State of Michigan
Michigan 2022 Economic Outlook
Michigan is a manufacturing state and therefore, is more exposed to manufacturing sector disruptions than many other states. While demand for manufactured goods were elevated through 2021 and expected to remain elevated through 2022, we caution that supply disruptions may dampen the overall economic outlook for the state. Accordingly, we expect economic growth for Michigan to be flat in 2022 with nominal gains to gross state product largely eroded by inflation. That is, we see gross state product, a measure of all income generated in the state, to grow by 4.4 percent in 2022, up from 3.5 percent in 2021. Once adjusted for inflation, gross state product will only climb by 0.1 percent, down from 1.6 percent in 2021. While wages and salaries saw robust growth in 2021 of 5.2 percent, we expect 2022 growth to moderate at around 3.0 percent growth. Under the current environment, we perceive that this represents the lower bound, as labor shortages and public sentiment is aligned with higher wages, especially for lower-wage workers. Other sources of income, like dividends, interest and rent suffered under COVID-19, but we anticipate a reversal in 2020 as corporations continue to accelerate distributions of profits and the housing rental markets recover. We also saw government transfer payments to households decline in 2021 and anticipate this to continue through 2022, though at a receding rate. These transfers represent unemployment insurance payments, temporary income support for low-income families, housing subsidies and others.
While Michigan’s manufacturing employment recovered in 2021, we expect these sectors to weaken in 2022. Weakness in the manufacturing sector largely arise from the durable goods sectors. Similarly, construction expenditures thrived in 2021, but we anticipate some pull-back, as many of those pent-up projects have played out. Anticipate moderate employment declines in construction over 2022. Collectively, these sectors make up the bulk of Michigan’s goods production sectors, which we anticipate will show weak employment growth through 2022.
The service providing sectors continue to exhibit relative strength. Much of the growth in services is expected to be realized by a few segments. Professional & Business Services remains one of Michigan’s strongest employers with strong growth of 5.5 percent in 2021 weakening to 2.6 percent in 2022. This is the only segment that reports current job counts exceeding what was reported before the pandemic. Education & Health Services is expected to see strong growth in 2022, following relatively mixed growth in 2021. Education services employment is largely expected to recover in 2022, responding to market-driven demand for occupational training, while health care services is expected to be hampered by burn out and tight labor supply. Maybe the strongest sector for employment growth is Leisure & Hospitality, with 10.3 percent growth over 2021 and 13.6 in 2022. To be sure, this growth only represents recovery from the multitudes of job losses since the pandemic. Statewide, this sector’s employment is down 77,000 from pre-pandemic highs.
Collectively, Michigan’s labor force has shrunk by 250,000 workers, or about five percent from 2019 highs. We see no evidence of widespread reentry into the workplace, but rather see continued momentum for the "Great Resignation." Expect further labor market declines in 2022 countered by high demand for workers. It will be a workers’ market in 2022, as the demand for workers outstrip supply resulting in a very tight labor market and low unemployment rate of 3.1 percent.
Updated December 28, 2021