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Sunday, 21 December 2014 22:00

Economists’ Outlook: U.S., Michigan economies expected to improve for 2015

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Forecasters generally see improved economic performance for both the U.S. and Michigan in 2015, further driving down unemployment rates.

After a number of years of sluggish or moderate growth in the post-Great Recession era, economist Mitch Stapley, chief investment officer at ClearArc Capital Inc. in Grand Rapids, believes the U.S. economy will finally reach GDP growth of 3.2 percent by this time next year, despite problems in China, Japan and Europe.

Playing into the national economy’s favor is improved consumer spending. After “a pretty hectic last couple of years, consumers are finally in a better place,” Stapley said.

At the same time, research indicates that wages are finally starting to pick up, especially for lower and middle income workers. At the same time, commodity prices are under control, inflation is in check, and U.S. auto sales should remain strong.

“You kind of go down the checklist here and you don’t see a lot of things that are telling you that things are going red hot, but you definitely see signs that things are doing a lot better than they’ve been doing in the last three or four years, and the pace of improvement probably gets the growth rate back to plus-3 percent,” Stapley said. “That’s the first time we’ve had that in seven years. We’re turning a corner.”

That improved outlook should keep the U.S. auto industry in good shape.

Stapley forecasts North American auto production of 16.5 million to 16.6 million units in 2015, equaling 2014.

Light vehicle sales are expected to grow from a projected 16.3 million units this year to 16.6 million in 2015 and 17.0 million units in 2016, according to economic forecasters at the University of Michigan.

In its latest outlook issued this month, U of M’s Research Seminar in Quantitative Economics projects GDP growth of 3.1 percent in 2015, after estimated growth of 2.2 percent for all of this year. GDP growth should hit 3.3 percent in 2016.

“We expect that 2015 will be the year when U.S. economic growth will finally accelerate meaningfully,” said University of Michigan economist Daniil Manaenkov. “This year, severe winter weather joined the list of headwinds that have prevented U.S. economic growth from picking up. Even still, both private and total payroll job gains during 2014 are on track for their best performance since 1999. And going forward, strong GDP growth supports steady employment gains.”

At Comerica Inc., economists forecast inflation-adjusted real GDP growth of 2.9 percent for 2015.

Meanwhile, at a recent presentation to the CFA Society of West Michigan in Grand Rapids, economist Paul Traub from the Detroit branch of the Federal Reserve Bank of Chicago pegged 2015 real GDP growth at 2.8 percent.

While the U.S. economy is clearly doing better, the recovery to date has been “anemic” and the Federal Reserve still believes “there’s more work that needs to be done” to drive economic output higher.

“Although we’re doing better, it remains to be seen if we are getting back to the overall potential of what this country can actually put out,” Traub said.

Economic issues overseas remain a concern domestically, although the U.S. economy is “relatively insular,” with 14 percent of GDP dependent on exports, lower than elsewhere in the world, said Stapley of ClearArc Capital. If the rest of the world slows down, “it will be a hit on us, but it will not be as dramatic of a hit” as in other countries with a much higher export rate, he said.

“It’s a good time to be in the U.S.,” Stapley said. “The real question is what’s going to happen in China, what’s going to happen in Japan, what’s going to happen in Europe. But we look to be strong enough that we can weather that storm, if indeed the storm does break out over there. Being relatively insular right now is a pretty good thing.”

Traub even describes the U.S. economy as “kind of like a shining beacon of the world today because we’re growing” as economic growth around the world slows.

The higher economic growth should drive down unemployment nationally from 6.2 percent in 2014 to 5.5 percent for 2015, and to 5.2 percent in 2016, as the U.S. economy generates 5.3 million new jobs over the two-year period, according to U of M forecasters.

Comerica projects that U.S. unemployment, after ending 2014 at 5.8 percent, will dip to 5.6 percent by the end of the first quarter of 2015 and fall to 5.0 percent by the end of the year.

In Michigan, U of M forecasters predict the creation of 59,400 jobs in 2015 and another 73,200 in 2016. Both years will exceed the average of 57,000 jobs created annually in Michigan from 1971 to 2000, prior to the state’s decade-long economic decline.

In the outlook, U of M economist George Fulton noted that more than 300,000 jobs were created in Michigan over the past five years and that the state unemployment rate is half of what it was in 2009. Vehicle sales are booming at their highest level in eight years and the Detroit bankruptcy is settled, he said.

“What all of this suggests is that the Michigan economy has gone some distance from the dire straits it was in five years ago, at least overall, but there is still a fair way to go,” Fulton said.

Michigan, for instance, remains among the states with the highest unemployment rates in the nation and ranks in the bottom third in per-capita personal income. The state also lags in population growth among the young and college-educated adults and numerous residents have yet to see the economic rebound, Fulton said.

“In all, the Michigan economy has certainly come a long way in the past five years, and that progress should be celebrated,” he said. “The issues now are to sustain that momentum and also to have it be more inclusive of a far greater number of Michigan’s residents.”

U of M projects Michigan’s annual unemployment rate to decline to 6.7 percent by the end of 2015 and to fall to 6.3 percent by the end of 2016.

Across West Michigan, key areas of economist Brian Long’s monthly activity index remained in good shape, although they did ease from October. Indexes for new orders, production and employment declined. The short-term outlook for the next three to six months among industrial purchasing managers responding to Long’s monthly survey inched upward, and the long-term outlook for the next three to five years improved in November from October.

“Individual comments from respondents also indicate no major concerns about the future,” Long wrote in his monthly report.

The director of supply chain management research at Grand Valley State University’s Seidman College of Business, Long noted that Michigan’s monthly unemployment rate of 6.4 percent for October is well below the “ominous” 8.2 percent of a year ago and significantly down from the 14.9 percent rate in July 2009 at the peak of the recession. But it’s still well above the 3.1 percent rate Michigan recorded in October 2000, just as the state was beginning its decade-long economic decline.

“In short, our unemployment picture continues to improve, but we still have a gap to close before we can consider West Michigan to be back to full employment,” Long wrote.

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