Detroit Regional Chamber > Chamber > Why Michigan’s Economy is Likely to Weather an Economic Downturn Better Than in the Past

Why Michigan’s Economy is Likely to Weather an Economic Downturn Better Than in the Past

May 1, 2023

The Detroit News
April 30, 2023
Jordyn Grzelewski

When the U.S. economy sneezes, Michigan catches a cold — or so the conventional wisdom goes.

But as signs of an economic slowdown mount, some economists say that Michigan is in a better position to weather a downturn than it has been in previous cycles. And they point to the auto sector to explain why.

“Michigan is not going to have that same outsize hit to its economy this time around, because the auto sector looks like it’s going to be more resilient than in a typical slowdown,” said Bill Adams, senior vice president and chief economist at Comerica Bank.

Consensus among economists that a mild recession later this year is likely increased last week on new data showing that the U.S. economy grew at an annual rate of 1.1% in the first quarter, down from 2.6% in the previous quarter. Still, the overall economic picture remains murky. Hiring continues, with monthly job growth averaging 345,000 in the first quarter and the unemployment rate near 50-year lows, according to the Washington Post.

On the other hand, high inflation and rising interest rates are weighing on consumers and businesses. The housing market is cooling. Concerns surround the banking industry. Major employers are announcing layoffs. And the Federal Reserve this week is poised to approve its 10th interest rate hike in roughly a year.

Add in the prospect of a fight in Washington over the debt ceiling, and the outlook grows cloudier. Yet what’s clear for now is that the U.S. economy is not yet in a recession, but signs are mounting that a significant economic slowdown or mild recession is likely in the coming months.

Growth Slowing Down

One of the key takeaways from last week’s quarterly report on gross domestic product is that growth is slowing.

“With the exception of January, consumption has contracted in four out of the last five months,” Kenneth Kim, senior economist for KPMG US, wrote. “The Fed’s rate hikes are starting to bite. Any further rate hikes beyond May risk a deeper recession than the mild downturn we currently foresee.”

There are signs that Michigan’s economy is slowing down, too.