A handful of economic outlooks and surveys signal that Michigan’s economy should continue on an upward trajectory for the second half of this year and into 2017.
But while the economic prospects remain generally positive, employers will likely continue to struggle to find the workers they need, a result of the tightening labor market from increased hiring and lower unemployment.
That’s according to Janis Petrini, owner of job-placement firm Express Employment Professionals of Grand Rapids, who hears regularly from clients that they could grow faster, if only they had access to the labor pool.
“What we’re seeing is that everybody is definitely in a great growth mode, but the part of not being able to sustain the growth is really the talent shortage,” Petrini said.
In a survey of Express Employment Professionals’ clients nationwide, 61 percent reported talent as their top issue, Petrini said. That’s the result in part of baby boomers retiring and the lowest labor force participation rate since 1977, she added.
“The sales are there, but the talent issue is sort of slowing the growth to more modest levels because they need people,” Petrini said. “Companies would love to have more people.”
Her observations were reinforced by the spring PNC Bank survey of small and mid-sized business owners in Michigan, which identified labor as a major issue as well. Thirty-five percent of respondents said they’re having a harder time finding qualified employees compared to six to 12 months ago.
Across Western Michigan, both PNC and Comerica Inc. predict further job growth through 2016 and into 2017, albeit at a slower rate than in the past two years. The job growth should drive lower unemployment rates and income gains as the labor market tightens across the state.
In a region of Central and Western Michigan that includes Grand Rapids, Kalamazoo, Battle Creek and Lansing, PNC Bank projects unemployment to decline to a rate of 3.5 percent for 2016 and to 3.4 percent in 2017. Unemployment in the region — which PNC labels as “Greater Michigan” — stood at 4 percent for 2015.
Comerica’s latest outlook for a similar geographic market projects an annualized unemployment rate of 3.4 percent this year and 3.2 percent in 2017. The report added that labor and housing markets in the region “are becoming very tight.”
JOB GROWTH CONTINUES
Locally, Grand Rapids “remains a bright spot in the larger Michigan economy, as its diversity and entrepreneurship show no signs of subsiding,” according to Comerica’s regional outlook.
Statewide, Comerica predicts an annualized unemployment rate decreasing from 5.4 percent last year to 4.4 percent this year, and it expects the rate to fall further to 4 percent in 2017.
Additionally, economists for the state also expect continued declines in unemployment. Both the Senate Fiscal Agency and House Fiscal Agency predict the statewide rate to be 5 percent for both this year and next year before falling slightly to 4.7 percent in 2018.
Michigan started the year with an estimated 3.4 percent growth in jobs for the first quarter, according to the University of Michigan’s Research Seminar in Quantitative Economics. Employment growth will pull back from “that unsustainably vigorous pace” in the January-to-March period to average 1.2 percent for the rest of the year, according to the most recent economic briefing by U-M economists. They expect expansion “to settle in at moderate growth of 1.3 percent during 2017.”
That growth will equate to a gain of 73,200 jobs across the state this year, “before tempering to 56,000 during 2017,” U-M economists wrote in their briefing. “We see at least two more growth years.”
PNC Bank projects employment in the Greater Michigan market to outpace the nation with growth of 2.8 percent this year, up from 2.2 percent last year. That compares with national employment growth of 2.1 percent last year and a slower 1.7 percent projection for 2016.
Additionally, nearly 20 percent of business owners responding to the PNC survey planned to add employees in the next six months — a higher rate compared to last fall and a year ago.
That hiring trend also held true in the spring survey conducted by the Detroit-based Business Leaders for Michigan, a statewide business roundtable. More than half of executives surveyed by the group projected their companies will add jobs and about one-third plan to make capital investments in Michigan over the next six months.
A QUESTION OF WAGES
The employment gains and a decline in the unemployment rate should create “plenty of momentum for wage growth over the coming year” across the market, according to PNC. Median household income across PNC’s “Greater Michigan” region sits below state and national averages except for in the Grand Rapids area.
However, “growth in wages has been exceptional thanks to a 4 percent unemployment rate that has competition for labor resources bidding up pay rates,” according to the bank’s economists.
Indeed, Comerica projects personal income in the Central West Michigan region to grow 5.1 percent this year and next year.
From Petrini’s perspective in working with clients at Express Employment Professionals, companies have started to modestly increase wages in the Grand Rapids area in the recent past. As employers seek to attract and retain workers, some companies are now examining their wage and benefits packages and putting more focus on training, she said.
“We have the challenge of shared prosperity. We have not seen a tremendous increase in wages, (but) we’ve seen a tremendous increase in business,” Petrini said. “The conversation is really starting about ‘what about the wages?’ The wages need to grow as the companies are growing.”
RISE OF THE SERVICE SECTOR
Most economic reports indicate Michigan should remain in a period of continued growth in the short term.
In its outlook, Comerica stated that Michigan’s economic climate “is broadly positive, as housing markets continue to gather momentum, while maintaining affordability, and job growth remains diverse.”
Comerica projects 1.8 percent growth in the state’s domestic product for all of 2016, up slightly from expansion of 1.7 percent last year. The institution expects the domestic product to grow 1.9 percent next year.
“Michigan is enjoying widespread prosperity, as prolonged strength in automobile sales and the broader manufacturing complex has acted as a great stabilizing force in the state. It is widely understood that the pace of this improvement in the manufacturing sector will subside, testing the strength of the diversity of the state economy,” according to the Comerica outlook. “In the coming year, it is the service sector, paired with improving real estate conditions, that will propel Michigan.”
CEOs across the state answering the spring survey by Business Leaders for Michigan anticipate modest economic growth over the next year and a half for the state. Eighteen percent of survey respondents forecast an improved economy in the next 18 months for Michigan, 18 percent expect a decline, and 64 percent believe it will remain flat.
For his part, Comerica Chief Economist Robert Dye said the service sector will drive more of the job growth in the state as the auto industry’s momentum peaks. Auto sales and production, which doubled since bottoming out in the Great Recession, will no longer drive job growth and economic expansion in the state as it has in the recent past, Dye said.
“We’re close to the high water mark for autos, so we’re not going to get another big push from autos going forward,” he said during a recent presentation to Comerica clients in West Michigan.