(TNS) — If Michigan’s current economy were a space shuttle, stimulus money would be its rocket fuel.
Should legislators pump in more fuel -- and potential storms in the form of a second wave of the coronavirus don’t delay liftoff -- the shuttle may be well-equipped to return to orbit, economists and industry leaders say.
How quickly that happens remains to be seen, but University of Michigan economics forecaster Gabriel Ehrlich, director of the Research Seminar in Quantitative Economics, is predicting Michigan won’t recover the nearly 1 million jobs it’s lost since February until 2023.
The latest unemployment figures show Michigan has already recovered about 500,000, or half its lost jobs, with the quickest recoveries coming in manufacturing and construction. Bars, restaurants, hospitality and travel-linked commerce continue to struggle and some market segments, such as local government employees and teaching, have yet to feel the coronavirus’ full economic crush.
Below is a list of industries ranked by the most payroll jobs recovered since April, based on analysis by the W.E. Upjohn Institute for Employment Research using state and federal jobs data available through June:
- Construction, 83 percent recovered: 84,000 jobs lost between February and April; 69,400 jobs gained since April
- Retail, 67 percent recovered: 117,700 jobs lost between February and April; 78,300 jobs gained since April
- Manufacturing, 62 percent recovered: 180,800 jobs lost between February and April; 1111,700 jobs gained since April
- Wholesale trade, distribution, 45 percent recovered: 19,500 jobs lost between February and April; 8,800 jobs gained since April
- Other Services, 45 percent recovered: 63,800 jobs gained since April 57,700 jobs lost between February and April; 25,800 jobs gained since April
- Education and health services, 41 percent recovered: 116,100 jobs lost between February and April; 48,000 jobs gained since April
- Professional and business services, 37 percent recovered: 148,100 jobs lost between February and April; 54,000 jobs gained since April
- Transportation, warehousing and utilities, 36 percent recovered: 25,800 jobs lost between February and April; 9,400 jobs gained since April
- Financial activities, 35 percent recovered: 13,400 jobs lost between February and April; 4,700 jobs gained since April
- Leisure and hospitality, 25 percent recovered: 255,600 jobs lost between February and April; 63,800 jobs gained since April
Industry leaders and economists are watching the complex interconnections of Michigan’s $500 billion economy. If one segment falters, others are sure to notice.
If teachers and their students don’t return to classrooms this fall, parents may not return to work. Government budget shortfalls may translate into employee layoffs or canceled infrastructure projects that feed millions to private contractors. If enhanced unemployment payments aren’t reinstated or replaced, leaving the nation’s 31.8 million unemployed struggling to make ends meet, automakers, retailers, bars, restaurants and other businesses are sure to feel it.
“The two big things that are really going to drive the economy right now is what’s going to happen with the coronavirus and what’s going to happen with the stimulus,” Ehrlich said. “It could go a lot of different directions.
Economists said Michigan and the nation are at an economic fork in the road as federal lawmakers determine if they’ll continue supplementing state unemployment payments with stimulus money or provide other pandemic relief. Until Saturday, July 25, the federal government was paying out-of-work Americans $600 per week in enhanced unemployment insurance benefits on top of state unemployment compensation.
Negotiations were continuing on Capitol Hill this week on whether to reestablish those or other benefits.
For the sake of economic stability, Ehrlich said he hopes Congress will pass a short-term “stop-gap” stimulus package to continue supplementing the jobless while a larger, long-term stimulus is sorted out.
“Look, we’re going to run up a lot of debt ... but the federal government is the only entity in the economy that has the capacity to smooth the cost of this out over time,” Ehlrich said.
Without government help, he said, the worst case scenario is that “a lot of households are going to be unable to pay their bills.”
The extra $600 a week in federal unemployment cash meant Michigan residents who maxed out on the weekly $362 available in state aid were receiving weekly pay consistent with a $50,000-per-year salary. Without federal enhancement, that figure shrinks to the equivalent of about $19,000 per year.
“The expansion in unemployment insurance is really cushioning the blow for people both nationally and in Michigan,” Ehrlich said. “People are really going to start feeling the pain if that’s just cut off.”
Slow Trek to Full Recovery
Multiple analysts who spoke with MLive said the state’s economy is currently in a steady upward trajectory as industries reopen and residents return to work.
Michigan’s unemployment rate peaked at 22 percent in April. It descended to about 14.8 percent in June, still about 3.7 percentage points above the national average. According to the state Department of Technology, Management and Budget, the largest metro area job losses since 2019 have been in Monroe, 14.8 percent; Bay City, 14.6 percent; and Battle Creek, 14.4 percent. Among metro areas, Ann Arbor has experienced the softest landing with about 9.6 percent fewer jobs than last year.
The recovery seems to be most abrupt in industries that are able to control work environments safely and institute safety protocols, said Kalamazoo-based Michael Horrigan, president of the W.E. Upjohn Institute for Economic Research.
He said many parts of Michigan are seeing increases in new COVID-19 cases, which he fears could lead to a pullback on reopening the economy.
Michigan on Monday reported 604 new cases of COVID-19. It was the highest Monday total in 11 weeks, going back to May 18. The state’s state’s seven-day moving average stands at 697 new cases per day,
Gov. Gretchen Whitmer took steps last week to restrict certain business and social activities in Northern Michigan as a result of discouraging coronavirus testing statistics.
Michigan, however, has potential for economic resilience, according to Elrich.
The Good and Bad
It’s been nearly three months since Michigan’s economy began “reopening” following a mass shutdown of businesses forced by the coronavirus pandemic. Among the first to do so were construction companies on May 7.
The number of construction jobs plummeted from about 182,000 in February to 98,000 in April, but has since added 69,400 jobs. While still below pre-pandemic levels, Horrigan said the outlook is good.
“I was talking to some construction managers and they were actually saying we might hit more than 100 percent of our prior employment level because we’ve got (these projects) that all of a sudden we can do and we’re two months behind,” Horrigan said. They’ve “got to hire extra people to do them.”
Manufacturing, which encompasses Michigan’s enormous mainstay, the auto industry, has also recovered reasonably well, gaining back nearly 62 percent of 181,000 jobs lost between February and April.
In 2019, Michigan was home to one in five U.S. auto-manufacturing jobs. Wayne County alone had more auto-manufacturing jobs than every state except Kentucky, according to federal Bureau of Labor Statistics data.
“It’s been a roller coaster ride,” said Charlie Chesbrough, na Ann Arbor-based senior economist at Cox Automotive marketing and media company. “We probably hit the bottom of this market in the end of March. On a year-over-year, in terms of sales, we were falling maybe 75 percent and since then we’ve had a slow but steady recovery.
“But there is some concern in the last couple weeks that we are starting to stagnate a little, that we’re sort of settling at down 20 percent, 25 percent as the stimulus wears off.”
Chesbrough credited “really incredible financing deals,” especially for trucks, for continued sales throughout the pandemic.
“What we don’t know is how much the stimulus (funds) brought people out to shop that may not have really been in the market but the deals were too good or they had this extra money” he said. “Did we pull ahead sales so we’re going to suffer the consequences of that through the summer?”
Chesbrough said the automakers haven’t announced many layoffs, but plants aren’t yet operating at full production.
“I mean, it’s hard to keep up that same level of output and maintain social distancing,” he said. “I think the industry is in a situation where they have to decide: do they want to ramp up to the levels they were at before or are they sitting kind of good being a little on the lean side.
“If they make the conscious decision that, yes, we’re going to stay lean over the near future, then I think you will see some layoffs.”
The retail industry has rebounded better than most, having recovered 67 percent of jobs lost since February, but restaurants, bars, hotels and travel-connected jobs continue to struggle.
Slashes to Michigan’s hospitality industry have cut deep.
The industry dipped from about 435,000 jobs in February to 180,000 in April, according to Ehrlich. While about 60,000 jobs were recouped as of June, more layoffs keep coming.
Any business that plans to lay off more than 50 employees in less than 30 days is required to notify the state Department of Labor and Economic Opportunity in what is called a “warn notice.”
Eight of 13 such notices sent to Michigan in July were from hospitality companies intending to lay off a total of nearly 3,000 employees.
On July 15, DoubleTree by Hilton in downtown Detroit announced 58 of its employees would be laid off for greater than six months.
“We did not and could not have foreseen how broadly and deeply the COVID-19 epidemic would spread and affect our business,” the company said in a letter to Michigan officials. “Nor did wee foresee that ‘lockdown’ orders, initially issued for short durations in certain specific cities, would spread throughout the country and be constantly and continually extended and/or changed, thus not merely interrupting commerce and travel for a short period, but now disrupting commerce and travel for the foreseeable future.”
Some portions of the economy are buffered by existing tax funds that delay the fallout.
Local governments that generate the bulk of their funding from property taxes and state revenue sharing see difficult budget decisions on the horizon, but continue to operate normally with existing tax funds.
“We expect to see a lot of impact on the property tax side in the coming year,” said Chris Hackbarth, director of state and federal affairs for the Michigan Municipal League. “Just like the Great Recession when we saw local governments kind of dragging behind the recovery, you’re going to see the same thing again.
“As you see commercial vacancies go up, property values drop, bankruptcies and people moving out of their homes, that will hit over the next one, two, three years.”
Local governments are facing deep cuts to state revenue sharing payments. While federal CARES Act funding will help cushion the blow, Hackbarth said communities are limited in how they can spend those federal funds.
“We’re already seeing infrastructure projects frozen, we’re seeing projects canceled, you’re seeing delays in water and sewer projects, in road projects and other facade projects in downtowns” he said. “We’re seeing the state pull back some grants, we absolutely are having hiring freezes at the local level.”
Hackbarth said local governments still haven’t recovered from the Great Recession, when most budgets were “cut to the bone.”
That’s evident when communities begin cutting police, fire and EMS jobs, he said, pointing to recent public safety layoffs or furloughs issued in Westland and Battle Creek.
“When you look at the ripple, local government has an impact across the whole economy,” Hackbarth said. “We employ people, so if their incomes go down, if they’re laid off, those individuals have not money to buy goods and services from the private sector and you see vendors and contractors lose their contracts.”
Public schools don’t sell anything, but they’re extremely important to the economy, said David Crim, spokesman for the Michigan Education Association, a union that represents 120,000 public education workers.
Whether and when schools open will be crucial to the state’s recovery, Crim said.
“We are adamant that public health experts guide that decision, not (President Donald Trump) and (U.S. Education Secretary Betsy DeVos), who say reopen the schools no matter what,” he said.
While Michigan’s economy is struggling, teachers are still getting paid.
“The state, with some of the pandemic (stimulus) money, was able to rescue school budgets for the 2019-2020 school year, which was in shambles because state revenue plummeted” Crim said. “Looking to the 2021 school year, they’re in deep holes, so they’ve had to send layoff notices out across the state when they need to be hiring more teachers to provide for smaller class sizes to allow for proper social distancing.
“As we speak, thousands of school employees across the state have layoff notices in their hands.”
Crim said there are about 300,000 teachers and other public education employees in Michigan.
“They get paid, they spend money, they keep the economy going,” he said. " ... And if schools don’t reopen, (parents) continue to stay home because their kids aren’t going to school ... and that’s going to have a major impact on the economy.”
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