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Manufacturing conditions in Michigan remain positive, but we expect to see indicators easing through this year as auto production tapers.

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.

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