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Overall manufacturing conditions remain positive in Michigan—though NAFTA renegotiation is a wild card for the state in 2018.

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

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