Friday, November 21, 2008

Michigan Forecast: Mostly Cloudy with a Chance of Recovery by 2011

Watching the figures from the U of M's 56th Annual Economic Outlook Conference come out in real time this morning. Today the focus is on Michigan, and the news is pretty grim; unemployment expected to peak at 10.5 and hover over 10% for a couple of years, and the number of jobs lost is staggering.

Rick Haglund had something already prepared and offers more proof of why we desperately need to diversify our state's economy away from the auto industry.

The state will lose 108,000 jobs in 2009 and 24,000 in 2010, resulting in a full decade of job losses for auto industry-dependent Michigan.

"The confluence of recession in the U.S. economy and the tenuous position of the domestic nameplate automakers is a troublesome gateway to the year ahead," said U-M economist George Fulton. "Regardless of how we feel about it, stability in the state's core industry is essential for the economy as a whole to grow and prosper."

This is assuming that Congress will pass a loan package for the automakers of course. If they don't, all bets are off.

Fulton and fellow economist Joan Crary predicted that Michigan, which has lost 74,000 manufacturing jobs over the past two years, will lose 53,000 more manufacturing jobs in 2009 and another 24,000 the year after.

Nearly two-thirds of these job losses will be in the auto industry, which by the end of 2010 will employ less than a third of the workers it had just a decade earlier.

Forecasters are predicting growth in education and health care, and see a turnaround by 2011.

"We expect that 2010, although not an especially good year, will nevertheless be much better, with employment declining at a more modest rate," Crary and Fulton wrote in their forecast. "And an extrapolation of our forecast suggests that we may see modest job gains in 2011."

But as any prognosticator will tell you, outside influences can and will change this outlook. Like it or not, we are tied to the fortunes of the national economy. We were on our way to recovery until this wave hit us; just as recently as August, these numbers weren't as drastic.

This national downturn and loss of local revenue means our state budget will take a huge hit. These numbers will be finalized based on the forecast released today, and earlier this week, it wasn't looking good. The budget battle of '07 put us on solid ground for '08 and provided some carry-over to stabilize '09 - but massive cuts are once again in the mix, and there is no way this Legislature (or the next) will have the guts to raise revenue for '10. So, kiss your extra local government and school money goodbye.

With the school's economists saying the nation is in recession and no upturn is likely until mid-2009 or later, Olson said it's clear the state won't be getting as much tax revenue as predicted at the May revenue estimating conference.

He has been telling state senators to expect a $450 million to $900 million revenue shortfall in the current budget year, which started last month. He said some of the deficit will be covered by around $400 million carried over from the past fiscal year, and added that $650 million could come to Michigan from a stimulus package Congress is expected to pass after Barack Obama becomes president in January.

But Olson said the state can't rely on those one-time fixes and has to make cuts or raise taxes this year to avoid dealing with a "massive hole" in the fiscal 2010 budget, which starts Oct. 1.

Granholm has already told state department heads to get their ducks in a row and be prepared to make cuts - we will find out just how much soon enough. Gear up for yet another battle in the Legislature over who gets the ax this time.

If anything, this shows we need to continue to position ourselves for the future. That means retaining whatever quality of life we can right now, and pursuing every possible opportunity to bring alternative energy companies and other high-growth industries to this state. One industry is swamping our boat, and if we are smart, we will never let that happen again.