After 10 years of steady growth, Michigan’s economy faces headwinds

 As of July, the U.S. economic recovery from the Great Recession is now the longest in American history, dating to the 1850s. Yet several factors are emerging that could leave the state more vulnerable to the next downturn, from automotive industry trends to skirmishes over international trade. (Shutterstock image)

A decade since 2009 — the end of the worst recession in generations — Michigan’s economy has grown at a tortoise pace: Slow and steady.

Today, unemployment is low. Most of the jobs lost in Michigan during the 2000s have been regained. And consumers are still generally optimistic, though they’re concerned about talk of tariffs.

 

Michigan (and the nation) is now enjoying the longest economic recovery in more than a century. Yet several factors are emerging that could leave the state more vulnerable to the next downturn, from transformations in the automotive industry that are costing some manufacturing jobs, to ongoing talent challenges, to international trade skirmishes Michigan has limited power to control.

The ongoing national expansion surpasses the previous record, from March 1991 to March 2001, and economists say it isn’t expected to end anytime soon. Put simply, a growing economy doesn’t die just because it’s old.

Sept. 2018: Michigan incomes roar back. But the news isn’t good in Trump Country.
July 2018: As Trump pushes tariffs, Michigan farmers and businesses ‘getting clobbered’

While economists don’t forecast a recession is imminent, they caution that Michigan’s economy remains tied to the cyclical fate of the auto industry, even if the state is less reliant on manufacturing than it used to be. American consumers are buying fewer new cars as the industry restructures toward more electric and self-driving vehicles — a transformation that has led to layoffs even amid near-record low unemployment rates.

As home base to Ford, General Motors and Chrysler, Michigan also is more likely than other states to be harmed by escalating global trade disputes because the auto industry is a global business. Uncertainty surrounding federal trade policy, more than any other factor, is emerging as a cautionary sign tempering economists’ otherwise optimistic  forecasts.

 

"That certainly has a big impact on Michigan businesses,” said Robert Dye, chief economist for Dallas-based Comerica Bank, who tracks Michigan’s economy.

“So much of the manufacturing supply chains cross borders multiple times that that creates uncertainty for businesses,” Dye told Bridge. “It makes it very difficult for some businesses to have a lot of confidence about what their capital expenditures (and hiring) need to be over the next few years.”

Here’s a look at how Michigan’s economy has fared over the past decade — and some red flags that could affect Michigan in the next recession, whenever it comes.

 

Unemployment and the labor force

From a peak of 13.7 percent in 2009, Michigan’s jobless rate had fallen to 4.1 percent last year, where it has roughly remained, according to the Michigan Department of Technology, Management and Budget.

“It’s still amazing to me that we have done as well as we have done,” said Don Grimes, senior research specialist at the University of Michigan’s Research Seminar in Quantitative Economics. “I don’t think people quite appreciate how deep a hole we found ourselves in, in 2009 and 2010 — a structural hole, not just a business cycle downturn.”

Dye, of Comerica Bank, said he thinks unemployment in Michigan has likely reached its low point and will begin to edge higher.

Yet the unemployment rate alone doesn’t paint a complete picture about how many people are without a job. The official rate includes only those who are unemployed, available to work and have actively looked for a job in the past four weeks. People who don’t have a job but haven’t looked for work are considered to be out of the labor force and not counted among the unemployed.

Michigan’s jobless rate would be 7.6 percent through the first quarter of this year if it were to include workers who had looked for a job in the last year and people employed fewer than 35 hours a week but can’t find a full-time job despite wanting one. That’s the same as the national rate. Among Michigan’s neighbors, only Illinois and Ohio are higher.

Bruce Weaver, a DTMB economic analyst, said the state’s labor force generally has grown more slowly than the rest of the nation. The labor force rate is at least partly based on population growth, Weaver said, which has been slower in Michigan than the U.S. rate.

More than 40 percent of Michigan households in 2017 were impoverished or struggled to afford basic needs from housing to child care, according to a study of the working poor released this year by the Michigan Association of United Ways.

Many Michiganders continue to work more than one job to make ends meet, and often part-time jobs don’t offer employer-sponsored health insurance, said Gilda Jacobs, president and CEO of the Michigan League for Public Policy, which advocates for policies that support vulnerable residents.

The shift from a goods-producing economy toward an information-based one has made it more difficult for people with low educational attainment or few of the skills required for today’s in-demand jobs to earn a higher wage, she said.

“The recovery just hasn’t worked for everybody, and a lot of people that are in some of those jobs that they’re cobbling together two or three don’t have the skill set that they need to get the higher-paid jobs,” Jacobs said. “We need to make certain that with this economic recovery, that there’s a path for everybody to be able to get out of low-paying jobs into jobs that pay more.”

Jobs

Michigan is still climbing out of the hole it fell into during the 2000s.

By the middle of 2009, after the official end of the Great Recession, the state had shed more than 859,000 jobs from its peak in 2000.

We’ve made up a lot of ground. But we’re not yet above ground: By 2021, economists at the University of Michigan predict Michigan will only have regained 80 percent of the jobs it lost since 2000, or about 688,000.

It’s possible the state might never get all of them back.

Several economists said Michigan’s demographics are working against it. The state’s population is getting older, and Michigan will need an influx of younger, working-age residents — either moving into Michigan or staying in Michigan after college — to draw more people into the workforce.

More people continue to leave Michigan than move in, due to retirees seeking warmer climates and lower-tax states, as well as displacement of manufacturing jobs during the recession.

This outbound trend is “a fundamental drag on a state economy,” Dye said.

Though two positive trends are worth noting. First, Michigan’s population losses to other states have largely abated, down from nearly 100,000 net losses a decade ago, with far fewer leaving than earlier this decade.

Second, the state’s overall population is again growing, if slowly, after a decade in which Michigan was the only state to lose population. 

Michigan should focus on attracting and keeping talented young workers and college graduates in the state to boost its labor force, Dye said.

Michigan has enjoyed robust job growth since 2011, though the pace of jobs added each year has been slowing ever since, according to federal data.

 
 

Wages and income

Wages have grown slowly throughout the recovery, something economists say has been puzzling given the low unemployment numbers. A tight job market often leads companies to raise wages as they compete for a limited pool of employees.

Charles Ballard, an economist at Michigan State University, said one explanation could be that productivity has slowed. Another could be that while the labor market is close to full employment, luring some people who previously sat out the job search back to work, Michigan’s aging demographics will limit how many older people are drawn back in.

During the Great Recession, which Michigan fell into long before the rest of the nation, household incomes fell the farthest of any state. Though incomes are recovering, they lag the growth seen in most other states.

From 2005 to 2010, median household income fell in every region in the country when adjusted for inflation, ranging from 2.4 percent in the South to 6.7 percent in the Midwest; it fell 12 percent in Michigan.

Incomes in Michigan have grown solidly since 2010, but the state remains in the middle of the pack of states.

In 2005, Michigan’s median income was equal to the rest of the Midwest and the U.S. as a whole. Today, it’s 5 percent below the rest of the Midwest and close to 10 percent below the nation.

The state’s sluggish income gains are partly linked to its low educational attainment rate, several economists told Bridge.

Just 29.1 percent of Michiganders 25 and older have at least a bachelor’s degree, according to federal estimates from 2017. That ranked Michigan 31st in 2017, below the national average. The percentage rises to 38.6 percent when people with a two-year associate’s degree are included.

For decades, Michiganders could get high-paying manufacturing jobs, especially in the automotive industry, straight out of high school. That’s no longer the case. Detroit’s automakers, for example, negotiated two wage tiers with the United Auto Workers union as the industry hurtled toward bankruptcy in 2007, allowing entry-level workers to be paid less than more senior colleagues.

Shifts in the economy over time have caused personal income to more closely align with a person’s educational attainment, meaning those with more education are more likely to have higher incomes, several economists said.

 

Over time, manufacturing’s share of the economy began to shrink. (Manufacturing was 21 percent of Michigan’s nonfarm workforce in 1990; last year, it was 14.3 percent, data show.) Detroit’s three automakers began to lose market share to foreign-based brands. Increased factory automation means fewer workers are needed to build cars or other goods, leading to a decline in demand for those skills.

“We sort of ran into the perfect storm,” Ballard said. “We had a below-national-average educational attainment, and we had heavy involvement in a sector that was in relative decline. We had a great run, but we’re sort of caught flat-footed when the economy began to change away from manufacturing and much more toward higher-tech, higher-skill” industries.

Grimes, of U-M, said Michigan must increase its share of college-educated workers if it wants to boost income in the state.

And, he said, the auto industry could be among the leaders of that charge. Carmakers are looking to build more electric cars and self-driving vehicles, which they hope will attract more tech talent to Michigan.

The Big Three’s success in the next 15 years will be shaped “by their ability to attract really well-educated people to work in autonomous vehicles in Michigan,” Grimes said. “If all that stuff ends up out in California or some other tech hub location — if Apple and Google sort of win that battle for dominance in the autonomous vehicle space — it’s not going to be good for Michigan.

“They’ve got a very good chance of pulling this off,” Grimes said of the Detroit automakers.

One prominent effort: Dearborn-based Ford Motor Co.’s purchase of the dilapidated Michigan Central Station depot in Detroit, with plans to renovate the building as part of a $740 million project to create a hub for electric and autonomous vehicle technology in the city’s revived Corktown neighborhood.

Rural Michigan lags in recovery 

While all of Michigan’s 83 counties have significantly lower unemployment rates than they did 10 years ago, a majority — 49 counties — still have jobless rates higher than the 3.9 percent state average in May, data show.

Of the 10 counties with the highest unemployment rates, six are in the Upper Peninsula, while another three are in the rural northeastern Lower Peninsula. Alger County in the U.P. had the highest jobless rate in May, at 7.8 percent.

Rural Michigan has struggled to attract the kind of job growth that has concentrated in urban areas since 2009, economists said, a trend hardly unique to Michigan. Rural counties tend to have fewer people, and those who remain are older, less healthy and more likely to be retired. And they lack widespread access to high-speed internet, making it more challenging to attract companies to locate there.

Helping rural areas compete in today’s economy is “a key political question,” said Dye, of Comerica, “and I think it’s one that’s going to affect just about every state in the country.”

Aside from the rural-urban divide, the gap between high-income and low-income earners also has been pronounced. Economists said people earning at the top of the income bracket have seen better income growth in this recovery, though wage growth is beginning to reach lower-income workers, who were more negatively affected by the downturn.

For example, the share of Michigan households with incomes below $45,000 has fallen since the recession, while the percentage of households making between $45,000 and $100,000 has climbed, according to data from the University of Michigan.

“A tight labor market really does help, especially at the bottom,” said Gabriel Ehrlich, director of the University of Michigan’s Research Seminar in Quantitative Economics. 

“It’s important not to … give up on the idea that economic expansion can help everyone,” Ehrlich said. “It might take a lot longer than we’d like. It might be slow. But my view is, if you have an economic expansion that lasts long enough … eventually that does help folks at the bottom.”

Cautionary signs emerging

Economists aren’t predicting another recession in the next few years, saying there’s still room for growth, albeit slower. Yet some cracks are beginning to emerge that they say are concerning.

Chief among them is the threat of federal tariffs.

The uncertainty those threats have created can’t neatly be measured in a statistical model, said Ehrlich of U-M, who said his team’s forecasts show it’s unlikely for current trade tensions to tip the national economy into recession.

That said, Michigan is particularly exposed to trade risk because of its reliance on the global auto industry, he said.

Americans also are buying fewer new cars, contributing to forecasts showing slower economic growth in Michigan in the next few years.

Big purchases like cars can be put off when the economy goes south, which makes Michigan more sensitive to down cycles as a result, Grimes said.

The transformation of the auto industry also is worth watching, said Dye. He said he thinks competing announcements of plant closures and new factory investments “is going to go on here for quite some time.”

By the time it settles, there likely will be a net reduction in manufacturing jobs, he said, though new technology for electric and autonomous vehicles will create new types of jobs.

“They’re just going to be different jobs,” Dye said. “You have to be nimble to take advantage of that.”

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Comments

Holder
Tue, 07/09/2019 - 7:25am

"Wages have grown slowly...economists [are puzzled] given the low unemployment numbers." A possible reason: companies may be using bonuses to retain employees, not pay raises. They're reluctant to give raises, viewing them as fixed costs for so long as the recipient is employed. Bonuses aren't: they can be given one year in any amount the employer wishes, and reduced or withheld the next.

Bones
Tue, 07/09/2019 - 8:52am

“It’s important not to … give up on the idea that economic expansion can help everyone,” Ehrlich said. “It might take a lot longer than we’d like. It might be slow. But my view is, if you have an economic expansion that lasts long enough … eventually that does help folks at the bottom.”

It's been a decade, and tens of millions of Americans have still not recovered from the Great Recession. How much longer are they supposed to wait? Until the next crash? Until we transition to an economic system that doesn't fail once per generation?

Matt
Tue, 07/09/2019 - 6:58pm

Like ... which one, where?

Jerry
Tue, 07/09/2019 - 9:52am

Some story. Maybe The Bridge can frighten people into spending less or maybe moving to a better state. Hurry a recession along. Michigan sounds awful. Nothing but low paying service jobs.

Rick
Tue, 07/09/2019 - 5:41pm

No Jerry. It's called facts and we need facts for both the populace and legislators to figure out the best path forward. So what do you want? Lies, just ignore the facts and come up with some myth? We have a lot going for us (water, no earthquakes or wild fires, some intelligent people who care about fair elections, etc.) - facts matter.

Matt
Wed, 07/10/2019 - 7:14pm

When a state goes through an economic implosion as did MI 1990 - 2010 losing piles of jobs and employers, how long do you think it takes for new ones to spring up to take their places?

Dan Moerman
Tue, 07/09/2019 - 9:53am

I've recently talked with several people I know who run small businesses in Ann Arbor. None of them can find any employees who have any knowledge of what they would have to do: fix a toilet, repair a pond pump. Etc. And, of course, they have to pay these folks as much as $15 an hour, or they can't live in town. I've also learned that a number of restaurants are really hurting for behind the scenes employees: dish washers, line cooks. Several restaurants have closed because of these problems.

JB
Sat, 07/13/2019 - 7:12am

Your friend is seeking people with plumbing skills. That's a skilled trade -- most people with that skill set make significantly more per hour.

The owner of that business may have to train people to do the work if he is unwilling to pay the going rate.

JB
Sat, 07/13/2019 - 7:12am

Your friend is seeking people with plumbing skills. That's a skilled trade -- most people with that skill set make significantly more per hour.

The owner of that business may have to train people to do the work if he is unwilling to pay the going rate.

Robert L Burgess
Tue, 07/09/2019 - 10:01am

Michigan's higher unemployment rate has been higher than the national unemployment rate in all of 2019. May's rate is 0.6% higher. Used to be, Michigan's recessions were worse than the nation's. They still are. On the flip side, our recoveries were stronger than the nation's, factories operated at capacity, and unemployment in recovery used to be lower than the nation as a whole. No longer.

Why is that? Is it because we have not invested in infrastructure? On a per capital basis, one of the lowest in the nation. Is it because we have not invested in our universities? 2018-2019 state funding for universities is less than 8-10 years ago not even taking inflation into consideration. Is it because in 2011, we cut per pupil foundation allowance funding in K-12 by $470 per student and our unrestricted state funding for K-12 has not kept pace with inflation since then?

Is it because of the brain drain from our state where young people are leaving for Chicago, Denver, D.C., and other regions throughout the country instead of staying home in Michigan?

Maybe Michigan needs to invest in itself.
Maybe economists need to examine that lower taxes yield lower revenues and little more.

The Michigan economy and taxation policy is not a game of how low can you go limbo.

Economists need to answer the question as to why states which invested in themselves are doing better.

Matt
Tue, 07/09/2019 - 6:50pm

So ... if the college graduates are mostly all leaving as you claim, why do you want to invest more in MI colleges? You want to help the states that receiving our grads, is that it? Do you have any examples of poor states that have taxed themselves into wealthy states?

Bones
Fri, 07/12/2019 - 2:48pm

You heard it here, folks. Everyone should follow Kansas' example. Slash taxes, cut services, let the poor fend for themselves and surely, surely everything will be looking up...

Charlene
Tue, 07/09/2019 - 12:48pm

Excellent overview of Michigan's economy.

Rand
Tue, 07/09/2019 - 2:34pm

HAAA Such BS!
$1350 a week for goods producing jobs?
$893 per week for service jobs? This can't be right for an average over the whole State.
Where did they get these wage numbers??
Seems MI is trying to attract people with out-right bullcrap.

Here's what I found "The BLS looked at employment and wages for 766 jobs in Michigan. To see an online database with information on all 766 jobs, click here. Average pay: $12.63 per hour, or $26,270 annually for full-time worker"

That is a huge difference from the facts presented here.

I had to leave that state in 05 because the economics in MI were wiped out.

Looks like the Bridge is trying to get people to move back to MI with Faux numbers. Good Grief!

Mike Wilkinson
Wed, 07/10/2019 - 1:09pm

Rand,

This data comes from the Bureau of Labor Statistic's quarterly census of employment and wages. This is the average weekly wages for goods-producing and service-producing jobs from 2018. We did not make the numbers up. It also includes overtime.

-- Mike Wilkinson

Matt
Tue, 07/09/2019 - 6:57pm

Wow who ever would've thought that a 10 year economic recovery wouldn't go on forever an
and could be followed by a recession? It's Trump's and Snyder's fault for sure!

Maureen
Thu, 07/11/2019 - 10:55am

Thanks, Matt for having common sense among the haters!

Bones
Fri, 07/12/2019 - 2:50pm

Wow, who would have thought the idiot libertarians would gloss over the fact that the only ones who truly recovered from the crash are the upper crust and that the recovery bypassed tens of millions?

Matt
Sat, 07/13/2019 - 11:23pm

Bones what planet do you live on? Maybe if you left the basement every 20 years you'd see that folks not just the top one percent, are actually doing pretty well out there?

middle of the mit
Sun, 07/14/2019 - 12:21am

a 10 year recovery!

Are you going to give any of that recovery to Obama and his bailout of OUR industry, that you cons didn't want?

NO?

Going to give it all to Gov Snyderly whiplash and Trump?

Who ya gonna blame the crash on?

Obviously not the person who will be in office when it happens.

Just like last time!

***
Wed, 07/10/2019 - 3:29pm

I have traveled Grand River Ave. from Lansing to the Detroit area a number of times in the past two months dealing with a family situation, through towns like Fowlerville, Brighton, Howell, Williamston etc. there is no doubt a shortage of people willing to take service industry jobs at restaurants, I'm seeing help wanted signs all over the place from national chains to mom and pop places, even a Meijer had a sign by the road advertising $13 a hour to start, also seeing signs for more skilled positions like plumbers and car mechanics etc.

duane
Thu, 07/11/2019 - 2:24pm

The title of the article ‘Headwinds’ sets the stage and the contributors describe how the winds are blowing against Michigan’s economic history, how we have barriers both self-inflicted and created by the dynamics of the economic environment. Let’s change the perspective. Why not recognize these as opportunities for change that will build Michigan into strong and integral part of the economic future? Why don’t we look at the past and see what contributed to our successes then apply those lesson to today for the future?
The numbers being used in the article are not the story, it’s the personal actions both then and now. It was and is about what motivates people and what they are willing to do in satisfying that motivation. Consider when lumbering was ‘king’ it was about people willing to sacrifice working in conditions that we can only imagine, doing things at such risk it is consider tall tales today. Why aren’t the ‘experts’ asking why those people were so motivated to build Michigan into a economic power of the times? Why not consider Michigan turning into the 20th century, when new industries were being created that have lasted a hundred years and will extend into the future? It was not just the jobs that those new industries created, it was the creativity, the imagination, the excitement that gave Michigan it place in the world’s economic history. Why aren’t these ‘experts’ asking why and how? The experts seem to only see the auto industry, and forget what Dr. J.H. Kellogg created, what C.W. Post did, William E. Upjohn, Herbert H. Dow, how many more do these experts need hear of before they realize that Michigan was a haven for entrepreneurs, for imagination, for creativity. And when will they realize it wasn’t each one of those alone, it was the people they surrounded themselves with and the ones that have been hire there since. When will the people that Bridge chooses to talk to realize that it is the people that made those successes, that keep them successful, and that will build the future successes?
We don’t need to hear all the numbers tracking the past, we need to have motivated people wanting to be here, in Michigan, building the future. We need people that aspire to be a name on a list like a hundred years ago, we want people investing in themselves with their education so they can be part of the future. Bridge and their ‘experts’ need to realize our future, as was our past, is built from the bottom up by each person wanting to succeed enough that they will start young by learning how to learn and as they grow applying that learning to create their financial success here in Michigan.
If the ‘experts’ want to change the future they need to describe what it will look like, what the people that succeed will know, what and how they will do. If there are examples, then they need to be held up for the youth to see what they can achieve and how. If we need entrepreneurs then we should see them as celebrities not as villains, the fruits of their efforts that are earn not taken for those who are willing to make the effort. Aside from sports stars and entertainers who do the media fawn over, it surely isn’t business owners, inventors, creators of jobs. The wealth gap, is not something to use as a ‘club’ toward employer, it is something to study and learn how it is achieved and offer those lessons to others. That dwindling ‘middleclass’ are the ones to learn from, how and why are they succeeding when all we hear is they are disappearing, what are the lessons we can learn and share.
Ms. Van Hulle and Mr. Wilkinson seem to see only the empty part of the glass and look at how to justify it, I want to know about how the half full part was provided and how I can do my part to put more in.