Michigan economy grew 2.9% last year

Posted on June 8, 2011

The recession in Michigan officially ended last year, according to new government data released Tuesday. In fact, the Michigan economy grew at a rate of 2.9 percent during 2010 — the state’s best economic growth since 2002.

Even better, the state’s unofficial decade-long “one-state recession” is done, too.

“It’s over. There’s no question about that,” said economist Don Grimes of the University of Michigan’s Institute for Research on Labor, Employment and the Economy. “We fixed some of our structural problems, and we’ll look very similar to the nation as we go forward.”

Despite the news that things are getting better, Michigan ends the recession as a smaller, poorer state that has shed hundreds of thousands of jobs during the Great Recession, on top of another half-million jobs lost since 2000.

An official recession is when gross domestic product — GDP for short, which is the total of all goods and services produced — falls for two consecutive quarters. It’s easier to pinpoint the national recession, because U.S. GDP is computed every quarter, while state GDP is calculated just for each year.

So the U.S. recession officially spanned the 18 months from December 2007 to June 2009, while the state’s downturn lasted through 2008 and 2009, according to the Bureau of Economic Analysis.

But unofficially, Michigan has been in recession since the dawn of the millennium.

When adjusted for inflation, Michigan’s gross domestic product fell in 2000-01 and 2004-07, according to the state’s Senate Fiscal Agency. Michigan made modest gains in 2002 and 2003 even as employment continued to fall. According to how the federal agency calculates things, state economic output appeared to grow in that time, but in reality, the state never really pulled out of the recession that the rest of the country exited in 2002.

Worse, Michigan continued to bleed jobs every year since 2000, dropping from a total of employed nonfarm workers of 4.7 million at the end of that year to 3.9million at the end of 2010.

The painful restructuring of the state’s auto industry is what may finally wrest the state out of its decline.

The biggest contributor to Michigan’s recovery is strong growth in manufacturing as the auto industry bounced back after repeated downsizings, layoffs and plant closings, as well as the bankruptcies of both General Motors and Chrysler. According to the Bureau of Economic Analysis, durable-goods manufacturing — which includes vehicles — contributed 1.47 percent of the state’s 2010 growth.

“The fact that Michigan has so much auto-related manufacturing is what really started the turnaround out of the recession,” says PNC Bank economist Kurt Rankin. “The Michigan economy was one of the first to begin its rebound. That’s not so say it’s anywhere near to what it was prior to the recession, but it’s one of the first to find a bottom and emerge.”

Michigan beats U.S. average

Overall, Michigan’s economy showed the 15th-largest gain of the 50 states, with North Dakota’s 7.1 percent rate the best in the nation. Only Wyoming saw its economy shrink, at a rate of 0.3 percent. In 2009, Michigan’s GDP shrank 1.5 percent, on top of the 3 percent loss during the depths of the recession in 2008.

But last year, Michigan’s 2.9 percent growth beat the national average.

“That’s pretty remarkable,” Grimes said. “That’s really good for Michigan.”

Looking ahead, economists expect growth nationally to slow down during 2011 but remain positive for the rest of the year, and don’t expect the country to slide back into recession. That and the supply-chain problems of Japanese automakers after the March earthquake and tsunami are expected to keep domestic auto manufacturing sales up.

Recovery still lacks jobs

In one way, Michigan’s downturn and uptick resembles the old-fashioned recessions of the past. Money would get tight, people would stop buying cars and the state economy would fall harder and faster than the rest of the country.

But once consumers got a little more confident, Michigan would rebound earlier and faster.

That’s been the case this time, too — but with a few exceptions.

The first is that earlier recessions lasted less than a year, while the Great Recession went on for 18 months. The second is that Michigan typically rebounded with more jobs.

This time, the state has lost more than 332,000 jobs since the U.S. downturn officially started in December 2007.

“One problem Michigan has had for 40 years was that every time we’d go into a recession everyone would talk about diversifying the economy,” Grimes says. “Then all the high-paying auto jobs would come back and people would forget very quickly about diversifying.”

Even the most optimistic projections that the state will grow back to hosting 160,000 auto jobs, Grimes said, would still leave Michigan with half of the auto workers who were getting paychecks 10 years ago. And many of those jobs are now at a lower two-tiered wage system negotiated during the Chrysler and GM bankruptcies that start new workers at $14 an hour.

“We’re getting a recovery, but we’re not getting a lot of those jobs back,” Grimes said. “In earlier recessions, we frequently ended up with more jobs than we started with.”

by Brian J. O’Conner, Crain’s Detroit