Washington — Michigan’s economy faces headwinds — including below-average personal income growth and a declining percentage of working age people in jobs, an economist at the Federal Reserve in Chicago says.
In a blog post, the Federal Reserve noted that Michigan’s personal income growth rose 2.5 percent in 2013, just below the national average of 2.6 percent. It was the second straight year that personal income growth slowed in the state after rising 3.5 percent in 2012 and 5.5 percent in 2011.
After adjusting for inflation, Michigan’s personal income grew 1.0 percent in 2013. Michigan residents saw disposable income (money left over after housing and other fixed costs) rise by just 0.1 percent after inflation last year, compared with 1.1 percent in 2012.
On Tuesday, the government said Michigan’s overall economic output rose 2 percent in 2013, the 21st-best in the United States. Michigan’s unemployment rate improved slightly during April, falling by one tenth of a percentage point to 7.4 percent, an improvement of four-tenths of a point from the same month in 2013. It’s still above the national 6.3 percent unemployment rate.
The decline in disposable income was attributed in part to changes in tax policy in Michigan since 2010 “including the application of state income taxes to retiree pensions, which has dampened disposable income growth,” wrote Paul Traub, business economist at the Detroit branch of the Federal Reserve Bank of Chicago.
Michigan is still recovering from the single worst seven-year economic period since the Great Depression. During most of the last decade, Michigan’s economic growth was slow or declined, and it entered a one-state recession between 2003 and 2009.
The Federal Reserve noted that the ratio of employment to working-age population in the nation and Michigan fell during the Great Recession and slightly rebounded in the last couple of years. “But Michigan’s ratio of employment to working-age population fell more sharply over the past decade (despite the state having lost population) and is now below its all-time low. After losing population during the 2000s, Michigan’s population grew an estimated 0.1 percent since 2010. Meanwhile, the U.S. population has grown an estimated 0.8 percent,” Traub wrote.
Until 2001, only Illinois was higher than Michigan in terms of its per-capita personal income relative to the nation among neighboring four states in the Federal Reserve’s seventh district. The others are Wisconsin, Iowa and Indiana.
“During the 2000s, the income disparity between Michigan and the rest of the country grew quite a bit. This may have been due in part to ‘brain drain’ from Michigan,” Traub wrote. “Michigan’s one-state recession in the 2000s lowered employment and employment participation, thereby slowing its per capita personal income growth. In regard to state per capita personal income growth relative to that of the nation’s, Michigan has now reached a point where it has clearly fallen behind most of its Seventh District neighbors.”
Traub said at current personal income pace “the Michigan economy is vulnerable in losing further ground during the next national downturn. “