ANN ARBOR ? University of Michigan economists issued a mid-year report that said the Michigan economy is beginning its third year of recovery after exiting a debilitating recession at the end of 2009. But revised data shows the recovery has been a little stronger than initially thought – a gain of 121,600 jobs over the past two years. The U-M economists see a sustained but moderately paced recovery from now through 2013.

The current year is off to a sizzling start with job growth in the first quarter reaching an annual rate of 3 percent, too strong to be sustained. We see growth backing off to a much more subdued pace for the rest of 2012, cumulating to job additions of 54,300 during the year. The pace of job growth picks up a tad during 2013 from its tempo over the last three quarters of 2012, but because of the strong initial quarter in 2012, the job gains are lower during 2013, coming in at 44,400.

The profile of the Michigan recovery is consistent with a U.S. recovery that carries on, but at a modest pace, and domestic nameplate vehicle sales that move up, but more slowly than they have recently. The dominant job providers are manufacturing, professional and business services (including temporary help), and health services. The big job loser continues to be the government sector. Local inflation spiked to 3.3 percent in 2011, spurred by a large increase in oil and food prices as well as rising prices for motor vehicles due to the supply disruptions following the Japanese disasters. More moderate increases in food and oil prices with fairly steady core inflation imply overall consumer price inflation of 2.5 percent for 2012 and 2 percent in 2013.

Personal income growth surged to 5.2 percent in 2011, reflecting in large part the considerable strengthening of the labor market then, including some of the higher-paid sectors. Income growth slows to 2.7 percent in 2012 as labor market growth reins in a bit and all of the major components of nonwage income also grow more slowly. Income growth ticks down in 2013 to 2.5 percent, as less rapid improvement in the labor market counters some pickup in nonwage income.

Real disposable income shrinks in 2012, declining by 0.3 percent, as considerably slower nominal income growth and the scheduled increase in Michigan taxes trump lower inflation and a smaller increase in federal taxes. Purchasing power flattens out in 2013.

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