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Monday, 21 December 2015 00:00

As auto sales plateau, service jobs will drive Michigan economy

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Economists expect Michigan’s economic resurgence to continue in the new year and push unemployment lower, although job growth in the manufacturing sector may peak as the auto industry’s rebound from the Great Recession plateaus.

The state’s economy will still benefit from a strong auto sector in 2016, “but it’s not pushed forward at this point” as much by the industry, said Robert Dye, chief economist at Comerica Inc.

“The state is starting to feel some of the headwinds,” said Dye, who expects 2015 and 2016 will be periods of “peak performance” for Michigan’s economy.

“The job recovery that we’ve seen in the auto sector looks nearly, if not already complete at this point,” he said. “The tailwind from the auto sector is in the rearview mirror right now.”

Dye forecasts auto sales of 17.5 million units in 2016, equal to the expected volume of 2015. Away from the auto sector, Dye expects home prices in the state to continue to climb in 2016, and consumer spending “should be good with strong confidence” as unemployment falls further.

For the region in central and western Michigan that covers the Grand Rapids, Kalamazoo and Lansing markets, Comerica projects an unemployment rate in 2016 of 3.7 percent, down from an estimated 4.1 percent for 2015.

While the auto industry lifted job growth in the state, particularly in the manufacturing sector, Dye doubts that it can continue for much longer as a large job creator.

“It’s at such a high sales rate I don’t think it’s reasonable to expect the type of gains we’ve had over the last year in the sector going forward,” he said. “We’re approaching top-of-the-cycle numbers. That tells me that the auto sector generally will probably be leveling out in terms of employment, if it hasn’t done so already. I don’t think we’re going to see much increase from here.”

The University of Michigan’s outlook for the state notes that manufacturing, “after being the engine of growth during the early years of the recovery,” will account for only one in 12 new jobs in Michigan over the next two years. That prediction comes even as U-M’s outlook for the U.S. economy projects North American automotive production to reach 17.4 million units this year, followed by 18.0 million units in 2016 and 18.1 million in 2017.

Professional and business services will generate a quarter of the new jobs during the same period, U-M economists project. Nearly 60 percent of the jobs will come in professional, scientific and technical positions.

Since bottoming out in mid-2009, Michigan’s economy has been on a steady growth trajectory. U-M economists project that Michigan will add another 126,000 jobs over the next two years, bringing total job growth since the summer of 2009 to 586,000.

“From the perspective of how the economy has been performing overall in growing out of the prior severe recession, things are looking pretty good. The environment has stabilized and progress has been fairly impressive,” said Fulton, director of U-M’s Research Seminar in Quantitative Economics. “And the state appears to be poised to continue the ride for a while longer, although perhaps not at the same pace.”

Fulton and his colleagues predict employment gains of 61,100 jobs during 2016 and 64,800 jobs in 2017, down from projected gains of 84,600 in 2015. Continued job growth will further drive down Michigan’s unemployment rate from the present 5 percent to 4.8 percent at the end of 2016 and 4.5 percent by the end of 2017.


HIRING REMAINS STRONG

Locally, the latest results from Manpower Inc.’s quarterly outlook survey indicate hiring in the Grand Rapids area should remain strong during the early months of 2016.

Thirty percent of the employers surveyed by Manpower expect to hire in the first quarter, 5 percent plan to trim staff, and 62 percent said they would maintain the present size of their workforce. A year ago, 29 percent of survey respondents told Manpower they would add staff, 3 percent planned to reduce headcount, and 67 percent said they would maintain employment levels.

Statewide, 26 percent of the employers responding to Manpower said they would hire in the first quarter, 5 percent indicated they would reduce staffing, and 66 percent said they would hold employment levels steady.

George Mokrzan, director of economics at The Huntington National Bank, credits the state’s rebound to the auto industry recovery, economic diversification, structural changes in state government, and improvements in Michigan’s business and tax climate.

Even with automotive employment plateauing at a high level, Mokrzan expects economic performance in Michigan to remain strong as jobs in other sectors continue to grow and the state experiences further “sustained, solid improvement.”

“At this point, the outlook is quite positive,” he said. “Michigan is getting back to the old Michigan in terms of its successes.”


LOOKING NATIONALLY

Across the U.S., economists expect economic growth to remain steady next year, although potential problems linger.

After an estimated growth rate of 2.4 percent for 2015, U-M projects real GDP growth of 2.6 percent in 2016 and 2.9 percent in 2017. Unemployment will continue to decline from 5.3 percent this year to 4.9 percent next year and 4.6 percent the year after.

Mokrzan predicts 2.5 percent national GDP growth in 2016 with unemployment declining to 4.8 percent by year’s end. Meanwhile, Comerica forecasts real GDP growth in 2016 of 2.4 percent with 4.6 percent unemployment.

“It doesn’t appear the economy is capable of accelerating, but at the same time it looks like we have enough support to keep from decelerating,” Dye said. “We look forward to another good year in 2016, but this is not what I call a robust economy. We can expect ongoing, moderate growth.”

While surely better than the not-too-distant past, moderate economic growth in the U.S. is troublesome because even a mild downturn could put the economy into recession, Dye said.

“If we’re used to thinking about a 3 or 4 percent (GDP growth) economy and we hit a headwind and we knock two (percentage points) off of that, we’re still expanding. In a 2 percent economy, we hit a headwind and we knock two (percentage points) off that, we’re not expanding anymore,” he said. “Even though we’re expecting to see ongoing gains, we do remain vulnerable in this lower-growth economy compared to where we were in the mid-2000s and certainly in the 1990s.”


EXPORT HEADWINDS

U-M economists also warn that “not all, however, is rosy” in the U.S. economy, given the economic volatility overseas and the strong dollar that hurts exports.

“The turmoil in financial markets earlier this year served as a reminder that the United States is not insulated from economic events in the rest of the world. Over the past year, several of our trading partners experienced weakness in their economies, prices for a wide range of globally traded commodities declined sharply, and the dollar appreciated substantially,” U-M economists wrote in their recent outlook.

Wage growth will also “rear its ugly head” and accelerate in 2016, driven by tight labor markets and new minimum-wage laws in many states, said Paul Isely, a professor of economics and associate dean of the Seidman College of Business at Grand Valley State University. The higher labor costs will cut into corporate profits and may contribute to inflation by the end of next year, Isely said.

That could also cause problems for the stock market during the year and for drawing foreign investments into the U.S., Isely said. Wage inflation could even cut a half-percentage point from the GDP in 2016, he said.

“We’re just starting to see it happen,” he said of wage inflation. “It’s going to cut into several things.”

U-M economists forecast growth of 4.4 percent in personal income in Michigan next year and 4.3 percent in 2017, versus 4.1 percent in 2015, “on the back of increasing strength in wages and salaries and proprietors’ income in 2016.”

Read 3086 times Last modified on Monday, 28 December 2015 10:27

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