Michigan’s economy in 2020: Could be better, could be worse

Economists say Michigan gained 24K jobs last year

Bill Pugliano/Getty Images

More than a decade out from the start of the 2008 recession, Michigan is still facing a challenging environment for economic growth. Nonetheless, the state’s economy is expected to pick up over time – even if it is slower than Michiganders would like.

This is according to top economists from the University of Michigan and state fiscal analysts, who presented their economic findings and projections as part of the state’s annual Consensus Revenue Estimating Conference (CREC) that determines how much money the state has.

Annual job growth chart | U of M’s Research Seminar in Quantitative Economics (RSQE)

General economic trends

Trends show that Michigan’s economic state of affairs has improved since the last recession, but has still have yet to fully recover.

Although job growth will increase over the next two years, it is a very modest increase and is considered well below a good recession recovery pace. In other words, it will still take more time before Michigan fully gets back on track to pre-recession levels.

In 2018, the state’s real Gross Domestic Product (GDP) grew by 2.5%, which was just under the 2.9% real GDP growth experienced by the United States. However, due to a slowdown in the local labor market and the UAW strike at GM this fall, GDP growth slowed to about .4% in 2019. 

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The last time Michigan encountered real GDP growth that low was more than a decade ago in 2007 and 2008 (although growth numbers then plummeted into the negatives).

U of M’s Research Seminar in Quantitative Economics (RSQE) models forecast that number to rise in 2020, although the growth will still not reach 2018 levels. The growth will taper down slightly after that.

Wage and salary employment growth also took a hit from the UAW labor strike, dipping below -0.5% at the time of the strike. However, now that the strike is over, economists are predicting a more favorable outlook for the sector in coming years.

GDP growth estimate | U of M’s Research Seminar in Quantitative Economics (RSQE)

Jobs and unemployment

RSQE has not yet received the final job numbers for 2019, but for now is projecting about 24,100 job gains in Michigan last year. This is a marked decline from 2018, when job growth numbers were around 50,000. Ehrlich cites tax cuts, extra spending from Washington and other factors as reason for the 2018 boost, which he says has evidently faded since then.

It is estimated that job gains will pick up to 31,300 over the coming year, before decreasing slightly to 30,000 in 2021 then falling again to 24,300 in 2022. 

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“Labor shortages are going to increasingly put a speed limit on 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 actually outpaced the number of unemployed persons. This trend is unique in Michigan’s recorded history, and is expected to continue into 2022.

Unemployment rates alone, which are also continuing on a historic trend, are predicted to continue on the downward trend they have been on since mid-2009. Unemployment will likely hang around 3.8% in 2020, decrease slightly to in 2021 to 3.6% and decrease again to 3.5% in 2022.

If these predictions are accurate, unemployment levels in 2021 and 2022 would be “all-time lows for Michigan’s unemployment rate since the current statistical series began in 1976,” Ehrlich said.

Auto industry

In 2019, Michigan’s manufacturing sector felt the effects from automotive layoffs at GM and Ford, the UAW strike, the international trade war and more. 

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Ehrlich said that the UAW strike ultimately affected 31,500 jobs in October, and will end up costing the state $36 million – a dollar amount that he says is actually relatively low considering the breadth of the situation.

Vehicle sales from Detroit’s biggest automakers have also declined slowly over the last few years and are predicted to keep on that downward trend.

“It is a decline. It’s not a cause for panic,” Ehrlich said of the dip in auto-related indicators.

Flattened auto sales have also contributed to Michigan’s sluggish revenue growth.

In the United States as a whole, a slight downturn in auto sales is also expected. In 2019, about 17 million vehicles were sold; in 2020, an estimated 16.8 million will be sold, followed by 16.6 million and then 16.5 million in 2021 and 2022.

Projected auto sales | U of M’s Research Seminar in Quantitative Economics (RSQE)

National outlook

On the national level, Chief U.S. Economist Dr. Joel Prakken of London-based IHS Markit spoke about the slowing U.S. GDP, before quelling fears of a national recession. 

“We don’t see any predictions that say that recession is imminent in the next 12 months,” Prakken said.

The probability of a recession has slipped from around 25% to 35% last year to “very, very low” in 2020, Prakken said. A model that has accurately predicted the last six recessions now shows the odds of an imminent recession at almost zero.

Prakken also seemed to warn against the potential effects of implementing a “wealth tax,” referring to a policy that has been proposed by progressive Democratic presidential candidates U.S. Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) in an attempt to curb extreme wealth inequality.

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Prakken referred to Warren’s wealth tax rate of 6% (which would only apply to people with wealth of over $1 billion) as “confiscation,” and said “there is no question that this would rattle financial markets” if adopted.

But Warren and Sanders both argue that such a tax is necessary to address the stark and growing wealth divide between the top 1% of Americans and the other 99%. 

For Warren’s part, her “ultra-millionaire tax” seeks to raise $3.75 trillion in revenue over a 10-year period by placing a small annual tax (2%) on households with a net worth above $50 million, and a slightly higher tax (6%) on households with assets above $1 billion.

DETROIT, MICHIGAN – JULY 30: Democratic presidential candidate Sen. Bernie Sanders (I-VT) (R) and Sen. Elizabeth Warren (D-MA) greet each other at the start of the Democratic Presidential Debate at the Fox Theatre July 30, 2019 in Detroit, Michigan. 20 Democratic presidential candidates were split into two groups of 10 to take part in the debate sponsored by CNN held over two nights at Detroit’s Fox Theatre. (Photo by Justin Sullivan/Getty Images)

Sanders’ plan is more aggressive, starting with a 1% tax on wealth over $32 million and gradually increasing to an 8% tax on households with $10 billion and above. His “tax on extreme wealth” would reportedly raise $4.35 trillion over a 10-year period.

Warren says this added revenue would pay for her plan to quadruple federal funding for public education and rebuild the middle class. Sanders wants to use the money to pay for Medicare-for-all, universal child care and affordable housing.

Polls show that the majority of Americans – Republicans included – are supportive of a 2% tax on wealth over $50 million.