Published in Economic Development

U-M economists: State economy to limp through 2019, return to ‘healthier growth’ in 2020

BY Friday, October 11, 2019 11:31am

Michigan’s economic growth “slowed down considerably” during the spring and summer, although University of Michigan economists doubt the state is on track for a downtown in the next two years.

In an updated state economic outlook, U-M economists forecast the state’s Real GDP growth to “decelerate” to 1.4 percent for 2019 compared to 2.7 percent in 2018. The ongoing United Auto Workers strike against General Motors that’s now in its fourth week could cost the state economy 0.1 to 0.2 percentage points in Real GDP this year, according to the outlook issued on Oct. 4.

U-M economists note that the state’s payroll job count declined by 1,000 jobs in the second quarter. They estimate another decline of 900 jobs in the third quarter.

“Despite these headwinds, we do not believe that a major downturn is in store for Michigan at this time. We foresee the state economy limping through the end of 2019 before returning to a healthier growth path over the course of the forecast period,” economists wrote in the outlook from U-M’s Research Seminar in Quantitative Economics.

U-M economists base their outlook on the assumption the GM strike will last until mid-October.

Beyond this year, U-M projects the state’s Real GDP growth to continue to ease in 2020 at 1.3 percent and 1.1 percent in 2021.

The outlook projects Michigan will add 22,500 jobs this year and 20,400 in 2020, followed by 28,200 in 2021. That equates to annual employment growth rates of 0.5 percent to 0.6 percent.

In West Michigan, economist Brian Long’s monthly index of industrial activity for September showed marginal improvement over prior months. Three of the four key indexes — new orders, production and employment — inched upward last month from August. The index for purchases dipped into negative territory.

Long wrote in his monthly report that survey comments from industrial purchasing managers in Grand Rapids and Kalamazoo “continue to be cautious, although others are still reporting business conditions to be at an all-time high.”

“Just as last month, there is still no obvious event that could trigger a recession at this time, except if the China/U.S. trade war gets out of hand,” wrote Long, director of supply chain management research at the Grand Valley State University Seidman College of Business. “A sudden announcement that the U.S. and China have reached a long-term trade deal could spark a new round of growth, but speculation continues to build that the Chinese are holding out until after the 2020 election for a better deal.”

The September survey did find less short-term optimism about the economy. The index for three- to six-month outlooks fell from positive 10 in August to an all-time low of zero for September, “primarily because of pessimism in the news cycle and the feeling by many firms that the economy is starting to slow,” according to Long.

The long-term outlook for the next three to five years remained relatively stable and positive, Long reported.

In a Sept. 19 economic outlook for the U.S., U-M projected Real GDP growth to ease to 2.3 percent this year compared to 2.9 percent in 2018. Real GDP growth will further slow to 1.7 percent for 2020 and 1.6 percent in 2021, “as weak net exports and both nonresidential and residential investment dampen growth,” U-M economists wrote.

Light vehicle sales will steadily dip from 17.2 million in 2018 to 16.6 million units by 2021, according to the outlook.

A U.S. economic outlook issued last week by Comerica Inc. continued to project slower U.S. economic growth through 2021 amid “increasing evidence of a systemic cooldown in the global economy.” Comerica expects 2.2-percent growth in Real GDP for this year, followed by 1.9 percent next year.

Comerica estimates the probability of a U.S. recession within six months is 25 percent, and 45 percent within a year. That grows to 55 percent within two years and 64 percent within three years.

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