Michigan’s economy is beginning to slow after a “previously vigorous economic recovery from the COVID-19 pandemic and subsequent expansion" — economist-speak for a growing economy.
Economists at the University of Michigan issued an economic outlook for 2024-2026 this week. It indicated that a loss of jobs and an increase in unemployment is a sign the economy has some cracks, although an unemployment rate of 4.4% is, historically, relatively good.
“We do expect the second half of the year to be more challenging for Michigan, with modest job losses and an increase in the unemployment rate,” said Gabriel Ehrlich, the director of the Research Seminar In Quantitative Economics at U of M.
Inflation has caused many people to feel the economy has been doing poorly for quite a while. Real disposable income per capita — purchasing power — has been down, even though wages have been rising, especially for workers at the lower end of the wage distribution. They’ve seen faster wage gains than higher earners. That’s actually encouraging to the economists.
“Even though we are projecting a little bit of a breather here in economic growth in Michigan in the second half of the year, we expect growth to return in 2025 and 2026,” Ehrlich said.
That’s because inflation has been slowing, “and that’s going to allow the Federal Reserve to pivot to cutting interest rates. And that should offer some relief to a lot of industries in Michigan," Ehrlich explained.
The Fed has been maintaining a tight monetary policy to try to get inflation under control and that’s meant interest rates have remained high.
When the Federal Reserve begins to lower interest rates, which is expected soon, that will give a boost to some of Michigan’s cyclical industries such as manufacturing, particularly automotive manufacturing, and the mortgage industry.
Michigan’s home prices greatly outpaced the national average between 2013 and 2021. Interest rates did not have as much of an impact on home prices in some of Michigan’s hot markets such as Grand Rapids, some areas of the Detroit metropolitan region, and Lake Michigan coastal areas. That combination has squeezed out a lot of homebuyers.
The U of M research seminar outlook notes that Michigan payroll employment peaked in 2000 and began to fall, then dropped dramatically during the 2007 Great Recession. Employment recovery from that point was disrupted by the COVID-19 pandemic. They past couple of years, payroll and household employment has been the highest it’s been since that point, but is leveling off.
Lower interest rates are expected to once again spark Michigan’s economy in 2025 and ’26, according to the researchers.
