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Published in Economic Development

Delta variant, microchip shortage to stall Michigan economy through 2021, according to University of Michigan economists

BY Friday, September 03, 2021 01:24pm

Michigan’s economy will feel the effects through the rest of 2021 from the coronavirus delta variant and the ongoing computer microchip shortage that’s been hindering automotive production, according to University of Michigan economists.

An updated economic outlook from the university’s Research Seminar in Quantitative Economics issued today says the state’s economy “shifted into a higher gear” during June and July with the addition of 458,000 jobs. That growth followed “three months in which the state’s job count did not grow.”

“Unfortunately, we expect the Delta wave of the COVID-19 pandemic to delay some economic growth into next year. The microchip shortages plaguing the state’s auto industry remain a major obstacle to Michigan’s economic recovery. A durable resolution to these problems is not yet in sight,” University of Michigan economists wrote in the updated economic outlook.

On the upside, the outlook projects that Michigan will still experience “solid job growth” in 2022 and 2023, recovering 98 percent of the jobs lost in the second quarter of 2020 during the onset of the COVID-19 pandemic.

“It is important in these frustrating times not to lose sight of the fundamental forces that we expect to drive the recovery over the next two years,” the economists wrote. “First, personal incomes have risen over the past two years, sustaining consumer demand. Second, labor demand is sky-high, with June’s job opening rate for the Midwest setting an all-time high. Third, macroeconomic policy is much more focused on restoring full employment than following the Great Recession.”

Earlier this week, University of Michigan economists issued an updated U.S. economic outlook that’s based on an assumption that “there will be a significant wave of COVID-19 infections this fall driven by the faster-spreading Delta variant,” although “we do not expect a return of widespread government restrictions on behavior.”

“We project a moderate deceleration of output and job growth in the second half of 2021 relative to the pace in the second quarter,” economists wrote in the national outlook.

The national outlook projects 5.5 percent Real GDP for the U.S. in the fourth quarter, and 5.8 percent for all of 2021. U.S. Real GDP should ease to 3.4 percent in 2022 and 2.4 percent in 2023, according to the University of Michigan outlook.

Economists predict core inflation will average 3.5 percent for 2021 and 3.4 percent in 2022 before easing to 2.4 percent in 2023.

“In the broader economy, many raw materials remain challenging to procure on time, partly because of transportation bottlenecks, exacerbated by a truck driver shortage. Many manufacturing and service industries report labor shortages, rising wages, and rising prices. Until supply chains stabilize, the pressure on producer and consumer prices is likely to continue,” according to the outlook.

U.S. light vehicle production is expected to run at 16.6 million units this year before growing to 17.3 million units in 2022 and 17.6 million in 2023.

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