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Detroit Chamber report: K-shaped recovery leaving metro Detroiters behind

Crain’s Detroit Business 

February 25, 2021

By Dustin Walsh

Unemployment and the economy are moving in the right direction as COVID-19 vaccines continue to abate the coronavirus’ destruction.

For instance, new jobless claims in the U.S. were at the lowest point last week at 730,000 since the pandemic recession began in early April last year.

But bubbling underneath the positive developments is a slow-moving economic disaster leaving hundreds of thousands of metro Detroiters behind — a K-shaped recovery.

The region began 2020 with 2.1 million private sector jobs, but closed out the year with only 1.9 million jobs, a 10 percent decrease. And the longer the pandemic continues, the more likely it is that jobs and industries impacted by the coronavirus will see longer-term impact, according to the Detroit Regional Chamber’s State of the Region report released Thursday.

Polling of registered voters in the state shows the disparities in impact from the virus. Roughly 75 percent of those surveyed in December said the pandemic has had a minor or no effect at all on their finances, compared to 24.2 percent of respondents who said it’s had a catastrophic effect. And the latter figure is rising — 23.8 percent of those surveyed indicated a catastrophic impact in May.

“This really shows the K-shaped recovery,” Sandy Baruah, the chamber’s president and CEO, said in a call with reporters. “We hear that ‘COVID is not impacting me,’ but a quarter is saying it’s a major impact and this plays out in the data over and over.”

Those most impacted are also facing a growing housing crisis. About 37 percent of metro Detroit’s households surveyed in December by the U.S. Census Bureau said they are behind on their rent or mortgage and that an eviction or foreclosure is likely in the next two months.

U.S. Census survey data revealed 10 percent of the region’s households are not current on rent or mortgage payments and 37 percent of those people are facing eviction or foreclosure by the end of February.

Yet median sale prices of homes in metro Detroit rose more than 23 percent to $236,300 in the third quarter of last year from the first quarter of 2020. The national median sale price grew only 12 percent. This plays out in new housing permits. Single-family home starts in 2020 remained nearly identical to 2019 compared to multifamily unit starts being down 21 percent in 2020, as those most impacted by the coronavirus crisis are more likely to live in multifamily units.

The “who” of those impacted by the pandemic is clear. It is low-education, low-income people who worked in industries most impacted, like retail, hospitality and health care, according to the chamber’s research.

Michigan workers with at least a bachelor’s degree saw the lowest levels of unemployment throughout 2020, with an unemployment rate rising to only 4.5 percent in December from 1.8 percent in March prior to the pandemic. For those with only a high school diploma, the unemployment rate hit 12 percent in December compared to just 3.9 percent in March.

Of the roughly 189,000 jobs the metro Detroit region lost in 2020, about 81,000 of those came from the leisure and hospitality sector. More than 42 percent of the jobs in the sector, many of which don’t require a degree, have not returned since the pandemic began.

And while education attainment regularly shields workers from recessionary effects, the pandemic has severely impacted college enrollment.

Fall 2020 enrollment at Michigan’s postsecondary institutions fell by 8.6 percent, with community colleges seeing a 13.2 percent decline. And financial factors aren’t the only consideration. The Detroit Promise, a tuition-free program for Detroit residents, reported a 36 percent drop in community college enrollment in the fall, according to the chamber’s data.

“Coming out of every recession we see the people with a lack of skills fall behind,” Baruah said. “We also usually see spike in automation and spike in technology. This time, we’re going to see that spike to a greater degree than in the past because the nature of this crisis is essentially people touching things. So this has already driven spikes in automation where it takes the human element out to future proof companies’ operations.”

Look no further than manufacturing to find the long-term impact. Nationwide, manufacturing jobs have not returned to pre-recession levels during any given recession in nearly 50 years.

Manufacturing jobs in metro Detroit were down by 23,000 jobs in December from March, yet manufacturing output grew to new heights after bottoming out in April 2020. In 2020, the Manufacturing Purchasing Managers’ Index, which measures manufacturing economic growth, contracted in March 2020 after 131 consecutive months of growth, but a score of 60.5 in December, well above the 50.3 score in February. A score above 42.8 indicates growth in orders and output.

So fewer workers, more output.

Jim Malz, Midwest regional executive for Citizens Bank, told reporters on the call that solving the jobs conundrum for those left behind during the pandemic recession will be the region’s greatest challenge. Citizens is the sponsor of the chamber’s State of the Region report.

“I don’t believe (the jobs market) is going to get back to the way it was,” Malz said. “Not all those jobs will stay relevant. But it creates an opportunity though for us to figure out how to reemploy those folks. I think there is a new normal over time. Just the way the behavior of consumers has changed so rapidly. This pandemic has really brought this to the forefront. So how do we employ a certain number of workers going forward? We all have vested interest in making that happen.”

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