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Michigan Job Losses Likely To Continue

University of Michigan economist expects 2010 will be 'difficult,' with job losses continuing and the state's unemployment rate rising to an average of 15.8 percent.

ANN ARBOR, Mich. (AP) -- Michigan's economy will improve in 2010, but only in comparison to what has been "one of the most brutal years in a generation," University of Michigan economists said Friday.

Economist George Fulton expects next year will be "difficult," with job losses continuing and the unemployment rate, -- 15.1 percent in October and an expected 15.6 percent this quarter -- rising to an average of 15.8 percent in 2010.

But he says 2011 will see modest job gains, although unemployment will drop only to an average of 15.4 percent. He expects job losses to bottom out in summer 2011.

Although Michigan is now home to a vastly smaller auto industry, Fulton said the state's fortunes remained tied to the domestic automakers. But that's not all bad, he said.

The small improvement he sees coming in 2011 will be based on the national economic recovery and the improving fortunes of the auto companies, which will have a lower cost structure and lighter debt burden after significantly downsizing and -- in the case of General Motors Co. and Chrysler Group LLC -- going through bankruptcy.

Still, the damage Michigan and its economy have suffered over the past decade has been so deep that it will take years to recover, Fulton said.

"If our forecast proves correct, the job decline that started in mid-2000 would bottom out in the summer quarter of 2011, with an aggregate job loss of 937,000 over that 11-year period, or about one in every five jobs that existed" in 2000, he said.

The forecast estimates 84,900 jobs will be lost in 2010 and 36,000 in 2011, when a net gain in jobs finally will begin to occur in the second half of the year. Jobs will continue to grow modestly in 2012, Fulton said.

Michigan's personal income growth rate, which has been steadily sinking compared to other states, will be in negative territory this year, dropping by 3.4 percent. But it should grow by 1 percent in 2010 and 1.7 percent the year after, he said.

However, 2011 is expected to be the weakest year for Michigan purchasing power since 1981, once inflation is taken into account. Fulton and colleagues Joan Crary and Donald Grimes said the state's revenue outlook will continue to be shaky since residents will see little income increase and may not have as much money to spend.

The economists forecast general fund revenue, which fell 20.8 percent this year, will fall 7.4 percent next year and nearly 1 percent in 2011. School aid revenue also will be down, although not by as much.

"Our forecast for Michigan through 2011 suggest that we have left the worst behind us but still have some distance to travel before we see sustained job growth in the state," Fulton said. "Progress is painfully slow throughout 2010 and during the first half of 2011."

The economists warn in their report that Michigan must continue to diversify its economy, with investments that play to Michigan's assets and strengths.

And they say the state's leaders must take steps to re-evaluate how they draws up state budgets and start making tough decisions on how they deal with ongoing deficits.

"Our success will ultimately be determined by our resolve, and we are running out of time," they said.

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