November 2018 MI Economic Outlook

November 9, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Michigan Manufacturing Uncertainty Lower as USMCA Set to Replace NAFTA

Trade uncertainty for many Michigan manufacturers has been reduced with the completion of the new U.S.-Mexico-Canada Agreement. The new trade deal remains to be ratified. The recent U.S. mid-term election does not appear to raise significant new hurdles for deal ratification by all three countries. U.S.-China trade relations remain contentious. Again, the mid-term election results do not appear to be changing the stance of the Trump Administration towards China. Michigan’s auto industry received a shot in the arm as U.S. auto sales increased to a 17.4 million unit rate in September and increased again to 17.5 million in October. Auto and light truck assemblies for the entire U.S. increased to an 11.1 million unit rate in August and then increased again to 11.4 million in September. We continue to look for a gradual decline in U.S. auto sales, from 17.1 million units in 2018, to 16.8 million units in 2019. Consumer conditions will remain strong, supported by ongoing job growth, increasing wages, high consumer confidence and positive wealth effects. A negative factor for auto sales is the tepid housing market which is a downer for both general household sales and pickup truck sales to construction workers. Also, we expect auto finance rates to continue to creep up as the Federal Reserve increases the benchmark fed funds rate. The days of zero percent auto financing are coming to an end. According to Edmunds, zero percent auto loans accounted for just 5.6 percent of the total in September, down from 10.1 percent of loans a year earlier. With flattish auto sales and housing markets, we expect the Michigan economy to show cooler growth in 2019, with state-level real GDP growth stepping down to 1.7 percent for the year. This will be enough to keep job growth on track for the service sector and keep unemployment very low.

For a PDF version of this report, click here: November 2018 MI Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.
 

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August 2018 MI Economic Outlook

August 13, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Michigan’s Manufacturers Wait for NAFTA News

    The Michigan economy expanded at a modest 1.6 percent annualized rate in the first quarter, below the U.S. average of 2.1 percent. In Q2, U.S. real GDP growth accelerated at a 4.1 percent annualized rate. We expect that Michigan real GDP growth accelerated also, to about a 3 percent annualized rate in Q2. Given tight labor market conditions, including limited potential for labor force expansion, we believe that the moderately strong Q2 performance will not be sustained. At 3.8 percent in May, Michigan’s unemployment rate was the lowest since April 2000. We see a mix of positives and negatives for Michigan’s vital manufacturing sector going forward. Demand for heavy duty vehicles is very strong. Overall vehicle production is expected to increase in the third quarter. However, demand for light duty vehicles is being hindered by low real wage growth, higher production costs, higher financing costs, and signs of a cooler housing market. Manufacturers in Michigan and elsewhere are also subject to increasing uncertainty about U.S. trade policy. The Trump Administration continues to ratchet up pressure on China, and China continues to retaliate, making imports more expensive and reducing the demand for U.S. exports. To date, there is little evidence in the economic data that trade uncertainties are a serious impediment to U.S. economic growth. However, there are numerous anecdotal comments suggesting that business investment is being held back. News about the NAFTA negotiation process is conspicuous in its absence. The Trump Administration appears to be favoring bilateral talks with Canada and Mexico. Mexican President-elect Andres Manuel Lopez Obrador has been publicly supportive of a quick resolution to NAFTA negotiations. The U.S. and Mexico are reported to be close to a deal on auto production.

For a PDF version of this article, please click here: August 2018 MI Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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2018 Is A Pivotal Year for Michigan

May 14, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Manufacturing conditions in Michigan remain positive, but we expect to see indicators easing through this year as auto production tapers. Our U.S. auto sales forecast falls from the 17.2 million unit rate of 2018Q1 to 16.6 million in 2018Q4. This is not a drastic decline, but we expect it to lead to reduced domestic production. U.S. vehicle production is highly correlated with state GDP growth for Michigan. Lower auto sales and lower vehicle assemblies by yearend are key factors in our expectation for reduced real GDP growth for the state in the second half of this year. We also expect job growth to ease in line with reduced state GDP growth. Reduced job growth will lead to lower income growth, with spillover to the state service sector and housing markets. Recent estimates for net-migration into Michigan have been slightly positive, after years of drag from persistent net out-migration. Our forecast calls for a reduced in-migration due to cooler job growth, and increased out-migration due to baby boomer retirement, the result of which will be a return to net out-migration by 2019. The net outflow of people from Michigan will keep overall population growth subdued. It is next to impossible for a state to be a strong economic performer with that kind of demographic profile. Growth would have to come from exceptional productivity gains. NAFTA renegotiations are also an ongoing risk factor. We look for a positive outcome for Michigan. However, it looks like it will take a strong effort to resolve NAFTA by the Trump Administration’s self-imposed end-of-May deadline. President Trump said today that he would like to shape NAFTA so that more cars are made in the U.S. However, Ford has announced that it will phase out most of its sedan production in North America.

For a PDF version of this report click here: MI-Outlook-0518.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Moderate Growth Ahead for Michigan as the Auto Industry Adjusts

February 13, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Overall manufacturing conditions remain positive in Michigan. Non-auto related manufacturing is expected to show ongoing gains in 2018, supported by strong domestic and international economic conditions. NAFTA renegotiation is a wild card for the state in 2018.  The sixth round of negotiations were held in Montreal at the end of January, apparently closing with only minor progress. The original schedule for negotiations called for one more round of talks in Mexico City this month. We expect a deal will be made that will not be damaging to the Michigan economy, but that is not a certainty. The upcoming general election in Mexico on July 1 adds complexity to the outlook. The U.S. auto industry is generally supportive of NAFTA. One key area for NAFTA negotiation is the percent of material in a new car required to enter the trade zone tariff-free, currently at 62.5 percent. The Trump Administration has proposed raising the bar to as high as 85 percent, with 50 percent allotted to U.S. made parts. Domestic auto sales surged last September, to an 18.5 million unit annual rate after hurricanes damaged hundreds of thousands of vehicles in Texas and Florida.  January 2018 sales eased to a 17.2 million unit rate. We expect to see some further moderation in auto sales through 2018. Auto and light truck assemblies have increased in recent months in response to the late 2017 surge in sales, but we expect production to ease as sales moderate this year. Michigan’s unemployment rate reached a low of 3.7 percent last July. After five straight monthly increases,  it regained a full percentage point, registering 4.7 percent in December.

For a PDF version of this report click here: MI_Outlook_0218

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

 

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Michigan in Transition

November 14, 2017 by Robert A. Dye, Ph.D., Daniel Sanabria

There is good news and potentially bad news for Michigan due to record U.S. sales of 17.5 million lightvehicles in 2016. It was good news because it represented a tremendous achievement for the U.S. auto industrywhich was on the verge of collapse in late 2008. It may be bad news if it represents a high water mark for the industrythat will not be soon repeated. After peaking in December 2016 at an 18.1 million unit sales rate, autosales eased to a 16.7 million unit rate by July 2017. Then came Hurricanes Harvey and Irma, disrupting Augustand September sales, but also creating a surge in demand after hundreds of thousands of vehicles were destroyedby the storms. September auto sales spiked to an 18.5 million unit rate. October eased to a still strong18.1 million unit rate. The surge in sales this fall sopped up a growing inventory of unsold vehicles. However, weexpect sales to ease further in November and further still in the months that follow. Also, strong sales this fallmay have cannibalized demand later on, resulting in weaker sales in 2018. In addition to the gyrations in autosales this year, businesses in Michigan face changes in the healthcare landscape, tax structure and trade agreementswith Canada and Mexico. Fortunately, the economic climate is good. Global GDP is on the upswing, U.S.GDP appears to be set for more consistent growth and local conditions are strong. This will ease the stress onmany businesses. We characterize 2017 as a transition year for the Michigan economy. Going forward, we lookfor a leveling of auto sales, and then a return to a normal late-business-cycle gradual decline.

For a PDF version of this report click here: MI_Outlook_1117.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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