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Michigan's Sluggish Economy Will Pick up Speed in 2004-05

11/21/2003 --

ANN ARBOR, Mich.---The ailing Michigan economy will soon be on the mend and will make a solid recovery over the next two years, say University of Michigan economists.

"After three straight years of job losses, we expect a sustained employment rebound during 2004 and 2005 at a pace comparable to that of the second half of the 1990s," said George Fulton, senior research scientist at the Michigan Business School¿s Institute of Labor and Industrial Relations (ILIR). "The state's private non-manufacturing sector has already begun to strengthen, posting job gains in each of the past two quarters, and manufacturing employment is projected to turn around early next year."

In their annual forecast of the Michigan economy, Fulton and colleagues Joan Crary and Saul Hymans predict the state will gain 77,600 jobs during 2004 and 92,000 jobs during 2005---after losing nearly 87,000 jobs since the end of 2001.

Though the ongoing state budget crisis will constrain public-sector hiring in the short run, job prospects in the private sector should improve steadily and be widespread.

Manufacturing employment in the state, which is expected to lose nearly 32,000 jobs this year, is expected to regain 11,600 jobs during each of the next two years, the forecasters say.

"A number of factors nationally, including increasing demand for heavy equipment, domestic light vehicles and exports, suggest a return to job growth in manufacturing," Fulton said. "During 2004, that improvement will be tempered in Michigan by the phase-out of several auto-related facilities, but manufacturing employment is forecast to rise nonetheless."

Private non-manufacturing employment is expected to grow by 72,000 jobs during 2004 and another 76,000 jobs during 2005, after losing about 3,000 jobs this year, the forecast shows. The service industry, accounting for 38 percent of the jobs in Michigan, will contribute most of the job gains---nearly 90,000 over the next two years.

The public sector, faced with severely constrained resources and another round of budget cuts by year's end, will lose nearly 15,000 jobs this year. Another 6,000 government jobs will be jettisoned during 2004 before this sector gains back 4,000 jobs the year after, the economists say.

Overall, the University forecast predicts that unemployment in Michigan will move downward from 7.4 percent at the end of this year to 6.5 percent at the close of next year and then fall further to 5.7 percent 12 months later---which is still a full percentage point above the national average projected for the end of 2005.

In addition to predicting a turnaround in the state's job growth over the next two years, the forecast indicates that local consumer price inflation will remain moderate at 1.7 percent next year and 2.3 percent in 2005.

Personal income growth is expected to jump from 2.6 percent in 2003 to 4.9 percent in 2004 and to 6.5 percent in 2005, while growth in real disposable income, or purchasing power, will rise from 1.7 percent this year to 4.4 percent next year and then slow to a still-healthy 3.2 percent the following year.

"Recently, Michigan's economy has been characterized as struggling to shift out of reverse," Fulton said. "Our view is that private non-manufacturing has already shifted into forward gear and so will manufacturing by early next year.

"The question is, will our economic engine continue to stall out periodically or will we finally be able to reach cruising speed? Our forecast is that we are indeed poised to shift into a regime of sustained job growth over the next two years."

For more information, contact:
Bernie DeGroat
Phone: 734.936.1015 or 734.647.1847