Economics professors say there are positive signs for Michigan's economy
Assistant Professor of Economics Samuel Raisanen said projections for Michigan’s economy show the state adding 114,000 jobs over the next two years.
Raisanen said the University of Michigan is projecting Michigan unemployment to continue to fall over the next two years to about 7.7 percent by 2014, putting it on average with Michigan unemployment in decades from the 1970s to 2000s.
“That’s a very positive sign,” he said.
The U-M economic forecast projects that Michigan will add 50,000 new jobs in 2013 and 64,000 new jobs in 2014 as a result of the recovery in the automotive industry.
Michigan added 165,000 new jobs since 2009; about 40 percent of which were in automotive manufacturing, Raisanen said.
Raisanen said Michigan has had some of the fastest economic growth in the U.S. since 2009. He said Michigan’s 2011 gross state product had a 2.3 percent growth rate, which put the state in the top 20 percent of the U.S.
“I think that’s sort of going to level off a bit,” he said. “I suspect that we will stay around two percent growth around the next couple years.”
Jason Taylor, professor of economics, said it is challenging to forecast what Michigan’s economy will be like over the next two years because the federal government is concentrating on the “fiscal cliff," the name given to automatic tax increases and spending cuts scheduled to take effect in January.
“Right now, a lot of people are kind of holding their breath to see what happens,” he said. “A lot of what happens in the next two years depends on what happens in the next five weeks.”
If the U.S. were to see a double-dip recession, Taylor said, Michigan would follow the rest of the country and unemployment rates would increase. However, whereas Michigan had a higher unemployment rate than the rest of the U.S. in the mid-2000s, he said he does not see Michigan continuing that trend.
“I don’t think that’s going to happen again, where Michigan is worse than the rest of the country,” he said.
Taylor said after a deep recession like the one the U.S. was in, the economy generally grows well, but economic growth has been slow. He said there is potential for the economy to take off again, but there is economic uncertainty in Washington and in other regions of the world such as Europe.
The direction of Michigan’s economy depends on Washington, Taylor said.
“The Michigan economy is going to follow largely what happens with the national economy,” he said.
One thing that has driven Michigan’s quicker economy was the fact that Michigan went through a one-state recession from 2002 to 2008, Raisanen said. While the Great Recession in 2008 had an impact on Michigan, because Michigan wasn’t at a peak, it was able to recover much quicker.
Raisanen said automobile manufacturing is the primary industry in Michigan, and with the recovery of General Motors Corp. and Chrysler, the outlook appears to be “quite good.”
Expectations and consumer confidence are important factors in automobile sales, Taylor said. Automobiles are durable goods, or items that last a long time, and people will postpone those purchases if they are worried they won’t be able to make car payments, he said.
Raisanen said the biggest driver he sees for a positive outlook for Michigan’s economy is that the average age of a vehicle on the road has risen to 11 years old.
“As the economy begins to recover, people begin to purchase more durable goods like vehicles as they stop delaying those purchase,” he said.
Raisanen said this suggests that continued automotive recovery will have a spill-over effect for Michigan as a whole.
“Essentially, as Americans replace older vehicles, that will drive automotive sales, which in turn will have effects on automotive suppliers, restaurants and other businesses in Michigan,” he said.
Other key areas for growth in Michigan include business services, transportation, construction and health services, Raisanen said.
The U.S. has seen a big energy boom over the last two years because of oil fracking, Taylor said. He said this is potentially good news for Michigan because if the cost of gas is a little lower, this might spur some car buying.
Taylor said Michigan traditionally hasn’t produced high-mileage cars, while companies in Japan and South Korea have. Michigan producing “clunkers” in the last 15 years or so hurt the state’s automotive industry, he said.
But things are changing, Taylor said, and Michigan is adapting to producing more high-mileage cars.
“The energy boom in the U.S. could have a positive impact on Michigan," he said.