Economist predicts sunnier days for Michigan
But auto industry won't power growth, he predicts

By KATHERINE YUNG
FREE PRESS BUSINESS WRITER

Michigan’s economy should grow by 3% or more this year and its unemployment rate will drop below 12.5% by year’s end, according to an economic forecast released this morning by Comerica Bank’s chief economist.

“Looking ahead, Michigan should do considerably better for awhile,” Dana Johnson wrote in his latest Michigan Economic Brief. “The economic recovery will work in Michigan’s favor, as it has in the past. And the adverse structural trends are not likely to be as bad if the auto manufacturing sector is becoming more competitive.”

The last time Michigan experienced positive economic growth was in 2005.

Since then, its economy has been steadily shrinking. Its real gross domestic product – the value of all goods and services produced in the state, adjusted for inflation – fell 1.5% in 2008, the most recent year for which such statistics are available. Only three other states fared worse.

In recent months, Michigan’s unemployment rate has stabilized, remaining flat at 14.1% in March. But it is still the highest in the nation.

Johnson noted that Michigan’s economy normally recovers more rapidly than other states during the early stages of a national economic recovery. The trend is occurring again this year, with Michigan getting a boost from the turnaround in the auto industry. Detroit’s automakers are expected to enjoy a double-digit increase in domestic sales this year.

But Johnson’s outlook was not completely rosy. He warned that after the rebound in auto sales ends, the state “is likely to revert to underperforming national growth by roughly 1% per year,” due to weak population growth or even possible population declines.

Johnson said that auto manufacturing will no longer power Michigan’s economic growth, unlike in previous decades. Due to the auto companies’ restructuring, only 3% of the jobs in the state are in auto and auto parts manufacturing, compared with 7% in 2000.

“New sources of economic leadership will be able to emerge so long as the car companies stop creating the huge headwinds that impeded the state’s economy over the past decade,” Johnson predicted.

Contact KATHERINE YUNG: 313-222-8763 or kyung@freepress.com.

Source: http://freep.com/article/20100426/BUSINESS06/100426035/1319/Economist-pr...