MSU Economic Forecast Model
Michigan 2019 Economic Outlook: Mid-Year Update
The phrase we use to describe the U.S. economy is, “chugging along.” Despite rocky trade negotiations and questionable application of tit-for-tat tariffs. Looking at employment numbers, the economy is coming up rosy. The first half of 2019 has so far bucked the general January consensus that the economy was approaching a downturn. This leaves the second half.
Talk of an economic slowdown was reignited with the May jobs report, which showed a weaker than expected gain of 75,000 jobs nationally. As is often the case, these monthly jobs reports are revised and, in themselves, are not good indicators of short-term economic leanings. Rather, we look to other indicators, like the Federal Funds Rate, which is the short-term interest rate banks charge banks. The Federal Funds Rate has been trending up since January 2016 from a low of 0.34% to 2.42%. Higher rates indicate that banks are pushing more money around and making loans. However, as of late, the rise in the Federal Fund Rate has decreased, or rather stabilized to no change. Furthermore, the yield curve, measured as the 10-year treasury yields minus the 1-year yields have maintained negative values since mid-May. A negative yield curve is strongly correlated with an economic downturn. Another measure is the industrial production index produced by the Federal Reserve. Like that of the Federal Funds Rate, the industrial production index shows a long-term trend since the first quarter of 2016 but has seen steady declines since January 2019. Inflation’s predictive power, once a standard for gauging the economy’s capacity for growth, has appeared to wane of recent years, and remains subdued at around 2 percent. So, what do we make of all these warning signs? Well, not much, as employment and gross domestic production continues unhindered.
For Michigan, we see a steady stream of economic growth. State gross domestic product adjusted for inflation should see an increase of about 1.3% over 2018, while non-farm employment growth is expected to gain 0.7% growth, year over year. Real personal income will remain unchanged. Expect no change in the state unemployment rate, which is now pegged at 4.1 percent. Lansing and Detroit’s economies largely mirror’s that of the state. No change in unemployment steadfast growth in production and no substantive change in real personal income.
The accompanying tables provides our detailed Mid-Year Forecast Update to the 2019 MSU Economic Forecast Model.
Updated June 13, 2019