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Michigan braces for recession: What to watch, from inflation to home prices

Rebounding auto sales will help Michigan’s economy as the nation moves into a likely recession in 2023. (From Shutterstock)
  • Economists say a recession is possible in 2023 as higher interest rates cool the economy
  • Sales rebounds in the auto industry may soften the blow
  • Many economic indicators affecting consumers are trending downward, from inflation to employment

GRAND RAPIDS — Inflation at year-end is at 7.1 percent, raising questions about what conditions Michigan businesses and consumers will find as the calendar turns to 2023.

A “very mild recession” is likely, Donald Grimes, an economist at the University of Michigan, said this month at an economic forecast organized by The Right Place economic development group in Grand Rapids.


Conditions likely would be similar to declines in the national gross domestic product in the first and second quarters of 2022, which Grimes noted “we didn’t define as a recession.”


One reason that economists didn’t call it a recession was a robust job market at the end of the second quarter, when unemployment was 4.3 percent in Michigan and 3.6 percent nationwide.

Next year, though, the decline “will actually result in a loss of jobs and increase the unemployment rate,” Grimes predicted. 

The good news for Michigan is that it could be insulated from the downturn by pent-up demand for new vehicles following supply slowdowns during the first two years of the pandemic.

Michigan, Grimes said, could avoid a full year of job losses even if the nation sees a decline in productivity.

Jeff Korzenik, chief investment strategist at Fifth Third Bank in Cincinnati, Ohio, said at the same event that the economy is more resilient than in previous inflationary times. 

As a result, any recession should be “fairly modest,” Korzenik said.

“You don’t have any big dislocations in the economy that would be typically associated with a deep recession,” he said. 

Still, he added, any drop in personal income “feels like a recession” to individuals. In November, disposable income in the United States increased 0.7 percent, not enough to keep up with expenditures, which increased 0.8 percent. 

At the same time, many businesses and individuals are confronting a volatile stock market. The S&P 500 index, which tracks some of the largest U.S. companies ,declined this year by 19.2 percent. Many companies — like web giant Amazon — recording year-to-date stock value losses of 50 percent or more. 

Meanwhile, the United States is up 3.8 million jobs so far this year, and the national unemployment rate is 3.7 percent. The job market “is why we believe the economy has time” to right itself, Korzenik said. 

Here are three key economic metrics at year-end and how they’re affecting Michigan: 


Inflation reached 7.1 percent in November, rising 0.1 percentage points from October — better than many had forecast.

Rising costs of housing were the largest contributor to the increase, rising 0.6 percent, according to the Bureau of Labor Statistics. Energy costs declined, but food costs increased 0.5 percent.

Gas prices across Michigan averaged $3.10 per gallon this week, compared to $3.66 a month ago, according to AAA Michigan.

According to a recent Detroit Regional Chamber poll, 66 percent of respondents said they are making new spending choices as a result of inflation. Almost half halted at least one purchase, while one-third said they haven’t had to make different choices as a result of higher prices.

There wasn’t an overwhelming answer to the question, “Are you doing worse?” One-third taking the survey said they were, but 21 percent said they’re doing better, and 45 percent are the same.

Unclear is what all of that means to Michigan businesses that count on consumer sales. The Michigan Retailers Association reported on Wednesday that sales in November were relatively flat over October sales.

Almost half of retailers surveyed expect sales to decline by February, a sign of concern, according to the group.

Interest rates

The Federal Reserve raised interest rates again in December, up to a half-point instead of the three most recent hike amounts of 0.75 percentage points.

That move brought the federal funds borrowing rate — which consumer rates are based upon — to about 4.5 percent, the highest in 15 years. It’s likely to get to 5.25 percent in 2023 as the central bank continues to fight inflation.

Some signs point to a plateau, but more evidence is needed “to have confidence that inflation is on a sustained downward path, Fed Chair Jerome Powell said when he announced the change on Dec. 14,

The higher rates for consumer credit are expected to slow big-ticket purchases, but so far, Fifth Third’s Korzenik said, credit card debt isn’t increasing at a high rate. 

Real estate and mortgages

National data released Wednesday showed that home sales declined for the 10th straight month, which experts blame on inflation.

Nationally, sales slipped 7.7 percent in November from the previous month, and fell 35.4 percent from a year earlier. Over that time, the average 30-year mortgage rate for a borrower with strong credit increased from 3.33 percent to 6.58 percent. The difference represents an additional $198 per month for every $100,000 borrowed.

"In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020," said National Association of Realtors Chief Economist Lawrence Yun in a news release.

Yun said mortgage rates and their rapid increase was the principal factor. At the same time, the mortgage rates hurt affordability. According to, the average homebuyer is paying 77 percent more on their loan per month than a year ago.


Grimes, the U-M economist, said he expects mortgage rates to stay around 6 percent through 2024. 

Comparable data for the state isn’t available. In September, Michigan sales dropped 13.31 percent to 16,069 homes sold. However, the average price climbed 4.05 percent to $264,269. 

But signs of softening prices are emerging. Data from Realcomp, the data service for Realtors across the southern portion of the state and some in the northern areas, still saw a median sales price increase in November. Yet the average days on market jumped by five to 33, and fewer homes are selling for listing price or over.  Fewer people are looking, too.

“Housing affordability continues to be a major roadblock,” according to Realcomp about what it is seeing in Michigan.. “... Buyers are delaying home purchases in hopes rates will drop.”

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