Michigan State University Economic Forecast Model Releases

2018 Mid-year Update: Michigan, Lansing-East Lansing, and Detroit Forecasts

July 2, 2018

The MSU Center for Economic Analysis has updated the 2018 Economic Forecast to reflect updated statistics from the Bureau of Labor Statistics and the Bureau of Economic Analysis. While the 2018 forecasts in December were clouded by Congressional tax bills, the Midyear update forecasts are casts in the specter of a Trump-initiated trade war with most of the U.S. trading partners. The threat of a trade war is bad enough, but the inclusion of Canada in this tit-for-tat tariffs and barbs puts emphasis on Michigan’s Economy and its shared border crossings with Canada. Let us keep it simple, nobody wins from a trade war.

Current Conditions

According to our Midyear updated forecast for 2018, the state economy is on track for significant but unremarkable gains. You may recall that we bumped up our 2018 forecast in December to account for expected gains from the pending tax overhaul, but even then, we were cautious that most of the gains were realized in 2017. The current pace of economic growth through the first half of 2018 back this assertion. We have yet to experience the pervasive job and wage growth promised with this tax revision, and recent headlines appears to suggest the gains from this tax revision will largely not be shared with workers. However, new issues are on the horizon that is keeping stock prices in check and threatening future economic uncertainty. President’s Trump’s executive actions and threats to open trade are having measurable impacts on the labor market. Buyers of foreign steel have been vocal and reactive to the Trump Administration’s tariffs on steel, and several have announced layoffs due to supply constraints. Our trading partners, facing new costs in U.S. markets, are not yielding. They are putting forth their own retaliatory tariffs, mostly on targeted goods like agriculture, motorcycles, bourbon and denim. Canada, America’s leading export market, has already imposed tariffs on a number of U.S. goods. China will focus on agricultural goods, while the EU will impose tariffs across a number of U.S. exports. Harley Davidson recently announced plans to locate production outside of the U.S. to escape other countries’ retaliatory tariffs. This is how trade wars begin. Hence, watch for uncertainty to rule the landscape.
Before the widespread contagion of protective tariffs, economists were warning of the next U.S. economic slow-down. The common consensus is that that slow-down is right around the corner, as the U.S. economy is in the midst of one of its longest or the longest expansion in history. Trade may be the impetus that breaks this long-running expansion.

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