University of Michigan economists remain confident that the state’s economy will hold up well over the next two years, even as U.S. economic growth slows and a potential mild recession looms.
While job growth in Michigan should continue in 2023 and 2024, it will likely do so at a slower pace “as Michigan avoids the brunt of the mild national recession we are expecting,” according to an updated state economic outlook issued today by the university’s Research Seminar in Quantitative Economics.
The outlook predicts employment in Michigan will recover to pre-pandemic levels by mid-2024.
“A more diverse state economy and a national policy mix that favors domestic manufacturing should propel Michigan to sustained growth over the next two years even as the external environment grows more challenging,” University of Michigan economists wrote in their updated outlook. “We believe that employment in manufacturing will be supported by large backlogs of demand in the auto industry, while job losses in construction will be cushioned by nonresidential projects and labor hoarding amid a tight job market.”
Job growth is expected to ease to 51,400 for 2023 and 45,000 in 2024. The state added 146,600 jobs in 2022, according to the outlook.
Michigan’s unemployment rate will slowly increase from 4.3 percent in the fourth quarter of 2022 to 4.7 percent by the middle of 2024, “as growth in the labor force outpaces job growth,” University of Michigan economists predict. The statewide unemployment rate “then ticks back down” to 4.5 percent by the end of 2024, per the outlook.
In an updated national economic outlook issued last week, the Research Seminar in Quantitative Economics forecasted a “mild contraction” in the U.S. economy in the second half of 2023 as consumer spending wanes.
Even so, auto sales should remain strong and grow from 13.8 million units in 2022, the lowest level in 11 years, to an annualized rate of 15.9 million units in the final quarter of 2024.
Michigan’s non-automotive manufacturing sector “will face a more challenging environment over the next two years” as the “consumption of goods begins falling in our forecast in the second quarter of this year and declines every quarter through the middle of 2024.”
The state labor participation rate that dropped in the pandemic and contributes to the tight labor market and labor shortage “continues its slow healing process,” but will remain below pre-pandemic levels, according to the University of Michigan economists. The labor participation rate inched up from 59 percent at the start or 2021 to 59.9 percent by the end of 2022. The rate was at 61.6 percent prior to the pandemic.
“We expect Michigan to continue to struggle with its aging populace and slow population growth,” economists wrote. “Michigan’s dwindling working age population represents one of the largest hurdles the state must overcome if it is ever going to get back to its all-time employment peak in the second quarter of 2000.”