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Updated 7:00 AM November 23, 2009
 

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Recession may be over, but recovery will be gradual

This year has been one of the most brutal years in a generation for Michigan's economy, and next year still will be difficult, U-M economists say. And with the severe national recession of the past two years finally behind us, the pace of economic recovery will be slow and unemployment will remain high for quite some time.

"Based on the data currently available, the recession that began at the close of 2007 appears to have ended sometime this summer — the longest and steepest drop in output since the Great Depression," economist Joan Crary says.

"As we look ahead to Michigan's economic prospects over the next two years, the deck may seem stacked against any turnaround," said George Fulton, director of the Research Seminar in Quantitative Economics. "But the Michigan economy is in a more encouraging position now than it was at the beginning of 2009."

The state and national forecasts were presented last week at U-M's 57th annual Economic Outlook Conference.

Historically, sharp downturns are followed by rapid growth, but Crary says that a number of factors — such as restrained consumer spending and a struggling housing market — are producing national economic headwinds that will slow this recovery.

In their annual forecast of the Michigan economy, Fulton and colleagues Crary and Donald Grimes say the state will lose 283,000 jobs by the end of this year — the largest single year of job loss in at least 70 years, which is as long as the data have been collected.

According to Fulton and colleagues, manufacturing will account for 36 percent (or 91,000) of the state's total job losses this year, with just less than half of those losses in motor vehicle manufacturing.

In all, Michigan is expected to lose 24,000 manufacturing jobs from the end of this year to the end of next year and another 16,000 during 2011. The trade, transportation and utilities sector (which includes some auto-related activity but mostly retail trade jobs) will be down about 16,000 jobs next year and 8,000 more during 2011, after losing 55,000 jobs during 2009.

The service industries, which lost 49,000 jobs during 2009, are expected to shed 4,000 jobs during 2010 and add 11,000 jobs during 2011. Construction, which lost 27,000 jobs this year, is projected to lose 3,000 more during 2010, but then gain them back the year after.

In their annual forecast of the U.S. economy, Crary and colleagues Daniil Manaenkov and Stanley Sedo predict the national labor market will continue to weaken through the early months of 2010 before posting a consistent, but tepid, recovery throughout the rest of 2010 and 2011, the economists say.

Besides modest growth in gross domestic product and, eventually, in the labor market, another positive sign of economic recovery lies in the U.S. housing market, Crary and colleagues say. Low interest rates will help spur home sales as the 30-year conventional mortgage rate will remain around 5 percent over the next two years, the economists say.

The sales of light vehicles will continue to edge upward, they say.

The cost of oil also will increase, thanks to a rebound in current and expected demand from the recovering world economy, Crary and colleagues say.

The U-M forecast is based on the Michigan Quarterly Econometric Model of the U.S. Economy and compiled by the U-M Research Seminar in Quantitative Economics. For more information go to www.umich.edu/~rsqe.

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