Office of the Vice President for Global Communications

Monday, November 19, 2012

State's economy will keep growing moderately, U-M economists say

Following three years of steady job gains, Michigan's economy will continue along its path of moderate growth during the next two years, U-M economists say.

In their annual November forecast of the Michigan economy, George Fulton, director of the Research Seminar in Quantitative Economics, and colleagues Joan Crary and Donald Grimes say the state will add 111,000 jobs during 2013 and 2014 — coming on the heels of 165,000 job gains since the end of 2009. Crary is an assistant research scientist at RSQE and Grimes is senior research specialist at the Institute for Research on Labor, Employment and the Economy.

"For many reasons, it's not hard to feel upbeat about the Michigan economy," Fulton says. "Our signature auto sector has been strong, housing is showing signs of turning around, the highest wage sectors have recorded the most rapid growth, and the unemployment rate has dropped five percentage points since the end of 2009. Most important, the fundamentals seem to be in place for the economy to keep expanding.

"For other reasons, it's hard not to feel a little disappointed as well. The rebound from the recession has not been nearly as robust as most past episodes of recovery, unemployment remains historically high, and the state has regained only one-fifth of the jobs that had been lost since mid-2000. It's a long haul to crawl out of a deep hole — but at least we've stopped digging in deeper."

The U-M economists expect Michigan to add nearly 50,000 jobs over the next year and more than 61,000 jobs during 2014, due mainly to a resurgent auto industry and high-wage sectors such as professional, business and scientific services.

Manufacturing has led the current recovery following a decade of declining employment, they say. From the end of 2009 to the end of 2011, manufacturing added 50,000 jobs — more than 40 percent of the net gain in jobs over that period from a sector that makes up only 13 percent of the workforce. This year, the sector will add 16,000 more jobs and an additional 23,000 jobs during the next two years.

"Close to half of the manufacturing job additions over the next two years are directly attributable to the auto industry, and many of the rest derive from auto-related industries," Fulton says. "We are forecasting that the auto industry will add another 10,000 jobs from the end of 2012 through 2014. Because the industry is so extensively networked in the local economy, the effects of its direct contributions to job growth also spill over into other parts of the private sector."

Along with manufacturing, the professional and business services sector has been Michigan's other top job producer over the past three years. The sector will add 27,000 jobs during the next two years, after adding 17,000 jobs this year.

Other major sectors projected to add jobs during 2013 and 2014 include trade, transportation and utilities (which includes retail), 23,000 jobs; construction, 19,000 jobs; and private education and health services (the latter accounts for 90 percent of the segment), 15,000 jobs.

"Construction has been plagued in recent years by the plunge in the building market, but we anticipate some revival in this sector," Fulton says. "Recent data on the local housing market suggest that it might have begun to turn around. State residential building permits are on the rise and the Home Builders Association of Michigan is seeing an improvement in new home building this year compared with the smaller gains recorded in 2010 and 2011."

Overall, Fulton and colleagues say that Michigan's sustained, albeit moderate, economic recovery will help lower the state's unemployment rate from the current 9.1 percent to 8.4 percent at the end of next year and 7.7 percent at the end of 2014 — which will be just a half percentage point above the U.S. rate at that time.

"The jobless rates over the forecast period are on the high side historically, but by mid-2014 they gravitate down to rates similar to the 7.9 percent averaged from 1970 to 2008," Fulton says. "The pattern of job growth in Michigan is consistent with a U.S. economy that we see accelerating over the next two years, but with growth remaining moderate.

"Overall, though, this is a good news story. The recovery continues and activity levels see some pickup over the period — cumulating to five years of growth after a decade of decline."