ANN ARBOR – The end of the UAW’s Stand-Up Strike removes a major risk confronting Michigan’s economy. There are certainly other risks on the horizon, but they are less localized, which in our assessment lowers the odds of a state-specific downturn here in Michigan, University of Michigan economists said in its semi-annual forecast.
The U-M economic outlook for Michigan therefore follows the same broad contours as its outlook for the U.S. economy over the next two years, with growth continuing, but at a slower pace than we have seen recently. U-M project statewide payroll job gains to moderate from 66,000 this year to 40,000 next year and 42,000 in 2025.
Its forecast takes Michigan’s payroll job count at the end of 2025 to its highest level since the third quarter of 2001. That level would be 3.6 percent below the state’s all-time peak reached in the second quarter of 2000. We expect Michigan’s unemployment rate to hover just above 4 percent during our forecast period; the local labor market remains tight despite moderating labor demand.
Michigan’s aging workforce and limited population growth will act as speed limits to job growth. Although the outlook for the labor market is largely sunny, high inflation continues to cast a shadow over our forecast. Local inflation has been running ahead of the national rate this year, and we expect that gap to persist in 2024 before both national and local inflation slow to the mid-2 percent range 3 by 2025.
Stubbornly high inflation will continue to whittle away at Michigan’s real income gains. Real disposable income per capita takes a small step back next year before growing at a 1.0 percent pace in 2025 as inflation subsides. Our forecast calls for real disposable income per capita to stand just 1.3 percent higher in 2025 than it did prior to the pandemic in 2019.
U-M forecast highlights the improving resilience of Michigan’s economy. The state has mounted a vigorous comeback from the pandemic recession in the face of severe supply chain shortages, high inflation, rising interest rates, and now a major strike in its marquee industry. We expect that the next two years should feature steady growth and declining inflation. We would classify that as a positive outlook for the Great Lakes State.
