State of Michigan

Michigan Outlook

Based on current economic conditions, the MSU Economic Forecast Model predicts employment growth to just trail one percent in 2019. However, as discussed in the introduction, there are significant risks built into the current economy. First, Michigan will receive a new governor in 2019. Gretchen Whitmer will take the helm following eight years of leadership under Governor Snyder. On the national front, trade is a dominant question, as it has been for much of 2018. There is also an unsettling spike in private debt that can weaken households’ ability to weather minor economic turmoil. In addition, as reported in all major news sources, the U.S. public debt has spiraled to unprecedented levels and is likely to continue unabated following the 2018 tax reform. It’s pretty simple, if public revenues decline, but expenditures continue unabated, debt will go up. At some point, public debt will have to be paid back. Other political factors within and outside of Michigan can also impact Michigan’s economy, and we will largely have to wait and see what becomes of these issues.

We did temper motor vehicle growth projections to account for GM’s announcement, but no other adjustments to the forecast was made. GM’s announced cuts for Michigan may not actually take place, as it needs to be approved by the United Auto Workers and is facing significant political pushback. Regardless of whether the proposed plants are closed or not, we project that job losses in this sector is inevitable. With these considerations, we anticipate Michigan employment growth to taper, but not turn negative in 2019. Construction will continue to be a relatively strong sector, while manufacturing employment will largely remain unchanged in 2019. The model anticipates that employment growth will exceed labor force growth, such that the unemployment rate will decline to 3.8 percent. We suspect this is overly optimistic and that the unemployment rate will largely remain unchanged in 2019.

The good news in 2018 was that wages finally saw an uptick. Until recently, despite relatively tight labor markets, wages have mostly remained unchanged. As the number of job offers increase with fewer workers, employers have to increase wage offers to attract the workers they need. Despite the welcome announcement of higher wages, wage growth continues to be lower than economists would anticipate. Expect personal income growth at about 3.0 percent in 2019, where wages will rise by 2.8 percent overall. The passage of new Michigan minimum wage legislation will further boost this wage growth but not to the extent that voters had requested. Sectors with the highest wage growth will be construction, mining and utilities. Manufacturing wage growth is projected to be positive but tepid at about 1.7 percent growth.

Updated December 19, 2018

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