Office of the Vice President for Global Communications

Tuesday, September 8, 2009

Michigan economy: Outlook better, but still bleak

An improving Michigan economy may be on the horizon, but the outlook still is grim for the rest of this year and into 2010, U-M economists say.

“The light at the end of Michigan’s long economic tunnel, which residents have been yearning to see, eludes us still as we encounter yet another bend in the track — the national recession that intensified at the end of last summer, a corresponding collapse in motor vehicle sales and the mushrooming troubles of the domestic automakers,” says George Fulton, director of U-M’s Research Seminar in Quantitative Economics. “We do see some improvement, but it will continue to be slow and difficult.”

In their mid-year forecast update of the Michigan economy, Fulton and colleague Joan Crary predict job growth in the state will evolve from an 11.7 percent annual rate of decline in the first quarter of 2009 — the worst in nearly 30 years — to a 5.2 percent falloff in the second half of this year. All told, Michigan will lose about 311,000 jobs from the end of 2008 to the end of this year — the most since at least the mid-1950s.

Employment losses will slow from a rate of 2.7 percent at the beginning of 2010 to zero by year’s end — predicated on a stronger national economy and a better-functioning auto industry. Next year’s projected 36,000 jobs lost will mark the 10th straight year of employment declines in Michigan. The 10-year downturn from mid-2000 to the summer of next year will cost the state 950,000 jobs, or 20 percent of its work force.

In spite of slowing job losses throughout the rest of this year and next, Fulton and Crary say Michigan’s unemployment rate will move upward from a current mark around 14 percent to 15.8 percent for 2010 — the highest rate since at least 1970, when the current method for computing the local unemployment rate was introduced.

Michigan’s private nonmanufacturing sector, which comprises 71 percent of the state’s labor market, will account for more than half of the jobs lost this year, but will register a more modest decline of 5,000 jobs in 2010. Retail trade, business services and construction still will see job losses, but at a much subdued pace.

Manufacturing will account for 42 percent of the total jobs lost in the state in 2009, despite making up only 14 percent of all jobs in the economy. In all, manufacturing will lose 131,000 jobs this year, but only 23,000 next year, as auto sales and the economy, in general, strengthen and the benefits of auto restructuring take hold, the economists say.

“Of course, the pattern is established by motor vehicle manufacturing, which makes up half of the direct job losses in manufacturing and which by the end of 2010 employs only 45 percent of the workers it had in its Michigan work force three years earlier,” Fulton says. “Although Michigan’s prospects remain hitched to the outcomes for the auto industry, the state economy cannot recover without a growing U.S. economy.”