Michigan Economic Update

Posted on August 3, 2015
Written by Paul Traub

It looks as if Michigan’s economic expansion is poised to continue through 2015. According to the most recent release of the Federal Reserve Bank of Chicago’s Midwest Economy Index (MEI), at 0.19, Michigan’s contribution to the economic growth of the Seventh Federal Reserve District in June was quite strong. The MEI is a weighted average of 129 state and regional indicators for the five states of the Seventh District (Illinois, Indiana, Iowa, Michigan, and Wisconsin). The index is designed to measure nonfarm business activity by tracking four broad sectors of economic activity: manufacturing, construction and mining, services, and consumer spending. A value of zero for the MEI indicates the Midwest economy is growing at its long-term trend rate of growth, while a positive number indicates above-average expansion and a negative number suggests below-average growth.

A quick look at the four components for the MEI shows Michigan’s strong contribution for June was driven mostly by strength in manufacturing and positive contributions from the service sector and consumer spending. Although construction did not add to Michigan’s contribution, a value of zero still implies long-run average growth in the sector. Another indication of strength in manufacturing is the Institute for Supply Management (ISM)–Southeast Michigan Purchasing Managers Index, which was reported to be 66.1 for June (helping to keep the 12-month moving average above 50 for the 64th consecutive month). For this index, a value above 50 indicates that those surveyed are anticipating continued growth in manufacturing activity in the coming months. On the residential investment front, although the 12-month moving averages for housing starts and permits for Michigan remain well below their peak levels that were reached in 2005, both of them continued their slow upward trend in June, rising to 1,439 and 1,343, respectively. Strength in the service sector was supported by continued growth is service-related jobs, which have averaged annual growth of over 1.4% for the past five years. And finally, personal consumption is being supported by recent improvements in real per capita income, which was reported to be up 3.7% in 2015:Q1 on a year-over-year basis.

Other key indicators are as follows:
• Michigan’s unemployment rate is down to 5.5% in June, while the nation’s is at 5.3%.
• Michigan home prices increased 6.6% in 2015:Q1 on a year-over-year basis.
• U.S. light vehicle sales continue to recover and are at a seasonally adjusted annual rate of 16.8 million units for the first six months of the year.
• Michigan’s economy looks to be currently growing by an estimated 2.3% rate on an annualized basis.

For a more detailed look into the numbers behind Michigan’s economic performance, follow the link to the Chicago Fed’s Michigan Economic Update – 2015:Q2.

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