UM economists: GM layoffs could cost Michigan 16K jobs

Jonathan Oosting
The Detroit News
GM layoffs could cost the state 16K jobs, economists from the University of Michigan said at the bi-annual Consensus Revenue Estimating Conference Jan. 11, 2019

Lansing — Michigan’s economy has “rarely been better than this, but there are more clouds on the horizon than there have been in a while,” a top economist from the University of Michigan told state officials and lawmakers Friday.

The state’s prolonged economic recovery is expected to slow in coming years because of looming jobs cuts at General Motors Co., modest declines in Big Three vehicle sales, a tightening job market and President Donald Trump’s tariff war with China and other countries.

Michigan added roughly 54,900 jobs in 2018, and UM economists are projecting smaller gains of 25,700 jobs in 2019, 34,400 in 2020 and 32,100 in 2021. The estimates were presented during a biannual budget briefing.

GM last year announced plans to idle production and possibly lay off nearly 1,900 workers at its Detroit-Hamtramck Assembly and Warren Transmission plants. It also plans to lay off roughly 8,000 white-collar employees in unspecified locations.

Most of the white-collar cuts are also likely to occur in Michigan, said Gabe Ehrlich, director of UM’s Research Seminar in Quantitative Economics, which projects the state could lose a total of 16,000 jobs over the next two years at the automaker, suppliers and companies that could be hurt by reduced spending by laid-off employees.

“But we really do think the fact the labor market is so strong right now may help some of these workers who are losing their jobs to find work more quickly than they might have been able to do in the past,” Ehrlich said.

New state Treasurer Rachael Eubanks echoed the positive outlook, saying there is little "slack" in the job market so "some of those employees should be picked up ... fairly quickly."

"While we're still looking at that, of course, I think there's some offsetting factors that are involved there," she said of the GM layoffs. 

Michigan’s unemployment rate averaged 4.3 percent in 2018, just slightly above the national average, and dipped to 3.9 percent in the fourth quarter, Ehrlich said. UM projects the rate will continue to decline to 3.7 percent by 2020, which would match lows from 1999 and 2000.

Light vehicle sales are expected to decline slightly in coming years after peaking in 2016, dipping 4 percent from 17.2 million units in 2018 to 16.5 million in 2021. Detroit automakers sold 7.2 million vehicles in the United States last year but are projected to sell 6.9 million in 2021.

Economic experts briefed lawmakers Friday morning to start the biannual Consensus Revenue Estimating Conference, where state officials agreed to modest increases in revenue projections that Gov. Gretchen Whitmer and state legislators will use to craft the state's next roughly $56 billion budget.

Officials from the state treasury and legislative fiscal agencies increased combined projections for general and school aid fund revenues by by $264.7 million this year and $225 million next year, giving Whitmer and lawmakers some wiggle room despite several looming budget threats. 

Spending promises made by previous Legislatures — along with the slowing economic growth — are expected to complicate the budget process and Whitmer's pledges to boost road repair funding and eliminate the so-called pension tax on retirement income approved in 2011.

Nationally, the economy is also expected to continue growing but at a slower rate as the stimulus produced by government spending increases and tax cuts tapers off.

Economic growth in 2018 was partially driven by the “spending binge” by Congress and a business rush to export products or import materials in the face of Trump’s looming tariff battle with China, said Daniil Manaenkov, an economist with UM.

The more than nine-year-long economic recovery finally produced “significant acceleration” of wages in 2018, Manaenkov said. “Economists had been projecting this for years. This year, we finally got to say, ‘We told you so.'”

The ongoing federal government shutdown could affect January jobs numbers, he told budget officials and lawmakers.

“There may be like a small uptick in unemployment or a small slowdown in job gains for January,” Manaenkov said.

Joel Prakken, chief US economist for IHS Markit, told officials that the best-case scenario for the national economy is “more of the same” until the next recession hits.

“We all know that recession is coming, but forecasters don’t know when it’s coming, and we don’t know why it’s coming” and are therefore hesitant to build it into their models, Prakken said.