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Forecasters say Michigan now better positioned to avoid major recession

Breana Noble
The Detroit News

Michigan's treasurer isn't worried about a major economic downturn, even as the state is affected by a trade war with China and a manufacturing slowdown.

"The good news of this is that while there’s this debate on whether we’re going to have a recession or is it just going to be a downturn, I don’t think anybody is forecasting any kind of Great Recession or downturn we saw last time," Rachael Eubanks said Tuesday during a panel at the Business Leaders for Michigan's CEO Summit. "It’s really not something we’re taking into consideration."

Rachael Eubanks, Michigan state treasurer

Forecasters on the panel agree the state, national and global economies are slowing after the longest period of economic growth since World War II. Michigan, however, has decreased its dependence on the automotive sector and is in a better position now than it was before the Great Recession to withstand downward pressures, they said.

For the third consecutive month, the manufacturing industry in October contracted, despite improving slightly from September, according to a monthly index from the Institute for Supply Management.

"The heart of the slowdown has been in manufacturing," said Aditya Bhave, global economist for Bank of America Merrill Lynch Global Research, which is forecasting 3.2% global economic growth for the year. "The manufacturing sector is a lot more import-sensitive and more exposed to the global economy."

Manufacturing has fallen from representing about 20% of Michigan jobs in the 1990s to 14% now. The state's employment in education, health care and other sectors has grown.

"Michigan's economy has diversified," said Gabriel Ehrlich, an economic forecaster at the University of Michigan's Research Seminar in Quantitative Economics. "It brought a lot of pain, but it's put us in a better position to withstand a downturn in the future."

Case in point: Ehrlich estimates the six-week national strike at General Motors Co. decreased Michigan's economic growth for 2019 only by about 0.1%. The 17,000 striking employees in Michigan affected an estimated additional 27,000 jobs, Ehrlich said.

It's too early to determine by how much the work stoppage decreased revenue in the state for the month of October. GM, however, had built up inventory ahead of the strike to prepare and had some employees working overtime to do so, Eubanks said.

"While it was a significant event in Michigan, it did not have the devastating impact perhaps a longer strike would have because of the push heading into it," she said.

But trade issues could have a significant impact on the state economy, Eubanks said. Already-delayed proposed tariffs on China that are scheduled to go into effect in December include consumer items such as laptops, cell phones, clothes, shoes and more have fewer substitutes. China accounts for an average of 85% of these imported items, while items from China already affected by tariffs accounted for only 20%.

Michigan could call a revenue conference if the state's economy and revenues are being affected, Eubanks said. The treasury typically holds such conferences semiannually to forecast tax revenues for budget purposes.

"We believe it has that much potential to impact Michigan," she said.

Twitter: @BreanaCNoble