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
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