LANSING – Michigan, which has struggled economically for the entire decade, now has global company to share in its misery, economists told the state’s Revenue Estimating Conference on Friday, as the world is now entrenched in the worst economic slowdown since the end of World War II.
As bad as things have been, especially since the shocking financial collapse that struck markets and the economy in the fall, it will actually get worse during the first part of 2009, the economists said. The national economic situation may begin to turn around in the latter part of 2009 but only if a massive federal stimulus package is enacted, they said.
If no stimulus package is adopted then the recession could last for several years, the economists said.
But presuming a stimulus plan is adopted, the economists acknowledged, it would drive up the federal budget deficit to unsustainable levels over the long-term. While the nation could handle deficits exceeding $1 trillion for a few years, the federal government would have to attack those levels once the economy recovers and the only practical way to do so would be to raise taxes, they said.
Even given the decade-long economic malaise Michigan has suffered, the forecasts were morbidly melancholic, especially if one remembered that a decade ago then Treasurer Mark Murray had trouble believing the state was generating such an enormous amount of revenue in that boom economy (that year general fund revenues approached $9.8 billion, more than $2 billion more than the amount anticipated in 2009-10).
Gary Olson, Senate Fiscal Agency executive director, said he had participated in every one of the Revenue Estimating Conferences and Friday’s report was the most depressing he had ever heard. Still, he said the state would survive and that as quickly as things have gone bad they also could turn around quickly.
Treasurer Robert Kleine echoed that sentiment. “It’s hard to be optimistic particularly in light after today’s news,” he said. But there still was reason to be optimistic, he said, since historically and practically banks would have to begin lending the money they have stashed and the stock market would begin to turn around.
Even the auto industry had some glimmer of hope, he said. While sales were down considerably in recent months, the domestic share of auto sales had actually increased slightly, Kleine said.
Clearly the bad economic news was not taking a holiday for the conference. The conference convened just an hour after the U.S. Department of Labor announced the country lost more than 500,000 jobs in December, which pushed the national unemployment rate to 7.2 percent.
And the ongoing bad news had forced changes in forecasts. George Fulton of the Research Seminar in Quantitative Economics at the University of Michigan said in 2009 the state would lose an estimated 191,000 jobs and another 61,700 in 2010. But not even two months ago at the RSQE’s annual forecast conference in Ann Arbor he had projected job losses of 108,000 in 2009 and 24,000.
By 2011, he said, the state could finally see modest job growth. But by then the state will have shed 757,000 jobs since 2000. During the boom of 1991-2000, the state had grown 793,000 jobs.
The 16.1 percent job loss that represents exceeds even the 14.6 percent job losses the state saw from 1979-1982, he said.
In the critical auto industry, the Big Three domestic automakers are forecast to sell 4.6 million cars and trucks in 2009, with the number increasing to 5.1 million in 2010, Mr. Fulton said.
But in 1981 and 1982, the domestic industry sold 7.6 million cars (and had a market share approaching 80 percent) and there were 70 million fewer people in the United States, Fulton said.
By 2010 in Michigan the auto industry will employ one-third the number of people it employed in 2000, he said.
Nigel Gault of the international forecasting firm Global Insight said the economy is now in “free fall.”
Housing starts nationwide are projected to total just 600,000 in 2009, he said. They have not dropped below 1 million since 1945.
Lee Schwarz with the Michigan Home Builders Association said at a separate event that the group was projecting fewer than 10,000 housing starts in the state this year. In 2005 there were 53,000.
The collapse in the stock market tied with the collapse in home values means that in 2008 U.S. households lost an estimated $12 trillion worth of wealth, he said.
The precipitous decline is forcing extreme changes in behavior. For example, he said, that the personal savings rate, which had hovered around 1 percent for several years, is anticipated to jump to 5.7 percent this year. But “the paradox of thrift is if everyone tries to save the economy declines even more,” he said.
Helping the economy would be a continued decline in oil prices, which Gault said would continue to stay relatively low despite turmoil in the Middle East because of the global drop in demand. That will act as a practical tax cut worth $250 billion to American consumers.
But the figures that struck three members of the estimating conference as among the most depressing were the estimates of school populations. In May the state had estimated a total public school population of 1.626 million.
On Friday, they accepted an estimate for 2008-09 of 1.620 million students. But for 2009-10 they estimated a total school population of 1.591 million.
While some of that decline was due to demographic factors such as larger high school classes and smaller kindergarten classes, part of the factor now clearly was parents being forced to leave the state looking for work.
Olson said the drop in student numbers was unprecedented for the state.
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