Aug. 29, 2022
Detroit is expected to recover after facing greater economic challenges during the pandemic than Michigan or the U.S. overall — even as new recession threats loom compounded by near record inflation, supply chain delays, and labor challenges — according to a new study from the University of Michigan in Ann Arbor.
The Detroit Economic Outlook for 2021-27 notes that long-planned development projects and pent-up demand from the previous economic collapse should help the city better withstand the upcoming slowdown.
“The incoming data continues to point to an ongoing recovery in Detroit’s economy. We are projecting local growth to continue despite a slowing national economy, in part, because of pent-up demand in the auto industry,” says Gabriel Ehrlich, director of U-M’s Research Seminar in Quantitative Economics and lead author of the forecast.
The city’s unemployment rate leapt to nearly 40 percent in the months after the breakout of COVID-19, from about 8 percent in February 2020, compared with jobless peaks of 22.7 percent for the state and 14.7 percent for the nation.
Detroit’s unemployment rate fell to 17.2 percent by the end of 2020, and dropped to 10.6 percent by May 2021. Despite that drop, researchers note the rate in spring 2022 was 2.5 percentage points above its pre-pandemic level.
Job growth in Detroit is predicted to increase from 3 percent in 2021 to 5.4 percent this year, then cool down to 2.7 percent in 2023.
The researchers say the rate of growth should slow further toward the end of the forecast period in 2027, as scheduled projects wrap up. Other speed bumps include the challenges of remote work and the state’s broader labor market running into a demographic speed limit as the Baby Boom generation continues to reach retirement age while domestic and international migration remains weak.
The economists break down Detroit’s employment picture into two categories: payroll employment at city establishments and employment among residents.
Payroll employment (jobs in the city) had recovered about two thirds of its initial pandemic losses through last September, the point at which data for that measure extended. Researchers say its recovery has been continuing steadily.
A concerning but likely temporary trend has emerged in the resident employment measure: While it had recovered nearly 95 percent of its initial pandemic losses by March, it dropped by 1.4 percent through May.
“We do not believe that those declines represent a reversal in the underlying trend, but they are not what we were hoping to see,” the researchers wrote in the study.
The forecast projects the city will add 11,300 payroll jobs this year and 6,100 in 2023, the year in which the city is expected to recover to its pre-pandemic level. Job growth is forecast to continue but at a slower pace through 2027, and blue-collar industries should lead the way in the recovery during that time with work on such projects as the Gordie Howe International Bridge, Stellantis’ Mack Assembly complex, and General Motors’ Factory Zero.
High, persistent inflation also is likely to take a bite out of annual earnings: Wages are projected to rise by 6.6 percent this year but the gains will be outpaced by a 7.7 percent rate of inflation. The wage growth is expected to run about even with inflation for the next few years.
The economists are watching a couple of potential scenarios they say could trigger a recession — though technically the national economy is in recession following two quarters of negative growth in the first half of the year.
The first is an escalation of Russia’s war in Ukraine: If Russia completely cuts off natural gas supplies to Europe, researchers say, the ensuing global supply chain stress could force Detroit’s Big Three automakers to halt production (in some global regions).
The researchers fail to note that Michigan, especially metro Detroit, has ready access to affordable natural gas from DTE Energy. The utility buys natural gas at lower prices during the summer and stores it underground for use in the higher demand periods of the winter.
In turn, DTE Energy receives natural gas via a 256-mile interstate pipeline from the Marcellus/Utica shale formations in Pennsylvania, Ohio, and West Virginia that was completed in 2019.
A second scenario is the possibility that the Federal Reserve goes too far in its efforts to control inflation. The economists recall the early 1990s recession, which included an oil-price spike and monetary tightening.
If that were to happen again, researchers say Detroit’s resident employment count could fall by about 6,600 people. Still, any recession along these lines would likely be brief, with recovery beginning as the Fed eases up once inflation is under control.