Researchers: Michigan's economy is rebounding faster than expected, but inflation causing problems

Posted at 8:54 AM, Nov 20, 2021

(WXYZ) — A new forecast from the University of Michigan found that Michigan's economy is recovering from the pandemic faster than the previous downturns, but inflation and the supply chain are souring perceptions of it.

According to the university, job growth was healthy this year and is expected to continue over the next two years. Personal incomes are also forecasted to rise, but inflation will cut into purchasing power.

"All things considered, this year's economic performance offers many reasons to be thankful. As we look ahead, we expect the mostly good news to continue, with a nearly complete recovery by the end of 2023," Gabriel Ehrlich, the director of U-M's Research Seminar in Quantitative Economics, said in a statement.

Ehrlich co-authored the 2022-23 Michigan economic outlook with Jacob Burton, Donald Grimes, Owen Kay and Michael McWilliams.

According to the outlook, more than 50,000 jobs were gained in the third quarter after only 25,000 per quarter started off the first half of the year.

Researchers say it's a faster recovery than the state experienced during the long downturn in the early 2000s.

The problem is the rising inflation. Real disposable income, which accounts for rising prices and taxes, is expected to be only 3.1% higher at the end of 2023 than at the end of 2019, according to the researchers.

The forecast also found the state's jobless rate is expected to average around 6% in the final quarter of 2021 and first quarter of 2022 before dropping rapidly over the rest of the year. They expect it to be 5% by the end of 2022 and 4.5% by the end of 2023, less than 1% higher than pre-pandemic levels.

As for the automotive industry, experts say supply chain strains could still cause problems if the microchip shortage ends. However, they expect production and sales to start improving with vehicle sales to rise.

Labor force participation: Economists expect conditions to start improving in earnest by the end of next year, as the public health situation improves to the point that vulnerable workers feel safe to return to work and caregiving responsibilities become more predictable. They say the labor force participation rate should rise from 59% at the beginning of next year to 60.4% by the end of 2023—still below the nearly 62% rate recorded at the end of 2019.

"The pandemic scrambled how we work, play, shop and travel," McWilliams said, "and it will take time to fully recover."

The economists say that "while Michigan's economy has experienced some setbacks this year, we remain hopeful that the state will see a nearly complete economic recovery by the end of our forecast."