UM forecast: Detroit economy weathers pandemic challenges while battling recession fears

Source: Michigan News

Detroit is expected to rebound after facing greater economic challenges during the pandemic than Michigan or the entire United States, even as new threats of recession loom, according to research from the University of Michigan.

Detroit’s economic outlook for 2021-27released Thursday, notes that long-planned development projects and pent-up demand from the previous economic slump should help the city better weather the coming downturn.

“Incoming data continues to point to an ongoing recovery in Detroit’s economy. We expect local growth to continue despite the slowing national economy, in part due to pent-up demand in the auto industry” , said Gabriel Ehrlichdirector of UM’s Quantitative Economics Research Seminar and lead author of the forecast.

The city’s unemployment rate rose from around 8% in February 2020 to almost 40% a few months later in the midst of the pandemic, compared to unemployment peaks of 22.7% for the state and 14.7% for the nation. Detroit’s rate quickly fell to 17.2% at the end of 2020 and 10.6% in May. Despite this drop, the researchers note that the rate last spring was 2.5 percentage points above its pre-pandemic level.

Job growth is expected to rise from 3% in 2021 to 5.4% this year and then decline to 2.7% in 2023. The researchers say the growth rate is expected to slow further until the end of the period forecast, as planned projects come to an end. Other speed bumps include the city’s economy facing remote work challenges and the state’s broader job market hitting a demographic speed limit as baby boomers continue to reach retirement age while national and international migration remains low.

Economists break Detroit’s employment picture into two categories: wage employment in city establishments and employment among residents.

Wage employment (city jobs) had recovered about two-thirds of its initial pandemic losses until last September, when data for this measure expanded. Researchers say his recovery is continuing steadily.

A worrying but likely temporary trend has emerged in the resident employment measure: while it had recovered almost 95% of its initial pandemic-related losses in March, it fell 1.4% through May. .

“We do not believe these declines represent a reversal of the underlying trend, but that is not what we had hoped to see,” the researchers wrote in the study.

Forecasts predict the city will add 11,300 salaried jobs this year and 6,100 in 2023, the year in which the city is expected to return to pre-pandemic levels. Job growth is expected to continue, but at a slower pace through 2027, and blue-collar industries are expected to lead the way to recovery during this period with work on projects such as the Gordie Howe International Bridge. , the Mack Assembly complex of Stellantis and General Motors. Factory Zero.

Persistently high inflation is also likely to eat into the wages of workers in the city: wages are expected to rise 6.6% this year, but the gains will be outpaced by an inflation rate of 7.7%. Wage growth is expected to roughly equal inflation over the next few years.

Economists are watching a few potential scenarios that they believe could trigger a recession.

The first is an escalation of Russia’s war in Ukraine: If Russia completely cuts off natural gas supplies to Europe, researchers say, the resulting global supply chain stress could force the three Detroit automakers to halt production.

A second scenario is the possibility that the Federal Reserve goes too far in its efforts to control inflation. Economists remember the recession of the early 1990s, which included soaring oil prices and monetary tightening.

If this were to happen again, the researchers say Detroit’s resident employment numbers could drop by about 6,600 people. Nonetheless, any recession in this direction would likely be brief, with the recovery beginning as the Fed eases once inflation is brought under control.

Economists say they remain “cautiously optimistic” none of these scenarios come true, the national economy is seeing moderate but sustained growth, and Detroit’s economy “has room to thrive.”

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