University of Michigan Economists Release Revised Economic ForecastsApril 15, 2020
The University of Michigan released an update in April on its U.S. and Michigan economic outlook for 2020-2022. As the COVID-19 pandemic continues to disrupt the economy and many businesses are forced to remain closed, this update on the economy’s outlook keeps information timely as the business climate changes rapidly. View the updated forecast below.
- Expect U.S. real GDP to decline by 7% from the first quarter to the second quarter of 2020, or 25% on an annualized basis.
- Real activity not to return to its 2019 Q4 peak until late in 2021.
- The national unemployment rate to reach a peak of 16% in May, dropping to about 7% by the end of 2020.
- Expect unemployment to rise even further in Michigan to 23% for the second quarter of 2020, potentially the highest recorded since state-level data began.
- Michigan payroll job count to fall by nearly 1.2 million jobs in the second quarter of 2020, compared to the 140,000 job decline in the first quarter of 2009.
Releasing an additional revised forecast for the U.S. and Michigan economies, the University of Michigan’s Research Seminar in Quantitative Economics acknowledges it will take several months to get an accurate picture of the economic damage caused by the COVID-19 pandemic.
Despite the uncertainty, economists expect U.S. real GDP to decline by 7% from the first quarter to the second quarter of 2020 or decline 25% on an annualized basis. The quarterly contraction has not been observed at those levels since 1958 when real GDP fell at a 10% annual rate. Expectations are for real GDP growth to rebound partially in 2020q3, but the next surge in growth will have to wait until mid-2021 after a vaccine potentially becomes widely available.
The national unemployment rate is expected to reach a peak of 16% in May and an average of 14% in the second quarter of 2020. Restaurants, hotels, airlines, gyms, and spectator sports, among others, are likely to remain on a lean schedule until the spring or summer of 2021.
As for the state of Michigan, the projected payroll job count is expected to fall by nearly 1.2 million in the second quarter of 2020. For comparison, Michigan lost about 140,000 jobs in the first quarter of 2009, during the depths of the Great Recession. This leads to projecting combined General Fund and School Aid Fund revenues to be $2.6 billion lower in the fiscal year 2020, $3.2 billion lower in fiscal 2021, and $2.2 billion lower in fiscal 2022.
The state’s unemployment rate is forecasted to jump to 23% in the second quarter, easily the highest level since the state-level data series began in 1976. Michigan’s unemployment rate is then expected to fall to 9% in the third quarter of 2020 and decline more slowly after that to between 5 and 6% by the end of the forecast horizon in the fourth quarter of 2022.
Michigan’s unemployment rate is forecasted to be larger than the nation, due to the more cyclical nature of the state’s economy, the slowing of U.S. light-vehicle sales and the greater prevalence of COVID-19 in Michigan.
With the aggressive federal response thus far, RSQE economists maintain the possibility of a vigorous recovery when public health conditions allow the economy to begin reopening. While the range of scenarios is still wide, the events of the past month and the decisions taken during this time are likely to shape the economy and society for the next decade or longer.