Published in Economic Development

Still growth, just slower: Lack of workers, plateauing auto sales to ease Michigan’s economic expansion

BY Sunday, December 25, 2016 07:35pm

Economists expect Michigan to maintain economic growth in the coming year, albeit at a slower pace that will further tighten labor markets.

Even with slower economic growth and a flattening of auto sales, unemployment in Michigan should fall further in 2017. The continued decline in the jobless rate will come as many employers report they’re already struggling to find qualified workers, a growing issue that could limit the state’s economic performance.

“That is a long-term constraint to how fast Michigan can grow in the future,” said Comerica Inc. Chief Economist Robert Dye.

In his most recent outlook for Michigan issued in mid-November, Dye predicted 1.9-percent growth in the state domestic product for 2017, versus projected growth of 2.4 percent this year. However, Dye expects unemployment will decline to 3.8 percent, which would compare to an estimated 4.6 percent for 2016.

Payrolls should grow by 1.4 percent in 2017 after increasing a projected 2 percent in 2016, according to the Comerica outlook for Michigan.

“I do expect overall job growth to remain positive but slower over the next year,” Dye said.

University of Michigan economists offer a similar outlook. They predict decelerating job growth of 0.9 percent the first half of 2017. State job growth “then creeps up to a fairly steady, moderate pace of 1.1 percent to 1.2 percent in the second half of 2017 and into 2018,” according to the latest outlook from the U-M Research Seminar in Quantitative Economics.

The state overall should gain 41,600 jobs during 2017 and 50,000 the following year, U-M predicts. 

“Those are smaller job additions than we have seen in recent years, consistent with a tightening labor market,” U-M economists wrote in their latest outlook.

The state was on pace to add 69,000 jobs in 2016, according to U-M economists.

Both across the state and in the Grand Rapids area, fewer employers answering a quarterly survey by Manpower Inc. expect to add staff in the coming three months. The number of companies that planned to trim their workforce remained low as well.

In the Grand Rapids-Wyoming metropolitan statistical area, 17 percent of respondents planned to hire in the first quarter of 2017, which compares to 23 percent going into the fourth quarter and 30 percent a year ago, according to the Manpower outlook. Just 7 percent planned to decrease staff in the first three months of 2017, versus 9 percent in the fourth quarter and 5 percent a year ago.

Statewide, 20 percent of the employers answering Manpower’s survey said they planned to add staff in the first quarter. That compares to 23 percent in the fourth quarter and 20 percent in the first quarter of 2016.

TECH DEMAND, OPTIMISM GROWS

An outlook for high-demand technology workers in West Michigan indicates hiring will remain steady or trend slightly upward through the first half of 2017.

Fifty-two percent of the roughly 100 companies surveyed by Holland-based Paragon Recruiting LLC said they plan to add tech staff in the first half of next year. Manufacturers accounted for 60 percent of those companies, up from 40 percent six months earlier, according to Paragon Recruiting.

“Everything’s very positive. There’s a lot of diversity (in tech hiring) in industry and services,” said Beth DeWilde, chief recruiting officer at Paragon Recruiting.

The one negative: a shortage of tech workers to meet demand, she said.

“There’s just a lack of people with the skillsets companies are looking for,” DeWilde said.

As 2016 headed to a close, a quarterly outlook by Business Leaders for Michigan found significantly higher optimism in the Michigan economy following the November presidential election. Sixty-two percent of members surveyed expect the state’s economy to improve over the next six months, which compares to just 8 percent at the end of the third quarter.

Looking longer term, 61 percent of Business Leaders for Michigan members forecast improvements in the state’s economy over 18 months, versus 24 percent three months ago.

AUTO LOSES STEAM

Two longer-term issues that concern Comerica’s Dye are the continued lack of population growth in Michigan that limits growth in the labor pool, and a slight easing or lack of growth in auto sales that are coming off highs over the past few years.

“We’re at sort of the top of the wave of auto sales for this cycle,” said Dye, who’s also concerned with plans by some automakers to start moving small vehicle production out of Michigan.

Comerica still projects 2017 auto sales of 17.5 million units, equal to 2016. That lack of growth in auto sales stalls a key driver for industrial job creation in Michigan as the state recovered from the Great Recession.

As a result, the manufacturing sector “loses a little energy as time goes on,” although Dye expects overall job growth “to remain positive but slower over the next year or so.”

U-M forecasts a dip in auto sales from 17.4 million units this year to 17.3 million units in 2017 and 17.2 million units in the following year. 

PNC Bank expects auto sales of 17.5 million units in 2017 and 17.4 million in 2018.

“We are not worried about it,” said PNC economist Kurt Rankin. “They’re coming down off the peak from last year. At some point, you can’t set a new peak every year. Everybody’s not buying a new car every single year.”

One positive for the auto industry is that consumers in the millennial generation are now getting to a point in their careers after college and the Great Recession where buying a new vehicle is “on the radar or at least possible.”

“So that’s something we can count on keeping vehicle sales strong in the U.S. in the coming years,” Rankin said.

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