Michigan business leaders mildly hopeful despite lagging GDP, income
Consumers are spending less on manufactured goods and more on services, said Yasmeen Jasey, Michigan market executive for Citizens Financial Group, Still, Michigan’s retail sector expects a stronger 2023. (Shutterstock)
by Paula Gardner (Bridge Michigan)
Michigan business leaders are expressing a bit less pessimism this spring than last year, even as concerns remain about inflation, a potential recession and the ability to hire enough workers.
Recent surveys representing the viewpoints of retailers, commercial borrowers and executives at Michigan’s largest companies show that fewer think the state will be worse off in the next six to 12 months, while expectations for investments, sales and hiring are stronger than a year ago.
The mildly improving outlook among businesses comes as the most recent data on the state’s gross domestic product — which measures the value of overall goods and services produced in the state — shows Michigan’s growth fell to a tie for 7th lowest among the 50 states in the fourth quarter, according to the federal Bureau of Economic Analysis, which adjusted the data for inflation.
At the same time, Michigan’s personal income increased 0.4% last year over the previous year, a rate that puts the state ahead of only Hawaii and Louisiana, while tied with California. The U.S. average was 2.4%.
Michigan’s slide at year-end raises questions about how the state will fare after the national GDP slowed to a 1.1% increase in the first quarter of this year, according to data released Thursday morning. That number is down from 2.1% for all of 2022.
How the state compares to others in GDP and personal income growth points to the need for urgency in policy decisions that will affect Michigan’s economy, said Patrick Anderson, CEO of Anderson Consulting Group of East Lansing. Of particular concern is whether the state can reverse population losses to boost economic growth.
“This is something that Michigan needs to start thinking about hard,” Anderson told Bridge Michigan on Wednesday.
Losing ground against other states means “we have to be smarter and we have to be a little more focused on what we’re working on,” added Jim Holcomb, president of the Michigan Chamber.
The most recent state GDP numbers, released at the end of March, show Michigan had been cooling in the fourth quarter:
For all of 2022, Michigan recorded a 1.8% increase in GDP, enough for it to rank right in the middle: 25th among all states. But that’s a decline from its rank of 13th a year earlier.
The five Great Lakes states average 1.9% growth, led by Illinois at 2.3%. Indiana also was ahead of Michigan at 1.9% growth, while Ohio (1.5%) and Wisconsin (1.7% lagged).
In the last three months of the year, just five states posted slower or negative growth, and one (Maryland) tied Michigan at a 0.3% growth rate.
Personal income data, released at the same time, shows Michigan’s increased 0.4% in 2022, a rate that puts the state ahead of only Hawaii and Louisiana, and tied with California. A year earlier, it increased 5.2%, in part because of income from sources other than wages, such as unemployment benefits.
Personal income affects consumer spending, with higher personal income indicating a stronger economy.
Meanwhile, Michigan’s GDP for 2022 totaled $490 billion, the 14th largest in the U.S. — a rank unchanged from 2021.
Looking at sectors
About 40% of Michigan’s leading business executives said they expect inflation to either increase or continue at the current level, according to a survey released Thursday by the Business Leaders for Michigan statewide business roundtable.
Just 6% of those leaders say they expect Michigan’s economic outlook to improve in the next quarter, down from 8%at year-end 2022. Forty-four percent expect the state to get worse (which is an 11% decline from year-end 2022).
And most executives who participated in the survey expect their employment and capital investment within Michigan to remain the same over the next year.
Manufacturing is expected to stay strong throughout the year, particularly Michigan’s automotive sector. Part shortages curtailed potential sales over the past three years, leaving a “backlog of demand (that) may prove to be a silver lining as the economy cools,” University of Michigan economists said in a February economic forecast.
U-M’s forecast projected U.S. auto sales to grow from an estimated 13.9 million units in 2022 to 15.1 million units in 2023. Both Ford and General Motors posted sales gains in the last quarter, even as the automakers reconfigure their production and trim costs and staffing to prepare for more electric vehicles.
However, consumers are spending less on manufactured goods and more on services, said Yasmeen Jasey, Michigan market executive for Citizens Financial Group,
In Michigan, that means a rebound for travel, restaurants and health care, she said.
Retail lost ground over the course of the year in Michigan, with its share of the GDP sliding over the previous year by 0.25% However, it was among the largest gainers in the fourth quarter.
Two-thirds of Michigan’s retailers expect sales to increase through the end of the second quarter this year, according to the most recent survey by the Michigan Retailers Association.
March sales were slower than expected, spokesperson Andrea Bitely told Bridge, in part due to weather. Spring and early summer are expected to revive sales, she said. And, unlike the last few years, most retailers and wholesalers can expect to be fully stocked.
“We’re finally getting supply chains back in a workable format so that they have full shelves and the ability to sell and make money,” Bitely said.
That gives the sector hope for more consistent sales, she said.
Construction and the financial sectors may still struggle to regain lost ground after the increase in interest rates cooled home buying and some lending. Michigan building permits for all residential styles, including apartments, were 26% lower in February than a year earlier. And in the first two months of the year, residential sales were 19% lower than during the same period in 2022.
Like many states, Michigan spent two years heavily focused on the pandemic and overcoming the host of issues that COVID-19 brought, like health risks, and both supply and worker shortages for businesses.
By 2022, overall inflation and gas price spikes kept pressure on businesses, as did rising interest rates, which has continued into this year. As 2023 started, Michigan’s population just dipped slightly over the previous two years, and its unemployment rate was 3.4%, compared to the nation’s 4.3%. Its percentage of working-age people with jobs was 59.8%, behind the nation’s 62.4% — leaving about two-thirds of states with more of their residents working.
Michigan’s economic growth may be hampered this year by ongoing hiring struggles, said Holcomb of the Michigan Chamber.
“Many people are adapting and they’re finding ways to be productive,” he said. “But how many businesses can’t expand and how many manufacturing firms can’t add that next line? How many new entrepreneurs in Michigan won’t come here because if they grow, they won’t have the talent to meet their needs?
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