Michigan’s economy is recovering from the pandemic-induced recession at a faster rate than previous downturns, but a surge in inflation and supply chain difficulties have soured perceptions of the economy.

Job growth has been healthy this year and is expected to continue over the next two years, and personal incomes are also expected to rise after large-scale government stimulus measures shielded them from the pandemic. However, high inflation will continue to reduce purchasing power, according to economists at the University of Michigan.

Gabriel Ehrlich

“All in all, this year’s economic performance offers a lot to be thankful for. As we look to the future, we expect the good news for the most part to continue, with an almost complete recovery by the end of 2023, ”said Gabriel Ehrlich, director of the research seminar at the ‘UM in quantitative economics, which has predicted the economy of the state for almost 50 years.

Ehrlich is co-author of the Michigan Economic Outlook 2022-2023 with colleagues Jacob Burton, Donald Grimes, Owen Kay and Michael McWilliams.

Job growth has recently been a bright spot in the recovery, with gains of over 50,000 jobs in the third quarter after a relatively disappointing 25,000-per-quarter pace in the first half of 2021. Growth is expected to moderate over the course of the year. quarters ahead, but economists forecast the number of paid jobs to be less than 0.6% of its pre-pandemic level by the end of 2023.

According to the researchers, this represents a much faster recovery than the one the state experienced during its long recession in the early 2000s.

Government support in the form of unemployment insurance and other benefits protected personal income from rising unemployment. Economists estimate that aggregate personal income in Michigan is currently about 5% higher than at the end of 2019. This is expected to continue to grow, putting personal income 17% higher in 2023 than before the pandemic.

Yet, they note, “stubbornly high inflation is a shadow on the face” of strong income growth during the recovery. Real disposable income, which takes into account taxes and rising prices, is only expected to be 3.1% higher at the end of 2023 than at the end of 2019.

The catalyst for the surges in producer and consumer prices are the supply constraints linked to the pandemic and the increase in demand. The Bureau of Labor Statistics reports that in October, prices for all urban consumers nationwide rose 6.2% year-on-year – the fastest rise since December 1990. MU economists measure local inflation by the growth rate of the Detroit Consumer Price Index, which indicates a similar story.

Other results in the forecast:

  • Unemployment: The state’s unemployment rate is expected to average around 6% in the last quarter of this year and the first quarter of 2022 before falling more rapidly over the remainder of next year. Unemployment is expected to average 5% by the end of next year and 4.5% by the end of 2023, less than a percentage point higher than the level before the pandemic.
  • Participation in the labor market: Economists expect conditions to start to improve seriously by the end of next year, as the public health situation improves to the point that vulnerable workers feel safe to return at work and caregiving responsibilities become more predictable. According to them, the rate of participation in the labor market is expected to drop from 59% at the start of next year to 60.4% by the end of 2023, still below the rate of almost 62% recorded at the end of 2019.
  • Automobile industry: Economists say that while the worst of the industry’s chip shortage appears to be over, other supply chain constraints could emerge. However, they say production and sales should start to improve. Economists predict that total light vehicle sales will rise from 13.3 million units in the third quarter to 13.8 million in the fourth quarter and then rise to 16 million next year. They remain optimistic that sales will exceed pre-pandemic levels in the second half of 2023, with sales of 17.3 million vehicles for that year. Researchers predict that the market share of the Detroit Three automakers has started to recover as supply constraints ease. Their share is expected to drop from a low of 33 percent in the second quarter of this year to nearly 40 percent in the same period next year. They expect Detroit automakers to account for 38% of sales by the end of 2023.
  • Industry Insights: Blue-collar industries have recovered nearly four-fifths of their job losses since the start of the pandemic, and economists expect them to return to their pre-pandemic levels by mid-July. next year and reach nearly 5% above this level by the end of 2023. Construction and wholesale trade, transport and utilities are believed to show the largest job gains in the area. The researchers note that manufacturing employment is also expected to recover completely, ending 2023 just under 2% more than before the pandemic. Jobs in low-educated services, such as retail and hospitality, plunged more than 30% at the start of the pandemic. They have recovered more than two-thirds of these losses but remain 10% below their level before the pandemic. Economists expect steady growth over the next two years, but employment remains about 5% lower than before the pandemic at the end of 2023.

“The pandemic has blurred the way we work, play, shop and travel,” McWilliams said, “and it will take time to fully recover. “

Economists say that “although Michigan’s economy has experienced some setbacks this year, we are still hopeful that the state will experience a near-complete economic recovery by the end of our forecast.”

“Our optimistic expectations come from our judgment that the 2019 economy was fundamentally healthy and that once the pandemic subsides those fundamentals will take the wheel,” they said. “Despite our optimism, the way forward will not be easy for everyone. The pandemic has had a particularly heavy impact on employment opportunities for less educated workers, and we foresee some difficult years for those seeking a first foothold in the labor market. “

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