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November 17, 2007
Michigan's job roller coaster will continue to plummet next year before starting to head up in 2009, according to a forecast released Friday by three University of Michigan economists.
The annual estimates warn that Michigan can expect to lose 51,000 jobs next year on top of the 76,000 that disappeared this year, before gaining 15,000 jobs in 2009, according to George Fulton, one of the three authors.
"This is a downbeat forecast unless you regard the modest job recovery in 2009," Fulton said. "Optimism is hard to find."
The prime mover in Michigan's one-state recession is staggering losses in the manufacturing sector, especially from Detroit's Big Three. Losses in manufacturing jobs are expected to total 24,000 this year, 25,000 during 2008 and 10,000 in 2009.
The final tally of 76,000 Michigan jobs lost this year is more than double what the economists estimated last year, when they expected 33,000 jobs to disappear during 2007 and 2008.
"We recognized it would be another tough year, but it turned out a lot tougher than we thought," Fulton said. "It was particularly the construction sector that pulled us down. We had little idea the home-building sector would hang the way it has."
If not good news, that could be interpreted as encouraging news, said Scott Watkins, a consultant with the Anderson Economic Group in East Lansing.
"Maybe we're getting to the bottom sooner than we otherwise would have," Watkins said. "That leaves us hopeful that maybe the rebound will happen sooner than we originally thought."
Big 3 cuts, Delphi take toll
At the core of Michigan's job woes is the automotive crash that started with parts maker Delphi Corp.'s bankruptcy in fall of 2005, followed by buyout and restructuring plans announced by Delphi and General Motors Corp., Ford Motor Co. and Chrysler LLC.
In the meantime, soaring gas prices coupled with the collapse of the housing boom have crippled the state's real estate and construction industry and further weakened demand for Detroit's most profitable trucks and SUVs.
Meanwhile, there has been some growth in the service and health care sectors of the Michigan economy, Fulton said.
"Health services are really doing quite well in Michigan, and we expect it to continue as a star sector," Fulton said.
"It has consistently grown since 2000, while everything else has gone down."
While the growth of service jobs is encouraging, the state economy is hurt by the fact that most of those jobs don't match the high incomes and overtime paid in the auto plants.
"But I wouldn't say that all service jobs are low-paying," Fulton said. "There are mixtures of high-and low-paying jobs. Some of the health care services pay pretty well."
Weak U.S. dollar may help
Still, the jobs growth in some sectors hasn't been enough to offset the losses in others. Michigan's unemployment rate has marched steadily upward most of this year. At 7.7percent for October, it's the worst since 1992 and the highest in the nation, hovering a full three points above the national unemployment rate.
"The problem is the job losses have exceeded the gains. We're losing ground all the time," Fulton said. "We have the vitality to create jobs in this state -- once we are able to plug the leaks."
One plug might come in the form of the weaker U.S. dollar, which makes Detroit cars cheaper abroad while foreign models get more costly here, noted David Sowerby, senior portfolio manager with financial advisers Loomis, Sayles & Co. in Bloomfield Hills.
"The depreciation in the U.S. dollar has the potential to help Michigan more than people may realize," Sowerby said. "There's a chance that some recovery may come sooner."
Other factors that could hasten Michigan's return to job growth could come in the form of continued cuts to interest rates from the Federal Reserve and any slide in oil and gas prices, Sowerby added.
Worker exodus a problem
When the state does begin to rebound, growth could be hampered by the tens of thousands of workers who have bailed on the state, either to retire or find new work, said David Cole, chairman of the nonprofit Center for Automotive Research in Ann Arbor.
"GM, for example, is going to have a fairly substantial exodus just because of the average age of their employees over the next couple of years," Cole said. "My greatest concern is, where are we going to get the people to replace the people retiring from this industry?"
In the meantime, if the U.S. economy stays out of recession, losses in Michigan's auto and manufacturing sectors will keep slowing down, while housing and related sectors such as retail stabilize and grow during the next two years, the U-M economists said.
The trio hopes their predictions won't turn out to be as mistakenly rose-colored as last year's.
"We think this is a better forecast because we understand better now some of the things that are going on," Fulton said. "I hope we aren't too optimistic. That's a lot of jobs."
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