range over the next two years.