Michigan earnings shot up 54 percent in spring. Thank the stimulus funds.
Jobs evaporated, businesses closed and financial worries escalated when coronavirus slowed Michigan’s economy last spring at a record-setting pace.
Yet Michigan’s personal income grew 54.1 percent from April through June, according to estimates released Thursday by the U.S. Bureau of Economic Analysis. That compares to second-quarter average income growth of 34.2 percent across the United States.
Gains are not from wages, which plummeted by $29.2 billion in the state over that timeframe. Instead, payments from the government – stimulus checks, jobless benefits and expanded unemployment that added $600 per week to payouts – picked up more than the slack.
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“We actually got richer,” said economist Donald Grimes of the University of Michigan. “A lot richer in Michigan.
“It’s sort of ironic.”
Those gains, though, are mostly temporary, consisting primarily of money pumped into the economy and into consumers’ pocketbooks by the federal government at the depth of the pandemic to try to steady a teetering economy.
The data give an initial glimpse into how Michigan residents fared versus the rest of the nation as the pandemic unfurled into spring.
It also signals just how difficult it can be to navigate the COVID-19 recession and plan for recovery. One sign of that was Michigan's budget forecasting, which once predicted a $3 billion shortfall for the year starting Oct. 1 based in part on job losses. Instead, consumer spending, federal aid and tax collections on jobless benefits helped to fuel a $62.8 billion budget with $250 million in cuts but increased funding for some agencies.
“This is going to be the only recession in history where income goes up,” said Grimes. “This is the most bizarre thing we’ve ever seen.”
Top 10 state
Michigan’s personal income growth was highest among all Great Lakes states, according to the BEA, and it was among the top in the nation. Seven states showed more income growth in the second quarter than Michigan’s gain of 54.1 percent. The others were Nevada (56.9), Vermont (57), Rhode Island (62.5), New Jersey (63), Hawaii (67.4), West Virginia (69.9) and Massachusetts (76.3).
What most of the states have in common are high unemployment rates dating to the early weeks of statewide shutdowns that started in mid-March.
Over the course of the pandemic, about 2.6 million state residents, more than half of Michigan’s workforce, applied for unemployment. The majority of claims were made during the second quarter.
“April of 2020 was by many measures the worst month for the US economy ever,” said Charles Ballard, an economist at Michigan State University.
But starting April 4, most people receiving jobless benefits in Michigan received the $600 additional weekly payment through the Pandemic Unemployment Assistance portion of the federal CARES Act. Then one-time federal stimulus payments worth up to $1,200 followed. So as employment fell, earnings leaped forward.
Don’t feel short-changed if your bank account didn’t swell by 50 percent this spring; some of the dollars the BEA report counts as “personal income” don’t go to individuals. For example, the BEA report shows that the category of “transfer receipts” grew 1,007 percent in Michigan from April to June. Those payments, counted as personal income, include unemployment payments and Medicaid benefits, but also include things like pandemic relief funds used for people’s care by hospitals.
Michigan’s transfer receipts totaled $87.4 billion for the second quarter. According to the BEA, transfer receipts increased in every state, ranging from $3.8 billion in Wyoming to $342.6 billion in California.
The waves of people seeking benefits overwhelmed Michigan’s unemployment system, with some still waiting for payouts, according to the Unemployment Insurance Agency. But most did receive them, Grimes said, obviously pushing up the earnings found in the BEA report along with other stimulus payments.
Otherwise, Ballard said, “April, May and June were going to look awful.”
Three factors influenced income and job loss, said economist Patrick Anderson of the Anderson Economic Group in Lansing. They were: How harsh the state lockdown orders were and how long they were extended; the unique industry mix in each state and the severity of the epidemic.
“We had a hard epidemic that hit us early,” Anderson said.
“Michigan lost more jobs and income than anyone else in the Midwest,” he continued. “From that very deep trough, we’ve been coming back a bit faster. However, we remain at historically severe losses of jobs and income, and in some industries, such as retail, restaurants, travel, hospitality, we are looking at Depression-level losses of jobs and income.”
Other sectors that lost more share of personal earnings in Michigan that the U.S. average include: construction; durable goods manufacturing, which saw the largest decline of 6.74 percentage points; wholesale trade and health care.
Meanwhile, the data released Thursday underscore concerns about the growing economic divide, economists said. Hard-hit earnings sectors mirror those where workers already struggle financially.
In an earlier study by researchers for the Upjohn Institute for Employment Research in Kalamazoo, unemployment during the COVID-19 recession has been “borne disproportionately by lower-wage workers. The bottom 20 percent of earners were more than twice as likely to lose their jobs as the top 20 percent … threatening to widen an already yawning earnings gap.”
For those workers, the benefits were worth more weekly pay, sometimes 20 percent or more, the Upjohn researchers said.
That benefited the economy, they added: “This expansion of unemployment benefits in turn boosted the slumping economy, as unemployed workers spent benefit checks.”
A look ahead
Future income growth for Michiganders won’t keep up with the second-quarter’s gains.
“These numbers are going to go down in third and fourth quarters,” Grimes said. “Wages and salaries will go up as people have gone back to work, but they’re not getting $1,200 checks and supplemental unemployment ran out.
“Even though a lot of people are going to go back to work,” Grimes said, “wages won’t go up as much as the transfer payments are going to be reduced.”
At the same time, the pace of job growth is slowing. Many now look to 2022 for full recovery. Many business advocacy groups in the state worry that further job losses will come from challenged sectors. Restaurants, for example, warn that 23 percent of them could close in Michigan by March.
The BEA plans to release a report on Oct. 15 to show the full economic effects of the COVID-19 pandemic. Much of it could not be quantified in the state personal income estimates, such as the role of the Paycheck Protection Program in replacing wages.
Meanwhile, by August, Michigan’s unemployment rate was 8.7 percent, up from 4 percent a year earlier. After losing 20 percent of its jobs during the second quarter, MIchigan regained half of them, Ballard said.
For the people who have been unemployed, many look ahead at their job prospects and lack of an additional stimulus plan and they worry.
“It’s kind of scary if there isn’t any more help after this, mainly because our state is not still fully back to normal,” said Mike Gendernalik, a laid-off construction worker from Fowlerville.
A new federal stimulus plan may be introduced by Democrats soon, according to reports. An earlier proposal introduced by Republicans failed to get the votes to proceed.
“So many people in Michigan need help to survive and care for their family while we are in the middle of this once-in-a-lifetime pandemic,” said U.S. Sen. Debbie Stabenow, D-Michigan, in an email to Bridge Michigan. “Senators should be working across the aisle to pass another package to give people the support they need.”
Grimes said the federal government can’t sustain additional jobless benefits for an extended timeframe, but losing them can put individuals at financial risk.
“You could make a case to support the extension of extra unemployment benefits through the end of the year, maybe at a reduced rate,” Grimes said, of $300 to $400 per week.
The important thing will be to target people who are still unemployed and lacking income. “You can’t continue to just give everybody money.”
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