UM economists: Michigan job growth enters longest period since WWII

Breana Noble
The Detroit News
Michigan soon could enter the longest period of job growth since the World War II era, according to economists from the University of Michigan.

Michigan soon could enter the longest period of job growth since the World War II era, according to economists from the University of Michigan.

After racking up nine years of uninterrupted job growth in the third quarter of 2018, the annual state forecast released Friday is positive for the next two years, even as the labor force tightens and job growth slows.

"In the '90s, we saw higher labor force participation, about a quarter-million larger," said Gabe Ehrlich, director of the university's Research Seminar in Quantitative Economics that produced the report. "There's some slack left in the market. We're starting to see that slack disappear and wage growth increase. That's been one of the missing pieces. This is not the best economy we've ever seen, but it's pretty good."

The current job-winning streak matches the period ranging from the spring quarters of 1991 to 2000. Another year of uninterrupted job growth and it will be the longest since 1939, which Ehrlich said is as far back as the record goes.

The researchers predicted the state's annual unemployment rate in 2018 will drop from 4.4 percent with 55,200 jobs added to 3.9 percent with 35,800 more jobs in 2019. In 2020, they forecast an unemployment rate of 3.8 percent with 39,300 new jobs.

Although that marks the lowest unemployment rate since 2000, that job growth is slower than the 1.9 percent rate the state had from 2011 to 2016.

Most of that job growth, forecasters predicted, will not come from the automotive sector. In the university's national forecast, economists predicted a small decline in light vehicle sales in 2019 and then for them to flat line. Trucks, however, were a bright spot with their share increasing from 65 percent of the market in 2017 to 75 percent by 2020.

Ehrlich said the diversification of Michigan's economy is helping job growth. In the mid- to late-1990s, manufacturing consisted about 20 percent of the labor force. Now, it's down to 14 percent. Manufacturing is expected to add 6,000 jobs this year with 3,300 in 2019 and 2,200 in 2020.

"If the Detroit Three here are really plunging, it would be really hard to be growing," Ehrlich said. "Tariffs are a wild card. (Steel and aluminum levies) are already increasing vehicle production costs by $300 to $600 per vehicle. The budding trade war with China is also raising costs, but what really worries us right now is there's no off-ramp in sight."

Economists predicted leading job growth in service industries such as health care, leisure and hospitality, and arts and entertainment. Those sectors, Ehrlich said, have grown faster than average since 2012, and that is expected to continue.

Professional and business services have added 11,100 jobs in the first three quarters of 2018. By 2020, another 13,500 jobs are expected to be added.

Ehrlich added that construction has provided a positive benefit in job growth recently as the industry has been slow to recover from the recession. As mortgage rates rise, however, the economists predicted that could slow down. Over the next two years, the construction industry is expected to add 8,300 jobs.

Also of note is the shrinking role government positions play in the labor market. Between 2002 and 2015, about an eighth of government jobs were cut every year. Since then, it has begun to slowly increase again. By the end of 2020, forecasters expect the public sector in Michigan to hold its lowest employment share since 1957.

To fill the job growth Michigan is expected to see, economists predicted the under 65 population growth will come from immigration and the attraction and retention of college-educated young adults.

The state has reversed the brain drain seen in the years leading up to the Great Recession when college graduates fled the state for jobs elsewhere. From 2010 to 2017, Michigan saw a 29-percent rise in the number of college-educated 25-to-34-year-olds. Thirteen of the 16 largest cities in the state, especially Detroit and Grand Rapids, are outgrowing the national average rate for young adults with at least a bachelor's degree. Since 2010, Michigan has outpaced the U.S. as a whole.

But international migration is expected to make up 55 percent of Michigan's population growth through 2025. Pressures on that, Ehrlich said, could severely impact Michigan's labor pool. Without it, the state's population age 64 or younger is projected to shrink by 200,000 workers by 2025.

"Without international migration," he said, "the labor force has no shot of growing."