A combination of factors came together in 2019 to take a bite out of Michigan’s economy.
The six-week General Motors strike, white-collar job cuts at GM and Ford early in 2019, a slowing manufacturing sector, and relatively flat auto sales collectively held back the state’s growth this year.
As 2020 approaches, Gabe Ehrlich and his colleagues at the University of Michigan expect the effects of those one-time factors to fade and the state to return to moderate economic growth after a “disappointing year” in 2019.
“The sun has kind of really stopped shining on Michigan’s economy this year, but we’re holding our own. We’re hanging in there and we do expect growth to pick back up over the next couple of years,” said Ehrlich, associate director of the University of Michigan Research Seminar in Quantitative Economics.
The University of Michigan’s most recent state outlook forecasts a return to a “moderate trend” in 2020 with 1.3 percent growth in state Real GDP, followed by 0.9 percent growth in 2021.
For 2019, the state’s Real GDP grew just 0.4 percent because of one-time events during the year, such as the GM strike that directly took 31,500 payroll jobs out of the economy this fall and generated spillover effects across the automotive industry’s supply chain, Ehrlich said.
That annual growth would be the lowest for Michigan since the Great Recession.
“I think the outlook is still good. We think a lot of those obstacles are temporary,” he said. “There were a lot of one-time things that we saw that we’re hoping we’re not going to see again over the next couple of years.”
However, a slowing manufacturing sector “is kind of the new normal” through 2021 for Michigan, Ehrlich said.
The University of Michigan projects employment to return to a “moderate but sustained” growth trend with the state’s economy generating 23,300 new payroll jobs in 2020 and 25,900 in 2021, according to the outlook. That’s about half the pace of job creation in 2017 and 2018.
Amid moderate economic growth, Michigan’s unemployment rate will remain low and dip further, and the labor market should stay tight. The University of Michigan predicts the statewide unemployment rate will inch down to 3.9 percent in 2020 and 3.7 percent in 2021.
As of October, unemployment in Michigan stood at 4.1 percent. Three of the four lowest county unemployment rates for the month were in West Michigan: Ottawa County, 2.3 percent; Allegan County, 2.4 percent; and Kent County, 2.5 percent.
‘A pretty good run’
Comerica Inc.’s most recent outlook also projects “cooler growth in the Michigan economy in 2020.”
Real GDP growth for the state should come in at 1.7 percent for all of 2019, which includes a hit in the fourth quarter stemming from the GM strike. Comerica projects Real GDP growth of just 0.5 percent for Michigan in 2020.
“Cooler auto sales late this year and early next year would contribute to near stagnant overall job growth for Michigan heading into 2020,” Comerica economists wrote in their outlook.
Given the combination of easing auto sales and a slower manufacturing sector from the uncertainty generated by trade tariffs, the state still should do OK economically in 2020, said Martin Lavelle, a business economist with the Detroit branch of the Federal Reserve Bank of Chicago.
“It’s reasonable to expect slow and steady growth in the state, but we may be a little more vulnerable given our still higher relative exposure to the manufacturing and goods-based side of the economy,” Lavelle said.
Lavelle hedges that expectation on whether consumer spending remains strong and unaffected “by these other issues that are kind of just hanging out there.”
The slower growth next year would follow a period from 2010 to 2018 during which Michigan outpaced other states based on the strength of the auto industry, plus its greater economic diversity, Lavelle said.
“We’ve had a pretty good run,” he said. “Overall, we’ve performed relatively well versus other states.”
In the Grand Rapids area, an annual outlook from the Kalamazoo-based W.E. Upjohn Institute for Employment Research projects moderate growth next year with slower overall job gains after years of solid expansion.
“The messages are a little mixed for next year,” said Jim Robey, the Upjohn Institute’s director of regional economic planning services.
In an economic outlook presented this month with The Right Place Inc., Robey projects 1.8 percent growth in total gross regional product for 2020 in the Grand Rapids area, off slightly from the expected 2 percent growth in 2019.
The service sector will lead the way with 2.2 percent growth in gross regional product after increasing 2.4 percent this year, Robey said. The region’s goods-producing sector is forecast to grow 1.1 percent in 2020, down from an expected 1.3 percent this year.
“We’re really looking at somewhat returning to trend. There’s been so much growth,” Robey said.
As economic growth in the West Michigan region eases, employment gains should wane as well. Service sector employment will continue to grow in 2020, albeit at a slower rate than in recent years, while manufacturing jobs should dip slightly. That will result in overall employment growth of 0.7 percent for the region that includes Kent, Ottawa, Barry and Montcalm counties.
The Upjohn Institute outlook expects goods-producing employment to decline 0.7 percent in 2020. Service-producing jobs in the Grand Rapids area should grow 1.1 percent, Robey said.
For 2021, Robey expects overall employment in the region to dip 0.1 percent, or by about 460 jobs, an amount he called “not that significant.” Goods-producing employment could decline by nearly 1,000 jobs in 2021, which should be partially offset by growth in the service sector, he said.
Across West Michigan, key indexes for sales, purchasing, production and employment all remained in negative territory for November, although each improved from the prior month, according to a survey of industrial purchasing managers in Grand Rapids and Kalamazoo released this month.
Short- and long-term business outlooks also improved from the prior month.
The long-term outlook among survey respondents for the next three to five years improved in November to a reading of 35, up 10 points from October. The short-term outlook for the next three to six months registered 11, which compares to a record-low of negative 2 for October.
Three cyclical manufacturing industries in West Michigan — the automotive supply chain, office furniture and aerospace — each appear to have peaked and are showing signs of weakening, according to Brian Long, director of supply chain management research at Grand Valley State University’s Seidman College of Business.
“So far that weakening in all three of these industries has been relatively stable,” Long said. “We are probably looking at a decrease of just a few percentage points and that’s what we are hoping will continue going forward here.”