LANSING – It looks like the nation started pulling itself out of the recession sometime around the third quarter of last year, but it won’t be until the same time in 2011 that Michigan can expect to see modest job growth, economists said Monday during the Revenue Estimating Conference.
By the time Michigan recovers, 11 years will have passed and 895,000 jobs – one in every five – will have been lost, said George Fulton, director of the University of Michigan’s Research Seminar in Quantitative Economics.
“It’s going to take a while until people feel like we’re back to normal, whatever that means,” said RSQE Assistant Research Scientist Joan Crary. “We’re not out the woods yet, but the scariest stuff appears to be behind us (on the national level).”
While officials had hoped the state’s unemployment rate would come down off the cliff in 2010, it is likely to hover around 15 percent for most of the year, Fulton said.
Some of that is from the continued restructuring of the domestic auto industry, particularly General Motors and Chrysler, which emerged from bankruptcy in 2009. Sean McAlinden, executive vice president Center for Automotive Research, aptly titled his presentation “Picking Up the Pieces: The Year Ahead in Michigan’s Auto Industry,” and Mr. McAlinden noted how lucky the state was to have pieces to pick up.
While two of the three domestic car companies are out of bankruptcy, they continue to restructure their product lines and management, which all affect their capacity, he said. Michigan is probably experiencing the best-case scenario in terms of job impact post-bankruptcy, but that still means more job losses through the end of 2010 as auto plant closures are slated through 2013.
Although Ford was able to avoid the same fate as its Detroit counterparts, McAlinden noted the federal government’s heavy hand in the auto industry – more than $120 billion in financial support – will continue to influence the industry heading into the future.
The Center expects 12.5 million vehicles will sell in the United States in 2010, but the Detroit Three’s market share will continue to hover below 40 percent, McAlinden said.
Treasurer Robert Kleine asked whether the Center envisions the Detroit Three’s share moving above 50 percent again in the near future, but McAlinden said while he doesn’t believe so, he also hopes that is not the case.
“We have to make sure these companies are rock solid,” he said. “You do too.”
Ford’s share of the passenger vehicle market is almost matching its truck market share, which is a good sign, McAlinden noted, adding he hopes GM will start moving in that direction. But he said it will take convincing consumers GM and Chrysler are viable for the companies to remain competitive.
Senate Fiscal Agency Executive Director Gary Olson questioned why it is taking the auto companies so long to shutter plants when everyone knows the industry is downsizing. McAlinden said the car companies are still not flexible enough to totally change over product lines at assembly plants, although the pace of their reorganization has quickened.
Michigan also has to pay attention to the developments of the auto suppliers, which McAlinden described as “hibernating.” Fifty-four suppliers already have declared bankruptcy, but those who survive will be stronger, he noted.
THE U.S. ECONOMY: Growth in the economy returned in the second part of 2009, said Nigel Gault, chief U.S. Economist for IHS Global Insight, and employment in the United States is expected to revive in the first half of 2010.
But recoveries from financial crises always come slowly and the current recovery should be the same, he said.
Gault noted the federal stimulus added 2 percent of the country’s annualized economic growth, which will have to be made up in the private sector as the stimulus winds down. One of the most important components of the stimulus was its ability to prevent steep declines in state and local government spending, he noted.
And while employment figures usually lag the economy, Gault said the latest job numbers don’t account for the thousands of discouraged workers who will start reentering the labor market once things pick back up. He said productivity is at its highest, which means the next step for employers will be adding more work hours and hiring temporary help.
Nationally, housing starts have hit bottom, but prices have not quite fallen to their lowest point.
The new homebuyer tax credit helped to stabilize parts of the housing market, Crary said, but new home inventories are still small and the “shadow” of existing homes in foreclosure will persist for some time.
The two disagreed on where consumer spending stands with Gault noting it has stabilized, but is not a strong driver to the economic recovery, while Crary said consumer spending continues to be restrained because of high unemployment and job security concerns.
The upside to that has been an increase in personal savings, she said.
The country has shed about 700,000 jobs a month over the recession, Crary said, and while 1.2 million jobs are expected to be added in 2010 it will not be enough to make up for the losses. That will persist into 2011, she noted, when 2.7 million jobs are predicted to come back online.
Looking into the coming months, the economists noted the credit situation remains tenuous with the federal government winding down some of its programs and the private sector still having tight restrictions on the credit it offers.
MICHIGAN’S OUTLOOK: In going over his figures, Fulton said what should cause policymakers the most concern is that low-wage jobs grew more than middle and upper-income jobs, even among those with greater education.
Jobs requiring higher education held their own until the recession hit, with a 0.5 percent drop overall between 2001-08, but jobs requiring less education plummeted with a 14.2 percent drop. High-wage jobs with a low education threshold saw their starkest decline by 28.3 percent in Michigan.
Both total personal income and per capita personal income rose by 16.6 percent between 2001-08, but Michigan’s ranking has fallen from 20th in 2001 to 37th in 2008, Fulton noted.
“Georgia, Montana and Indiana are on our heels,” he said.
Personal income is expected to increase in 2010 by 2.3 percent and again by 1.7 percent in 2011, but that comes after a 1.8 percent decline in 2009 here in Michigan, he said. Real disposable income is also only up slightly in 2010 and expected to fall again by 1.9 percent in 2011.
With the state’s reliance on the domestic auto industry, 278,000 jobs were lost in 2009, which was the largest drop in employment since the 1940s. Fulton noted that as a percentage of the workforce there were more job losses in 1945 and 1958.
With all of this news, Fulton ended his presentation with the famous Edward R. Murrow line “good night and good luck,” noting state lawmakers should undergo a comprehensive retooling of the budget process in order to “stop making changes on the margin” year after year.
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