How Tight is Michigan’s Labor Market?

By Martin Lavelle

Michigan’s labor market continues to recover from the Great Recession that ran from December 2007 through June 2009 and its own recession that started four years prior to that. Michigan’s unemployment rate peaked at 14.9% in June 2009, coinciding with the end of the Great Recession. Since that time, Michigan’s unemployment rate has dropped steadily, reaching 4.5% in August 2016. The last time Michigan’s unemployment rate was this low was in January 2001, just before the much shorter and milder 2001 recession. (1)

While Michigan’s current labor market expansion isn’t the longest in its history, (2) the fact that the state’s unemployment rate is now lower than that of the nation makes one wonder how much longer it can last. The superior performance of Michigan’s Southeast and Western Michigan Purchasing Managers indexes relative to the U.S. measures and recent indications that auto sales may have plateaued also imply that Michigan’s labor market expansion may be near a turning point. This blog examines some of Michigan’s labor market indicators to assess whether Michigan’s labor market is at or near “full employment.”

Chart: Unemployment Rates, Annual Averages: U.S., Michigan
Source: Author’s calculations using data from the Bureau of Labor Statistics.

The chart above shows the annual averages of the U.S. and Michigan unemployment rates, respectively. Since 1976, Michigan’s unemployment rate has generally been higher than that of the U.S., especially during the Great Recession and the severe 1981–82 recession. The two instances in which Michigan’s unemployment rate fell below that of the U.S. came during the mid to late 1990s and in recent months. The fluctuation in Michigan’s unemployment rate helps to show the cyclical nature of the state’s economy, driven by the manufacturing sector, specifically the automotive industry. The lows in Michigan’s unemployment rate came during boom times for the automotive industry and the highs came during rough times. Light vehicle sales volumes hit all-time highs last year and are just below those levels year-to-date in 2016. The majority of auto analysts feel that light vehicle sales will continue to slightly fall off of their 2015 highs in the next couple of years. With the automotive industry having peaked, does that mean Michigan’s labor market has peaked as well?

Historically, another sign of a tightening labor market are increasing wages and salaries. The chart below plots the unemployment rate versus workers’ total wage and salary income in the state.

Chart: Annual Wage & Salary Growth vs. Annual Average Unemployment Rate: Michigan
Sources: Author’s calculations using data from the Bureau of Economic Analysis and Bureau of Labor Statistics.

Over the past 40 years, changes in wage and salary income have led changes in the unemployment rate. Michigan’s unemployment rate reached its previous low in 2000, a few years after the rate of growth in wage and salary income peaked. Wage and salary income growth in Michigan bottomed out in 2008, the year before Michigan’s unemployment rate peaked. As Michigan’s unemployment rate decreased after the Great Recession, wage and salary income consistently increased, accelerating in the last two years following some slowing in 2012–13. The pace of wage and salary growth edged higher in 2015 versus 2014, signaling further tightening in Michigan’s labor market. Despite the increase in wages and salaries, however, data from the Bureau of Economic Analysis show that per capita income in Michigan remains about 12% below the national average. Since 1980, per capita income in Michigan has typically been lower than in the U.S. as a whole.

When looking at wage pressures by sector, the story becomes more muddled. The chart below examines the year-over-year percentage change in wage pressures in select employment sectors in Michigan.

Chart: Average Hourly Earnings of Michigan Production Employees by Employment Sector, Year/Year Percentage Change, Not Seasonally Adjusted
Source: Author’s calculations using data from the Bureau of Labor Statistics.

Michigan’s manufacturing sector, especially the automotive sector, led the state into the recovery it currently enjoys. However, after increasing in 2010, wages started to fall during 2011 and into 2012 as the new labor contract with the United Auto Workers (UAW) that created a lower, 2nd tier of wage ranges took effect. (3) After rebounding in 2013–15, wages are lower thus far in 2016 than in 2015, possibly because of the 2015 UAW contract that created a lower starting point for entry-level full-time workers. (4) Plateauing production volumes as light vehicle sales level off may also be a reason for lower wages in 2016.

Some sectors do support the full employment argument with their accelerations in recent months. Since the latter half of 2015, wages have moved higher in the construction and professional and business sectors, respectively. Labor shortages in building construction and within the engineering and information technology fields of the professional and business services sector have helped to create conditions for higher, more competitive wages. Wage increases have persisted in the retail trade sector since 2013. Competitive pressures from McDonalds and Walmart, as well as legislatively mandated increases in Michigan’s minimum wage, have contributed to higher wages in the retail sector. (5)

When a labor market tightens, it also means workers are increasingly hard to find. One unique characteristic of the current labor market recovery is the elevated level of those working part-time for economic reasons or involuntary part-time workers. The chart below shows what percentage of the labor force is comprised of involuntary part-time workers.

Chart: Part-Time Employment as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
Sources: Author’s calculations using data from the Bureau of Labor Statistics.

As labor markets expand, the percentage of the labor force that is working part-time falls. In Michigan and the U.S., the percentage of the labor force that is working part-time continues to be higher than during the previous labor market expansion. Interestingly, the difference between the part-time segments of the labor force in Michigan and the U.S. has shrunk after widening in the months leading up to and the year after the conclusion of the Great Recession. Another interesting point is that the gap between Michigan’s current percentage of the labor force that is working part-time and the percentage working part-time in the 2000s is narrower relative to the U.S. This could mean one of two things. One possibility is part-time workers in Michigan are finding increasing success in gaining full-time employment. An alternative possibility is part-time employment was elevated during the 2000s and Michigan’s one-state recession. Therefore, part-time employment as a percentage of the labor force would have been expected to fall since the mid-2000s.

In a tightening labor market, those who found themselves unemployed for a long period of time should find their way back into the workforce. The chart below looks at the percentage of the labor force that was unemployed longer than 15 weeks.

Chart: Unemployed Civilians for longer than 15 weeks as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
Sources: Author’s calculations using data from the Bureau of Labor Statistics.

Mirroring the previous chart, Michigan had a greater percentage of its labor force unemployed for more than 15 weeks than the U.S., most likely a result of Michigan’s recession in the previous decade. After peaking in the 2nd quarter of 2010, the percentage of Michigan’s labor force unemployed for more than 15 weeks fell and now equals that of the U.S. Are more previously long-term unemployed workers finding work or are they dropping out of the labor force altogether? Looking at the next chart, which shows the labor force participation rates of the U.S. and Michigan, respectively, we see that Michigan has seen a higher net increase off its lows than the U.S.

Chart: Labor Force Participation Rates: U.S., Michigan
Source: Haver Analytics/Bureau of Labor Statistics.

Finally, what about discouraged workers? If a labor market is tightening, the number of discouraged workers should be decreasing. The chart below shows discouraged workers as a percentage of the labor force in the U.S. and Michigan, respectively.

Chart: Discouraged Workers as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
Source: Author’s calculations using data from the Bureau of Labor Statistics.

Again, the same dynamics are in play from 2003 through the end of the Great Recession, with Michigan’s labor market relatively worse off because of its one-state recession. As shown in the previous chart, the gap between Michigan and the U.S. converged and is now all but eliminated. The current percentage of Michigan’s labor force that consists of discouraged workers equals that seen during the mid-2000s, whereas the U.S. hasn’t reached mid-2000s levels yet.

A strong argument can be made that Michigan’s labor market is at full employment. The unemployment rate is currently below that of the U.S. and nearing historical lows. Also, wage and salary growth is at its highest in almost 20 years, labor force participation is off its post-recession lows, and data focused on the marginally attached to the labor force in different ways indicate those numbers are near or at trend. Some anecdotal reports support the argument as well. Multiple firms have instituted significant wage and salary increases in order to keep their most talented employees, while others are giving prospective employees a second look after rejecting their original job inquiry. Finally, with the auto industry operating at peak production levels and historically high sales levels and the state still significantly dependent on the auto industry, Michigan’s robust labor demand growth may be coming to an end.

(1) We are addressing labor market tightness here, not growth rates, not restoration of past levels of labor force size. Out-sized outmigration of working age population in response to the state’s prolonged downturn in the last decade is being held in the background.
(2) Based on BLS data going back to 1976.
(3) See
(4) See
(5) See

Are Baby Boomers and Millennials Moving Back into Michigan’s Cities?

By Martin Lavelle

Currently, the two most often talked about demographic groups in the U.S. are baby boomers, those born from 1948 to 1964, and millennials, those born from 1981 to 1999. Even though they’re separated by Generation X, baby boomers and millennials have at least one thing in common: their increasing desire to live in cities. Some baby boomers who are also empty nesters feel the best way to stay active is to partake in city life where there’s always something happening. Many millennials prefer city life for the chance to live near a large group of young singles, in effect continuing their college experience.

Michigan offers three urban experiences that rival any in the U.S., with each experience unique in its own way. Detroit is in the midst of looking more like a typical U.S. big city with a light rail line and entertainment district featuring the new Detroit Red Wings arena set to begin operation next year. Also, the construction of additional bikeways, especially popular with millennials, should complement the city’s riverwalk, thriving restaurant scene, and historically renowned Eastern Market.

On the other side of Michigan lies Grand Rapids, whose comeback is a little further along. The transformation of Grand Rapids’ abandoned furniture plants into apartments helped persuade people to relocate downtown, allowing ventures like the city’s ArtPrize competition to succeed.

Finally, there’s Ann Arbor with its blend of unique restaurants and boutique shops located around the University of Michigan. The university’s reputation of drawing young talent has helped persuade nascent entrepreneurs and firms to locate in the area, leading to a building boom that has significantly increased Ann Arbor’s downtown residential inventory.

Is the renewed interest in Michigan’s downtowns, specifically from baby boomers and millennials, translating into population increases in those three cities? A recent blog by Kolko showed that since 2000, baby boomers and millennials have been moving back into downtowns in significant numbers. This blog will look at how the characteristics of the aforementioned cities’ populations have changed recently.

Population Changes

This analysis will compare population changes using Census data from 2000 and 2014. During that time, if we look at the central city area, Ann Arbor saw a small increase (3.3%) in its total population, while Grand Rapids saw a small decrease (-2%); Detroit suffered a substantial decline (-28.5%) in its total population. Looking at each city’s greater metropolitan area, Ann Arbor (1) and Grand Rapids (2) showed double digit increases of 10.5% and 10.4%, respectively, while Detroit (3) experienced a 4.1% decrease in its population. Given the changes in overall population, can we say that baby boomers and millennials (and groups that share their characteristics) are moving back into the cities?

In the chart below, population by age group, we see that young adults (15-24) make up an increasing share of Ann Arbor and Detroit’s population. At the other end of the age spectrum, in all three places and in their respective metropolitan areas, the baby boomer and silent (aged 75+) generations experienced increases in both of their population shares.

Chart 1: Change in Population Share by Age Group, 2000-2014: Ann Arbor, Detroit, Grand Rapids

Chart 1: Change in Population Share by Age Group, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

As the next chart indicates, 20-34 year olds (millennials) now comprise a greater share of Grand Rapids’ central city population, the opposite of what’s occurred in the Grand Rapids metropolitan area. Ann Arbor’s population share that consists of millennials registered a small increase, also the opposite of what’s taken place in Washtenaw County. Meanwhile, 55-74 year olds (baby boomers) moved back into all three cities (and metropolitan areas). Ann Arbor and Detroit now have a higher percentage of those from the silent generation within their city borders.

Chart2: Change in Population Share by Demographic Group, 2000-2014: Ann Arbor, Detroit, Grand Rapids

Chart 2: Change in Population Share by Demographic Group, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

The next chart looks at changes in population by education level. Grand Rapids saw a small increase in those with some college experience and a substantial increase in college graduates. In contrast, Washtenaw County saw a modest increase in those with some college experience and a significant increase in its college-educated population, the opposite of what occurred in the city of Ann Arbor. In Detroit’s central city, there were declines in both categories, whereas the Detroit metropolitan area saw a significant increase in those who had at least obtained their bachelor’s degree.

Chart: Change in Population by Educational Attainment, 2000-2014: Ann Arbor, Detroit, Grand Rapids Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Chart 3: Change in Population by Educational Attainment, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

The next chart focuses on the number of families presently living in cities. Grand Rapids saw a small influx of families with no children while that number remained relatively similar in Ann Arbor. Both metropolitan areas witnessed robust increases in the number of families without children. Detroit witnessed a massive outmigration of families with children of all age groups from both its central city and metro area. Ann Arbor and Grand Rapids saw significant, but less severe, declines in families with children. In their metro areas, Grand Rapids experienced small increases in families with older children and families with young and old children, while Ann Arbor experienced a moderate increase in families with older children.

Chart: Change in Number of Families by Family Type, 2000-2014: Ann Arbor, Detroit, Grand Rapids Source: Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Chart 4: Change in Number of Families by Family Type, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

The next chart looks at population share by race. All three cities saw increases in their Hispanic population, the largest occurring in Detroit. In contrast, all three cities saw decreases in their White population, though Detroit’s was small compared with the decrease in the metropolitan area’s white population. More recent census data suggests that Detroit’s White population increased in 2014 for the first time since the 1950 Census. (4) The Asian-American population grew in Ann Arbor and Detroit, while the African-American population increased in Grand Rapids.

Chart 5: Change in Population Share by Race, 2000-2014: Ann Arbor, Detroit, Grand Rapids Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Chart 5: Change in Population Share by Race, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

The final chart looks at household income. Since 2000, the population in Ann Arbor and Grand Rapids has increasingly comprised middle- to high-income earners. At the county level in both metro areas, the income distribution has shifted even more toward the higher end. Meanwhile, Detroit’s population still consists of mostly low- to middle-income earners. Comparatively, the counties that make up Detroit’s metropolitan area (5) have seen their income distributions shift away from the middle income brackets toward the low and high ends.

Chart 6: Change in Population Share by Income Decile, 2000-2014: Ann Arbor, Detroit, Grand Rapids Note: 1 is the highest income decile (greater than $200,000); 10 is the lowest income decile (lower than $10,000). Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).

Chart 6: Change in Population Share by Income Decile, 2000-2014: Ann Arbor, Detroit, Grand Rapids
Note: 1 is the highest income decile (greater than $200,000); 10 is the lowest income decile (lower than $10,000).
Source: Author’s calculations using data from 2000 Census and 2014 American Community Survey (ACS).


There is some evidence that three of Michigan’s most attractive and best-known cities are successfully attracting millennials and baby boomers. By age group, baby boomers and multiple segments of the millennial cohort now comprise a higher share of the populations of Ann Arbor, Detroit, and Grand Rapids. The picture becomes less clear when looking at changes in population by educational attainment and income, with Grand Rapids and Ann Arbor drawing a higher-skilled citizenry.
The most telling chart for me is the one concerning changes in family structure. The number of families with no children grew slightly in Grand Rapids, stayed the same in Ann Arbor, and significantly decreased in Detroit, though at a lower rate than the overall population decline during that time. While those trends are somewhat encouraging, the trends describing changes in the number of families with children are discouraging. Families with school-age children moved out of each of the three cities at relatively high rates, and we saw increases in families with children in the Ann Arbor and Grand Rapids metropolitan areas. The presence of families in cities signals an acceptable standard of living to those considering moving into cities from suburban areas, providing opportunities for cities to grow their populations and thrive.



(1) Ann Arbor’s metropolitan area consists of Washtenaw County.
(2) For overall population and population by race figures, the Grand Rapids metropolitan area consists of Barry, Kent, Montcalm, and Ottawa counties. Otherwise, the Grand Rapids metropolitan area consists of Kent and Ottawa counties because of the availability of data.
(3) For overall population, population by race, and educational attainment figures, Detroit’s metropolitan area consists of Lapeer, Macomb, Monroe, Oakland, St. Clair, and Wayne counties.
(4) See
(5) For household income, Detroit’s metro area consists of Macomb, Oakland, and Wayne counties because of the availability of data.

Agriculture and the Economy: A View from the Chicago Fed

written by: Paul Traub

On Thursday, May 12, 2016, members of the Detroit Association for Business Economics (DABE) attended a presentation entitled “Agriculture and the Economy: A View from the Chicago Fed” by David Oppedahl, senior business economist, Federal Reserve Bank of Chicago. Oppedahl highlighted key trends in agriculture and their relationship to the broader economy. Farming and manufacturing of food and bioproducts comprise around 4% of the Seventh District’s economic activity in 2013. And this share has been growing in the past decade.

However, over the past century, agriculture has seen dramatic declines in terms of the number of farms and their workers. These trends have been mirrored more recently in the loss of manufacturing jobs. These changes have been difficult for the Midwest, which has a higher than average concentration in these sectors. Still, there also have been some economic advantages to the region as a result of booming productivity. For instance, corn and soybean yields per acre have about doubled in the past half century.

Productivity improvements have generated more than a doubling of agricultural output (given similar level inputs) since around 1950, meaning U.S. consumers have had to spend less and less on food—from 28% of spending in 1950 to 13% in 2015. At the same time, however, spending on health care has been rising, such that the total consumption of food and health care has remained fairly steady at roughly one-third of consumer spending. An argument can be made that as eating habits became less healthy in the second half of the twentieth century, there was a substitution into spending more on health care than food. So, today’s efforts to promote healthier eating in the U.S. and to grow farm income from local and organic foods in essence aim to turn back the clock on personal consumption patterns.

Another key aspect of agriculture is the role of exports as a vital boost to the income of U.S. producers. In 2015, 13% of the District states’ exports were of food and agricultural products (versus 8.5% for the nation). Until 2014, U.S. agricultural exports had been growing rapidly, in large part due to the expansion of markets in Asia. But in 2015 there was a decline in agricultural exports as the strength of the U.S. dollar and slower economic growth abroad contributed to a narrowing of the nation’s trade surplus in agricultural trade.

Not only has the slowdown in exports affected the profitability of agriculture, but there also has been a compression of profit margins as many prices for agricultural products have fallen more than input costs in the last two years. The USDA projects that net farm income for the sector will fall for a second consecutive year in 2016. This downturn has hit the Midwest hard, as seen in lower farmland values and cash rental rates (see latest issue of the Federal Reserve Bank of Chicago’s quarterly AgLetter). On November 29, 2016, the Federal Reserve Bank of Chicago will hold a conference to examine the agricultural downturn in the Midwest and discuss future directions for farming. Additional information about the conference will be released in the coming months on

To view Oppedahl’s slides from his Detroit presentation, please click here.

Summit on Revisiting the Promise and Problems of Inner City Economic Development, Day 1: Setting the Stage by Focusing on Detroit

by Martin Lavelle, business economist


In partnership with, the W.E. Upjohn Institute for Employment Research, Economic Development Quarterly, SAGE Publications and the Initiative for a Competitive Inner City (ICIC), the Detroit Branch of the Federal Reserve Bank of Chicago hosted a two-day summit on September 15–16, 2015, that studied ongoing economic development efforts within inner city neighborhoods. Experts from academia joined practitioners to discuss new research and programs that have appeared and evolved in recent years. In this blog entry, I will focus on the first day of the summit, which zeroed in on Detroit and its revitalization efforts.

Putting Detroit into Context

William Sander, professor of economics, DePaul University, and consultant, Federal Reserve Bank of Chicago, and William Testa, vice president and director of regional research, Federal Reserve Bank of Chicago, began the conference by providing insight into Detroit’s population and economy, respectively. Sander noted that in the middle of the twentieth century, many large cities in the United States started to lose population to surrounding suburban communities. Detroit was no exception to this trend: It had lost around two-thirds of its population since the 1950s. However, many cities have begun to grow in recent years, becoming increasingly attractive to college-educated households; this improvement in the business environment helps attract individual firms, supporting the assertion of Harvard economist Michael Porter that cities are ideal locations for industry clusters and other economic activities.(1)

According to Sander, despite the recent movement of some college graduates into Detroit’s trendy Downtown and Midtown neighborhoods, college graduates only make up 12% of Detroit’s population, compared with 34% in Chicago. Then, Sander pointed out that only 10% of 20-something college graduates in the Detroit metropolitan area live in the city of Detroit and that 22% of 20-something college graduates who live in Detroit also work in Detroit. Sander shared his statistical comparison of Chicago and Detroit, which found that households in the Chicago metropolitan area are more likely to live within the city limits than households in the Detroit region. Also, college graduates in Chicagoland are more likely to live in the city than in the suburbs, whereas the opposite is true for college graduates in Metro Detroit.

Testa showed the significant stress Detroit’s economy was exposed to during the 2000s. Similar to other manufacturing-centric cities, such as Pittsburgh, Buffalo, and Cleveland, Detroit experienced slower overall employment growth relative to other Midwest cities that possess more of a service-based economy. However, despite its losing millions of units of production in recent years to other vehicle-producing areas, Detroit (and Michigan in general) remains a destination for automakers and suppliers because of its concentration of facilities and talent. Although the Detroit region will most likely continue to contain a significant automotive cluster, employment levels will most likely fail to reach 2000 levels because of firms’ ability to produce more with fewer workers.

Testa argued that the Detroit economy needs to continue building on its automotive cluster while also diversifying into other sectors in which it may own competitive advantages. Those other sectors include logistics, engineering, and business services. Testa noted that multiple regional economic development corporations are trying to take advantage of Detroit’s growing tech sector in ways that other regions and states have for themselves (e.g., Silicon Valley). Such efforts have resulted in improved per capita income and quality of life for residents.

Current State of the City

Summit attendees also heard from Susan Mosey, executive director, Midtown Detroit, Inc., Martin Lavelle, business economist, Federal Reserve Bank of Chicago–Detroit Branch, and John Gallagher from the Detroit Free Press on where Detroit currently stands in its revitalization attempts. All of them expressed great enthusiasm for the efforts that have taken place so far, as well as optimism for what’s to come. Since Detroit filed for bankruptcy in July 2013, a regional lighting authority was formed and began to replace old streetlights with new LEED(2) streetlights, a regional water & sewer department authority was formed to improve the efficiency of water/sewer operations, emergency response times have improved,(3) new transit buses were purchased,(4) and programs to address Detroit’s aging housing stock(5) and blight(6) were introduced.

Significant investment was already occurring in Detroit’s Midtown neighborhood before Detroit filed for bankruptcy, and it has only accelerated since. Mosey showed the different kinds of development projects that have been completed and those now in the planning stage. Until recent months, Midtown Detroit, Inc., has focused on renovating existing space into mixed-use properties with retail space on the ground floor and residential space above it. With residential occupancy rates at almost 100% and consumer demand still high, new building projects such as businessman Dan Gilbert’s planned Brush Park project(7) are set to take off, Mosey noted.

icic_lavelle image 2Image 1: Chicago Fed Business Economist Martin Lavelle presenting at the Summit. Photo taken by Bill Testa.

Still, as I noted at the conference, Detroit’s revitalization efforts must overcome many challenges. The investment taking place in Detroit is occurring in only select neighborhoods. The majority of Detroit’s neighborhoods are plagued by low home values, which dissuade potential new residents from moving into them. Also, concerns over the quality of public services and schools remain deterrents to population increases. Another hindrance is the absence of a more extensive, intermodal public transportation system that would better serve and connect Detroit residents with potential places of employment and the surrounding area in general.

Detroit: Up Close and Personal

One of the attractions of the summit was the chance for attendees to take a tour of some of Detroit’s areas. Along with representatives of Midtown Detroit, Inc., the Chicago Fed‘s Detroit Branch staff (including Desiree Hatcher, community development and Michigan director, Community Development and Policy Studies Division; Paul Traub, senior business economist; and Martin Lavelle, business economist) guided the tour around Detroit and provided greater insights into Detroit’s turnaround.

The bus tour highlighted Detroit’s cluster activity, including the food cluster present in Detroit’s Eastern Market where the tour stopped first. Dan Carmody, president, Eastern Market Corporation, expounded on how Eastern Market’s role in the city’s rebound continues to grow. Tour goers learned about Eastern Market’s initiative to provide healthy foods (especially for students) and food education, as well as its continued promotion of local food entrepreneurs. Tour goers also learned about Eastern Market’s involvement in projects such as the extension of the Dequindre Cut bikeway and other infrastructure improvements that will better connect the market with other parts of Detroit.

icic_carmody image 1Image 2: Eastern Market Corporation President Dan Carmody presenting during the Summit’s Tour of Detroit. Photo taken by Bill Testa.

After leaving Eastern Market, the tour got a closer look at areas where investment is occurring. Attendees were able to see some of the finished and proposed projects in Midtown that Mosey highlighted in her earlier presentation. One highlight of the Midtown tour was the TechTown campus that now supports Detroit’s automotive and logistics clusters as well as the efforts to bring back Detroit’s main retail corridors. Upon leaving Midtown, the tour made its way to the historic Boston-Edison neighborhood—an area that has rebounded significantly since it was marked as a “demonstration zone” for concentrated revitalization efforts in 2011 by then-Detroit Mayor Dave Bing. (8)

icic_traub image 3Image 3: Senior Business Economist Paul Traub describing the current state of Detroit during the tour. Photo taken by Bill Testa.

The final part of the tour reminded attendees of the challenges that Detroit’s revitalization efforts face. Tour attendees were exposed to neighborhoods where little to no investment has occurred, resulting in blight, low population density, and poor infrastructure. Attendees also saw marks of Metro Detroit’s sometimes scarred past when division and discrimination overshadowed attempts at regional collaboration. The tour ended with a drive down Jefferson Avenue along the Detroit River, which provided tour goers the opportunity to see the Jefferson-Chalmers neighborhood (which has benefited from burgeoning investment) as well as the beautiful Detroit Riverwalk. Overall, the tour showed the progress of Detroit’s turnaround, as well as the challenges that must be met if the city’s stakeholders want to continue its revitalization.


Based on Michael Porter’s criteria for inner cities, Detroit could be regarded as a developing economy because of its low local skill levels, limited access to capital, shortcomings in technology, poorly developed public service departments, and engagement in monopolistic behavior, which retarded cluster development.(9) In addition, using Porter’s work, one could argue Detroit’s economy possesses many competitive disadvantages, which include the aforementioned attributes as well as the city’s poor quality of infrastructure and attitudes concerning the city.(10)

However, Detroit is beginning to reverse its competitive disadvantages, as the presentations at the summit and the tour of the city showed. Detroit’s Downtown and Midtown neighborhoods have become strategic locations in which to conduct business. Moreover, Detroit’s industry clusters increasingly interact with other regional clusters, overcoming past regional rivalries. Also, city government has become less of an impediment to cluster development, encouraging and convening forums to engage in dialogue that centers on improving Detroit—as Porter has recommended for other developing economies.(11)

The overarching goal of the first day of the summit was to show the Detroit as it actually is today. As evident from the summit discussions and the tour, many parts of Detroit are trending upward, generating much enthusiasm for the city’s prospects following its emergence from bankruptcy. However, city stakeholders must confront numerous persistent challenges in order for the entire city to enjoy what’s transpiring in those particular neighborhoods.

(1) See
(2) LEED stands for Leadership in Energy & Environmental Design, and is a green building certification program.
(3) See
(4) See
(5) See
(6) See
(7) See
(8) See
(9) See Michael E. Porter, 1998, “Clusters and competition: New agendas for companies, governments, and institutions,” Harvard Business School, working paper, No. 98-080, March, p. 24.
(10) See p. 61–65 of
(11) See Porter (1998, p. 34).

The state of the Detroit Public Schools discussed at the Detroit Association of Business Economists meeting

By Paul Traub

On Thursday, April 21, 2016, the members of the Detroit Association of Business Economists (DABE) were presented with an excellent overview of the current financial state of the Detroit Public School (DPS) system. The presentation entitled “Detroit Public Schools—Financial Crisis” by Craig Thiel provided an in-depth analysis of how DPS arrived at its current situation, with operating liabilities of $1.9 billion and total debts in excess of $3.5 billion. According to Thiel, a senior research associate with the Citizens Research Council of Michigan (CRC), it took decades of declining student enrollments and five state-appointed emergency managers since 2009, each unable to solve DPS’s financial problems, for the City’s school system to fall into a state of financial crisis. In addition to ballooning deficits, mounting legacy costs, recurring cash shortage problems, and deteriorating facilities, DPS has experienced declining enrollment since the early 1970s, reaching an annual rate of 10.5% between FY2003 and FY2014.

Declining enrollment has become one of the most significant problems for DPS because of the per-student funding model used by the state. As schools lose students, they also lose funding. The problem with this model is that as enrollment declines, revenues fall almost immediately while expenses fall very slowly. This is because public education is personnel-intensive, with about 60% of a district’s general fund budget going to pay instructors. For example, if a school loses 10% of its students across multiple grade levels in a single year, it would lose the per-student funding associated with those students almost immediately. However, the school still needs to provide classroom instruction for all of the remaining students, which might require the same number of teachers as before. In addition, the fixed cost of maintaining the facility would not likely change. This results in an operating deficit for the school.

In addition to the operating shortfalls, the schools need to continue to fund accrued legacy costs for pensions and health care. Adding to the problem, DPS has been funding its declining enrollment and legacy cost deficits through borrowing for years. As enrollment declines, there is less per-student funding available to cover the required debt and legacy payments. According to estimates, in FY2016 only 40% of the per-pupil allocation will be available for classroom instruction. The rest will go to paying legacy costs and to service debt. Less money for the classroom has resulted in a decline in academic performance, prompting those parents who have the means to do so to seek alternatives for their children’s education, further exacerbating the decline in DPS enrollment. Today, only about 40% of all Detroit K-12 students attend Detroit Public Schools. The state of Michigan legalized chartered schools in 1993. By 1995, the first chartered schools opened in Michigan. However, because of Michigan’s per-student funding model, if a student leaves a traditional public school to go to a charter school, the funding follows the student, while DPS retains all the legacy cost. This results in increasing the debt payments per student, resulting in even less money for public school classroom instruction.

A recent proposal approved by the state senate would permit Detroit to adopt a model used by other distressed school districts in the state. Under the proposed model, the DPS would be separated into two parts. One part would be responsible for the debt, and the other would be responsible for educating the students. The plan calls for the creation of a Community School District with an elected board. The district would operate under a Financial Review Commission to review the actions of the elected board and a Detroit Education Commission, which would be responsible for overseeing academic performance. The Michigan House of Representatives is still working on the plan. However, Thiel stated that time to act was yesterday and until the structural challenges currently faced by DPS are fixed, enrollment will continue to decline and the problems of the DPS will only get worse.

To see a copy of Thiel’s presentation click on “Detroit Public Schools–Financial Crisis.”

State of the global economy discussed at the Detroit Association for Business Economics meeting

On Thursday, March 17, 2016, members of the Detroit Association for Business Economics (DABE) were presented with an extremely in-depth presentation entitled “State of the global economy: Recovery, flat, or decline?” by Dr. David Teolis, senior manager, economic and industry forecasting—international, General Motors (GM). Teolis is a veteran economic analyst, with numerous years of experience analyzing international markets and forecasting automotive sales for GM. He has previously served as the president of the DABE.

Teolis provided his analysis on the following topics:
• The global financial crisis and how it exposed structural vulnerabilities (problems that cannot be addressed through monetary policy)—which have contributed to the weakness in the global economic recovery, especially for emerging markets and commodity exporters;
• Low inflation expectations and the risk of deflation in some economies;
• The divergence of monetary policies around the globe (for example, as the U.S. struggles to normalize interest rates, other major economies such as the Eurozone and Japan are implementing negative interest rates, which is contributing to volatile currency markets); and
• The plethora of political risk, which may complicate the assessment of these economic concerns.

Teolis highlighted numerous explanations for the recent slow pace of global economic growth (such as supply-side headwinds, a debt overhang, and a savings glut) that have been offered by world-renowned economists. However, Teolis said he thinks that “secular stagnation,” as posited by Lawrence Summers, may be the primary factor for weak global growth. Teolis stated that he believes that structural reforms around the world are needed to provide a positive shock to the baseline economic outlook while also providing a limit to the downside risks. While low interest rates and accumulating pent-up demand could provide a cyclical economic rebound, Teolis argued that the implementation of structural reforms will better position the global economy for strong and sustainable growth. Absent progress on structural reforms, the economies of the world could remain mired in a period of secular stagnation, with continued volatility in commodity and financial markets. Moreover, the myriad of political uncertainties continue to pose many risks to the outlook for the global economy, said Teolis.

To see the entire presentation by Dr. Teolis, please click here.

Are Businesses Returning to Detroit?

by Martin Lavelle, business economist


Detroit’s population fell by almost 50% from its peak of 1.85 million in 1950 (1) to around 950,000 in 2000. Since 2000 (2), Detroit’s population has declined at a faster rate. The U.S. Census Bureau reports that Detroit’s population stood at 680,250 as of 2014 (3). As Detroit’s population migrated elsewhere, so did many of its businesses. How many businesses have left the Motor City since around the turn of the twenty-first century? And are new businesses replacing them in the aftermath of the Great Recession (which ended in mid-2009)?

In this blog entry, I will address these questions by using the County Business Patterns (CBP) data series from the U.S. Census Bureau. The CBP data series provide the number of business establishments (4) by county and zip code. The business establishments reported in the data are sorted by employment size classes. In addition, CBP data sets provide employment and payroll data. CBP data are collected on an annual basis, but with a two-year lag. Here I will analyze business patterns by geography and industry among Detroit zip codes (and elsewhere) between 1998 and 2013.


Figure 1 shows a map of Detroit by zip code. The zip codes shown below were used to analyze the change in the number of business establishments in Detroit over the period 1998–2013 (5).

2016 0208 figure 1

Figure 1. Map of Detroit zip codes
Source: Lowell Boileau, available at

Table 1. Percent change in number of Detroit business establishments, by zip code, 1998–2013
2016 0208 table 1

Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

For each Detroit zip code area listed in table 1, I include the prominent neighborhoods and/or landmarks found within it.

Overall, the number of Detroit business establishments decreased 22.3% over the period 1998–2013, according to my calculations using CBP data. As of 2013, the city of Detroit was home to 8,817 business establishments. Approximately one-eighth of these establishments can be found in Downtown Detroit—which saw a similar share of its businesses depart as the city as a whole did over the sample period. Zip code areas that fared relatively better than the city in terms of business retention between 1998 and 2013 contain the Midtown/New Center area along Woodward Avenue, Eastern Market, some areas along East Jefferson Avenue parallel to the Detroit River, and southwest Detroit (including Corktown). These centers of commercial activity are now leading Detroit’s turnaround. Zip code areas that saw a larger percentage of their businesses leave relative to what the city as a whole experienced contain some of Detroit’s struggling neighborhoods—which include East English Village adjacent to Harper Woods and the Grosse Pointes, as well as areas near and around the old Packard plant in Detroit’s eastern industrial corridor (6).

Anyone familiar with Detroit’s narrative will likely be able to give several reasons why its business activity has declined over the past few decades. Besides the outward migration of the residential population, the downsizing and suburbanization of the local manufacturing industry, the deterioration of the city’s talent base as a result of the struggles of the Detroit Public Schools (DPS), government corruption, and the worsening condition of the city’s infrastructure are just some of the contributors to Detroit’s downward trend in business activity.

Given the narrative about Detroit, it is natural to wonder how its recent business losses compare with those of its surrounding areas. Table 2 shows the change in the number of establishments by selected areas in 1998 versus 2013. The national numbers are also given to provide another basis of comparison.

Table 2. Number of business establishments, 1998 versus 2013, and percent change in the number of business establishments, 1998–2013, by selected areas

2016 0208 table 2

Note: MSA stands for metropolitan statistical area; for further details on the Detroit MSA, see
Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

Table 2 shows that despite the 2001 and 2007–09 recessions, the number of business establishments in the nation as a whole increased over the period 1998–2013. However, the number of business establishments declined throughout most of Michigan during this time. Wayne County (including Detroit) and the Detroit metropolitan statistical area (MSA)—encompassing Macomb, Oakland, and Wayne counties—experienced less severe business losses than the city of Detroit. Nearby Washtenaw County, whose county seat is Ann Arbor (7), still saw a slight drop in the number of business establishments over the sample period, but fared much better relative to the city of Detroit.

When examining industry business patterns in the city of Detroit, it is not surprising to find that in percentage terms, manufacturing experienced the greatest loss of businesses over the period 1998–2013. Table 3 shows the change in the number of business establishments by industry during the sample period.

Table 3. Number of business establishments, 1998 versus 2013, and percent change in the number of business establishments, 1998–2013, in the city of Detroit, by industry

2016 0208 table 3

Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

One may be somewhat surprised by which subsectors of manufacturing experienced the greatest losses of business establishments (not shown). When analyzing the business pattern data by NAICS (8) code, I found that transportation equipment manufacturing—which includes motor vehicle and parts manufacturing—experienced a sizable drop in the number of establishments (41.5%); but this decline wasn’t the largest one. The manufacturing subsector that experienced the largest decline in establishments in percentage terms was printing and related support activities (–75.3%), followed by machinery manufacturing (–69.9%) (9). When just looking at the raw numbers of business losses among the manufacturing subsectors, I found that fabricated metal product manufacturing experienced the greatest losses: this subsector lost 86 establishments from 1998 through 2013 (almost a 50% contraction). Of the 26 zip codes I analyzed, 17 of them saw greater-than-50-percent declines in the number of manufacturing establishments.


During the 1998–2013 period, the city of Detroit lost business establishments every year. Detroit lost a higher percentage of establishments than its surrounding areas, the state of Michigan, and the United States. The most significant sectorial losses of businesses were from the goods-based side of the economy—most notably, from manufacturing. While the most severe manufacturing losses weren’t from direct transportation equipment manufacturing, they were in complementary industries, such as fabricated metal manufacturing, machinery manufacturing, and printing activities. Geographically speaking, establishments close to Detroit’s border with the Grosse Pointes and those around the former Packard automobile assembly plant shut down in greater proportions than those in other parts of the city.

Because the most recent data available are 2013 data, I am unable to provide any definitive insight into any possible changes in the trend of establishments leaving Detroit since the city exited bankruptcy in late 2014. By many anecdotal accounts, numerous new establishments have settled in the Downtown, Midtown, Corktown, and other select neighborhoods where the most significant public and private investment has occurred of late. As we receive more and newer data, it will be interesting to see whether new business establishments are sprouting up elsewhere in Detroit. Will business (and public) investment in Detroit remain concentrated in its high-activity areas or begin to noticeably branch out to the city’s relatively less active neighborhoods?

(1) See
(2) See
(3) See
(4) See for what is considered a business establishment versus a business firm. In this blog entry, businesses refer to business establishments.
(5)Please note, however, that the 48203 zip code area also includes the city of Highland Park and the 48212 zip code area also includes the city of Hamtramck. The 48239 zip code area lies predominantly outside the city of Detroit, so it wasn’t included in the analysis.
(6) See
(7) See
(8) NAICS stands for North American Industry Classification System. For more details, see and
(9) I only considered manufacturing subsectors with more than 50 establishments in 1998.

Detroit area business economists present auto outlook

By Paul Traub

The U.S. auto industry has just completed its best sales year ever, reaching 17.837 million in total vehicle sales in 2015. Falling gasoline prices together with affordable finance rates helped the Detroit Three (D3) manufacturers (Fiat Chrysler, Ford, and General Motors) by making crossover vehicles, SUVs, and pickup trucks more affordable to own and operate. Chart 1 below shows how the demand for more light trucks has helped the D3 stop the erosion of their market share.

D3 Market ShareSource: Author’s calculations based on data from Wards Automotive.

During the year, the D3 manufacturers also negotiated a new contract with the United Auto Workers (UAW) union, aimed at rewarding workers for remaining loyal during the hard years of the recession while at the same time allowing the companies to remain competitive with their global counterparts. To help us understand where the U.S. auto industry is headed, DABE (the Detroit Association of Business Economists) members gathered at the Detroit branch of the Federal Reserve Bank of Chicago on Thursday, January 14, 2016, to present their annual auto outlook. The 2016 Bob Fish Memorial Automotive Industry Luncheon meeting addressed the following questions: How long will sales continue at their current pace? Will fuel prices remain low for an extended period? What happens to vehicle affordability now that the Fed has started to raise interest rates? And, how will the new UAW contract affect the competitive position of the D3? The speakers included the chief economist for General Motors, Mustafa Mohatarem and the director of the Industry and Labor Group at the Center for Automotive Research (CAR), Kristin Dziczek.

The program began with Mohatarem’s presentation, entitled “Peak or Plateau – U.S. Auto Industry Beyond 2015.” In summary, Mohaterem said that:

1. Vehicle sales and the economy in 2016 will be more or less a repeat of 2015.
2. The North American economies will grow at a slow and steady pace, with auto sales hitting a new record high.
3. The modest recovery in Western Europe will continue, along with modest growth in new vehicle sales.
4. Slowing economic growth in China will be a source of global economic uncertainty as China makes the difficult transition from
export/investment-led growth to growth in services and domestic demand.
5. The end of the commodity boom will impart significant downward pressure on many emerging and commodity-dependent economies.

Click here to see Mohatarem’s entire presentation.

The discussion continued with a presentation from Dziczek entitled “Process and Outcome of the 2015 UAW Auto Negotiations,” in which she summarized the 2015 contract negotiations, focusing on the union’s gains and losses.

The gains include:
1. Pay increases and profit sharing/lump sums (largely cash).
2. The start of phasing out tier 2 wages, while adding to the number of wage scales.
3. Maintenance of health care benefits without additional cost to the workers with the same health care for everyone at General Motors and Ford.

The losses include:
1. No reinstatements of a cost of living allowance (COLA) or JOBS bank/GEN pool.
2. No overtime after 8 hours a day, only after 40 hours a week.
3. The union did not win back a three-year grow-in to top wages or any pension increases.

In summary, most of the cost of the contract to the original equipment manufacturers (OEMs) was in the form of one-time cash payments rather than ongoing cost increases. Part of the problem faced by the UAW stemmed from the fact that younger workers wanted to see more job security and hiring as part of the contract because that would push them up the pay scale to tier 1 wages. At the same time, older workers who were already making tier 1 wages wanted to see larger pay increases and were willing to sacrifice jobs to get them. In the end, the increases in cost from this contract were kept to a minimum, compared with pre-2009 contracts.

Click here to see Dzicek’s entire presentation.

Recap of the Federal Reserve Bank of Chicago’s 29th Annual Economic Outlook Symposium

By Martin Lavelle

On December 4, 2015, the Federal Reserve Bank of Chicago hosted its 29th annual Economic Outlook Symposium (EOS). The EOS allows economists, business leaders, financial analysts, and other experts to gather and share their respective views on the U.S. economy and individual sectors especially important to the Midwest economy. Also, EOS participants are given the chance to submit their respective projections for the year ahead. These projections are subsequently used to come up with a consensus (median) forecast for real gross domestic product (GDP) and related items.
This blog entry is a summary of what was presented at the latest EOS. For a more in-depth look into what was presented, please click here to read the Chicago Fed Letter for the event. Most of the presentations that were delivered during the EOS can be found here.

• 2015 forecast review: Real GDP growth in 2015 was slightly weaker than expected in the consensus outlook from the previous EOS held in December 2014. Growth in real personal consumption expenditures was slightly higher than anticipated, partly because of stronger than expected growth in light vehicle sales. However, real business fixed investment grew at a significantly slower rate than predicted. New home construction just missed forecasted activity levels. The unemployment rate was lower than originally projected, while inflation (as measured by the Consumer Price Index) came in well below the predicted rate.

• Outlook for consumer spending: According to Scott Brown (Raymond James & Associates), consumer spending is forecasted to slightly decelerate in 2016 in part because of headwinds from rising energy prices (he expected oil prices to average around $50 per barrel by year-end). The pace of job growth has been strong, but is expected to moderate this year.

• Outlook for financial services: Brown also noted that credit conditions are fairly tight, but they should ease. The (then-anticipated) interest rate hike in December by the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary policymaking arm—shouldn’t dampen lending for a while, Brown said.

• Auto industry outlook: According to Yen Chen (Center for Automotive Research), U.S. light vehicle sales and production are expected to peak in 2018 (at around 18.6 million units and 12.2 million units, respectively) before falling slightly. Auto loan debt is expected to surpass student loan debt as the highest form of household debt, excluding mortgage and home equity debt, over the coming years. Meanwhile, Mexican light vehicle production capacity is expected to increase by over 2 million units in the next seven years largely because of lower labor costs (thereby reducing the U.S. share of North American production).

• Steel industry outlook: Robert DiCianni (ArcelorMittal USA) indicated that U.S. steel consumption is projected to modestly increase in 2016, based on his analysis of several steel-intensive sectors of the economy. For instance, the pace of growth in residential construction is expected to accelerate, while year-over-year growth in nonresidential construction is anticipated to level off. Moreover, both U.S. auto sales and North American auto production in 2016 should be similar to their respective levels in 2015. Global steel consumption is expected to increase slightly in 2016 after decreasing last year. The slowdown in Chinese steel consumption has been a major factor in the decelerating rate of global steel consumption in the past few years.

• Heavy machinery outlook: Glenn Zetek (Komatsu America Corp.) stated that U.S. demand for earth-moving equipment is at healthy levels, though demand has slowed significantly in states where energy production had been intense over the past few years. Equipment demand for single-family residential and transportation projects is expected to increase in 2016. But heavy machinery demand for nonresidential projects should moderate this year; the prospects for equipment demand to complete such projects look more promising over the next couple of years, as nonresidential fixed investment is expected to move up moderately and equipment usage is near its mid-2000s peak. Equipment usage for mining, energy, and rental needs are predicted to decrease.

• State and local government debt outlook: According to John Mousseau (Cumberland Advisors), municipal bond yields for the highest-rated securities with maturities greater than ten years are higher than comparable U.S. Treasury bonds—the opposite of what’s normal. Even with Detroit’s bankruptcy and other cities’ and states’ latest financial struggles, municipal bond quality generally remains higher than corporate bond quality. Interest rate increases won’t be terrible for issuers of municipal bonds because historically, municipal bond yield increases failed to match the size of federal funds rate increases.

Conclusion: 2016 economic outlook

According to the latest EOS consensus outlook, U.S. real GDP growth in 2016 is expected to increase slightly above its historical trend. Inventory levels are expected to rise at a slower pace. Residential investment is projected to rise at a strong pace, with slow and steady improvement predicted in new home construction. Growth in business fixed investment should continue at a decent pace, with moderate growth anticipated in industrial output. The dollar is estimated to slightly appreciate versus major currencies, which should increase the U.S. trade deficit to levels not seen in the past decade. Forecasters expect interest rates to rise, but remain at relatively historical lows. The unemployment rate is predicted to edge slightly below current levels. Inflation is expected to move up (closer to the FOMC’s inflation target) as oil prices strengthen slightly.

Michigan’s contribution to the Midwest economy remains positive

By Paul Traub

According to the September Midwest Economy Index (MEI), the pace of economic growth in the five Seventh District states (Illinois, Indiana, Iowa, Michigan, and Wisconsin) as a whole remained below its long-run average. The MEI remained unchanged in September at -0.15, after declining the previous eight months. In addition, at +0.04, Michigan’s contribution to the MEI in September fell to its lowest level since October 2014. According to the index, the strongest contributor to the MEI from Michigan in September was its manufacturing sector followed by its service sector (0.01) and consumer sector (0.01). The contribution its construction sector was slightly negative (-0.03).

The Midwest economy was growing more slowly relative to the national economy in September. The relative Midwest Economy Index fell to –0.29 in September, which was its lowest level since June 2010. (A zero value for the relative MEI indicates that the Midwest economy is growing at a rate consistent with the growth rate of the national economy; positive values indicate above-average relative growth; and negative values indicate below-average relative growth.) Only the consumer sector managed to make a positive contribution to the relative MEI in September. The largest negative swing was in the contribution from the manufacturing sector—which went from a positive at 0.04 in August to –0.05 in September. At +0.02, Michigan’s contribution to the relative MEI remained positive in September almost entirely because of its contribution from manufacturing. Even after falling for three consecutive months, Michigan’s year-to-date average monthly contribution to the relative MEI (of +0.19) remained well above that for 2014. Michigan is the only state in the Seventh District that has positively contributed to the relative index throughout 2015.

Income in Michigan still significantly lags the national average, but is slowly catching up. Real per capita income in Michigan continued to improve—to $38,454 in 2015:Q2, up 3.4% on a year-over-year basis. The nation’s real per capita income was $43,303 in 2015:Q2, up 3.1% on a year-over-year basis. Michigan has seen its real per capita income growth exceed that of the nation for the past six consecutive quarters. Since 2010:Q1, real per capita income growth averaged about 2.0% for Michigan, compared with 1.6% for the nation.

U.S. light vehicle (car and light truck) sales remain a bright spot for Michigan manufacturing. Light vehicle sales for September 2015 were reported to be 18.1 million units at a seasonally adjusted annual rate (SAAR). This was the best month for light vehicle sales since July 2005, when the U.S. light vehicle sales at a SAAR reached 20.6 million units. Year-to-date sales have averaged 17.2 million units on a SAAR basis. According to the forecast from the October 2015 Blue Chip Economic Indicators, light vehicle sales for the United States are expected to reach 17.2 million in 2015, with an additional increase in 2016 to 17.3 million units. According to data from Ward’s Automotive, Michigan’s light vehicle production for 2015 is expected to reach slightly over 2.4 million units. This would be an increase of 8.5% from 2014.

Michigan’s housing market has recently experienced some modest improvement. Although construction of privately owned homes in Michigan was negatively affected by the past two winters, housing permits and starts have continued to modestly improve since bottoming out in 2009. Housing starts in the state through August averaged 1,454 per month in 2015—a 16.5% improvement compared to the same period last year. However, even with that improvement, privately owned housing starts are still only about 40.0% of what they were at their peak in 2005. Home prices in Michigan were reported to be up 3.4% on a year-over-year basis in 2015:Q2. While home prices for the state are above their 2000 level, they are still well below their 2005 peak. In addition, home prices for the Detroit metropolitan area, which was harder hit than the state as a whole, were up 3.9% in 2015:Q2 compared with a year ago. While some areas within the Detroit metro region have seen significant improvements in home prices, prices for residential real estate in the region remain 22.1% below their 2006:Q1 peak.

Michigan’s unemployment rate is now lower than the nation’s: Michigan’s unemployment rate of 5.0% in September compares somewhat favorably to the national unemployment rate of 5.1%. Michigan’s unemployment rate declined from 5.1% in August, while the labor force participation rate of 60.0% was unchanged for the third consecutive month. While September’s unemployment rate reflects an increase in civilian employment of 54,583 for January through September of this year, it was also aided by a declining labor force (down by 16,172 participants) over the same period.

Payroll employment growth for Michigan has slowed in recent months. Nonfarm payroll employment, which is based on a survey of businesses, fell by 9,800 jobs in September following an increase of 3,700 in August. So far in 2015 (through September), nonfarm employment has increased by 53,900, which is equal to an average monthly job growth of about 6,000 per month. Michigan has added 443,000 jobs since its recessionary trough in March 2010, but total nonfarm employment is still about 400,000 jobs below its peak, which was reached in 2000. Michigan’s dependence on manufacturing remains strong, as approximately 21.2% of the Michigan’s gross state product and 14.1% of its payroll jobs are directly associated with the manufacturing sector. Sectors that experienced losses in jobs this year include information, mining and logging, and government. The government subsector that experienced the biggest decline in employment was local government: 4,200 local government jobs were lost in Michigan this year. However, these losses were offset by gains of 200 federal and 3,100 state government jobs.

Michigan GSP

Based on the first nine months of available data, Michigan’s economy is estimated to be growing at 2.2% on an annualized basis. This estimate is down slightly from the Q2 forecast mostly because of slower employment growth in recent months. However, total nonfarm employment is still on a path to grow by 2.0% in 2015 if the current monthly average pace of employment growth continues. Because Michigan’s economy remains highly dependent on the manufacturing sector and because almost half of Michigan’s manufacturing output is related to the auto industry, the projected (continued) growth in Michigan’s auto production for 2015 should help the economy sustain its positive momentum through the rest of this year and into 2016.

For a detailed copy of the report, please click Michigan Economic Update – 2015 Q3.