Michigan Economic Update

In the summer of 2019, we intended to create an annual series of Perspectives articles updating our audience on the outlook for the Michigan economy. But, as the poet Robert Burns said, the best laid plans of mice and men often go awry.

In 2020, tracking the economic and market impact of COVID consumed our attention.

Now in 2021, with calmer markets and a clearer path forward on the virus, we will return in earnest to our focus on the Michigan economy. In this article, we will cover (1) the labor market, (2) the auto industry, and (3) home prices.

This article follows two important conferences that address the outlook for Michigan.

In mid-May, the state government’s House Fiscal Agency hosted the Consensus Revenue Estimating Conference. The unimaginative name belies the excellent information and forecasts provided by economists and auto industry experts. These forecasts help Michigan’s lawmakers establish the state budget and provide useful information to investment managers like Greenleaf Trust.

In January, the Detroit Branch of the Chicago Federal Reserve Bank hosted the Automotive Outlook Symposium. Economists from Ford and various industry research groups provided near-term outlooks for auto sales, production, and labor negotiations.

Let us begin with an update on the labor market.

Michigan’s Labor Market

Heading into the pandemic, the unemployment rate in Michigan reached a low of 3.7%. This was the lowest level since the late 1990s. 4.45 million Michiganders were employed.

In three months, from March to May 2020, employment fell to 3.4 million, a 24% reduction in jobs. The statewide unemployment rate peaked at 23.6%.

Today, the Michigan economy has recovered more quickly than the nation overall. The unemployment rate is down to 5%. Total employment has improved to 4.13 million. That is still 321 thousand fewer jobs, roughly 7% less, than pre-pandemic, but we are clearly recovering quickly. The key to a full recovery will be enticing participants back into the labor force, as the state’s labor force participation rate is currently 59.1%, below the 62% registered before the pandemic.

However, the recovery has been very uneven both in terms of sectors and geography. In particular, employment in the Leisure & Hospitality sector remains 21% below pre-pandemic levels.

Several counties have seen a full recovery already, but unemployment remains significantly above pre-pandemic levels in most regions.

Fortunately, in 2021 firings have been extremely low. Layoffs announced through the state’s WARN system total only 843 jobs, which is about 85% lower than a typical year.

In summary, there is a robust recovery underway in Michigan’s labor market. It will likely take several years to recover fully to the tight labor markets of 2019 and may hinge on continued progress in the auto industry.

The Auto Industry

COVID has driven significant volatility in the auto industry. In 2020, light vehicle sales fell 15%. Thus far in 2021, demand has rebounded, but production has been challenged by supply shortages, particularly in semiconductors. In addition, the long-standing trend of the new vehicle sales mix shifting away from cars and toward trucks continued through 2020 and 2021.

 

The Consensus Revenue Estimating Conference produced expectations of stable unit sales of 17 million in 2021, 17.1 million in 2022, and 17 million in 2023. In addition, the Big 3 (Ford, GM, and Fiat Chrysler) market share, which in the 1990s topped 70% of the domestic market, is expected to be stable around 40%.

So, looking forward, we expect stability from the auto industry. There is room for manufacturing job gains as production shortages normalize. However, it is evident that Michigan’s economy continues to diversify away from the auto industry and that is evident in the regional dynamics of home prices.

Michigan’s Housing Market

Home prices across the state increased by 5–10% in 2020 and 2021. Today, the Grand Rapids MSA has overtaken Ann Arbor as the state’s most valuable residential real estate market, notable because both markets are less reliant on the auto industry than regions in East Michigan. Zillow lists the median home value in Michigan at $208,300, up from around $150,000 in 2019.

There has been significant variability in home prices across regions in Michigan. In 2021, prices in every major region are higher than their pre-financial crisis levels. In Grand Rapids, nearly 50% higher.

Some of the catalysts for rising real estate prices may be behind us. Mortgage rates are unlikely to drop significantly below their 2021 range of 2.8%-3.2%. New housing supply is likely to catch up with rising demand in the coming years. We believe that job and wage gains will need to drive significant further appreciation. Fortunately, the outlook appears favorable for the labor market in the coming years.

Conclusion

Following significant disruption due to COVID, Michigan’s economy is normalizing. Unemployment is falling, wages are rising, and home prices are appreciating. Looking ahead, we expect the state to continue diversifying away from the auto industry as other sectors grow more quickly. We still have a long way to recover, and as we do, Greenleaf Trust will be here to serve our Michigan communities and to help our clients achieve their financial goals.

Sources:

Auto Sales: Bureau of Economic Analysis

Unemployment: Bureau of Labor Statistics Local Area Unemployment Statistics
https://www.bls.gov/lau/

Michigan Consensus Revenue Estimating Conference
http://www.house.mi.gov/hfa/Consensus.asp

Chicago Fed Automotive Outlook Symposium
https://www.chicagofed.org/events/2019/automotive-outlook-symposium

Layoffs: State of Michigan Workforce Development Agency
https://www.michigan.gov/wda/0,5303,7-304-64178_64179—,00.html

Home Prices: Zillow & Federal Housing Finance Agency Home Price Indexes
https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx