Michigan expected to create fewer jobs, but higher wages

State economy outlook for 2018

MICHIGAN - Michigan is producing fewer new jobs, but residents can look forward to higher wages as the state's economy continues its slow but steady growth, economists told state officials on Thursday.

After producing 97,000 net new jobs in 2016, Michigan is expected to have added only 44,000 new jobs in 2017 and is expected to add 42,000 jobs this year, 50,000 new jobs in 2019 and 52,000 new jobs in 2020, Gabriel Ehrlich, the director  of U-M's Research Seminar in Quantitative Economics testified at the twice-yearly revenue-estimating conference at the Capitol.

Still, Michigan's unemployment rate will continue to edge downward, Ehrlich said. And as the job market tightens, wages and salaries will finally start to rise, he said.

"We expect the star of the show going forward, over the next few years, to be rising incomes," Ehrlich told key state economic officials and lawmakers.

Real disposable income in Michigan — which is after the effects of inflation are accounted for — grew 1.3% in 2016 and 0.8% in 2017, Ehrich said.

But Michigan's real income growth is expected to jump 3% in 2018, 3.4% in 2019 and 2.9% in 2020, he said.

Much of that growth is the result of the tightened labor market and some of it is the result of personal income-tax cuts in the Tax Cuts and Jobs Act recently passed by Congress and signed into law by President Donald Trump, Ehrlich said. He said he couldn't yet quantify how much of the disposable income growth would be related to the tax cut.

The twice-annual meeting brings together state economic officials and key lawmakers to arrive at a consensus about how much tax revenue the state can expect to collect over the next three years.

That information is crucial to setting the state's 2019 budget, which Gov. Rick Snyder is to present in early February.

Analysts from the Legislature's two fiscal agencies are projecting continued slow and steady economic growth for Michigan's economy, extending through 2020. That will mark 11 consecutive years of recovery in Michigan, which began to emerge from a lengthy recession in 2010. It will be the longest continuous recovery since World War II, Ehrlich said.

Reports prepared for the conference by the Senate Fiscal Agency and the House Fiscal Agency did not factor in the effects of the federal tax reform package because analysts did not have time to factor in those changes. 

But both U-M economists and Chris Christopher, executive director of U.S. macro and global economics for the international economic analysis firm IHS Markit, said the impact of the tax changes on economic growth will be mostly short-term and relatively modest, and there are down sides to the changes related to its impact in significantly growing the federal deficit, even after accounting for economic growth.

Danil Manaenkov of U-M's Research Seminar in Quantitative Economics said the federal tax cut package is expected to boost gross domestic product by 0.2% in both 2018 and 2019 and by 0.1%  in 2020.

Christopher, of IHS Markit, gave similar numbers for GDP impact and said the tax cuts will give the average U.S. household about an extra $14 per week. Many people will spend the extra money, but those at the higher-income levels are more likely to save it, he said.

Many of those who spend it will go out to eat more often, giving a boost to the restaurant industry but hurting grocers, he said.

Tax revenue numbers agreed on by state officials Thursday hadn't changed much since the last revenue estimating conference, held in May.

Net general fund and School Aid Fund revenues, taken together, are expected to be $13.1 million higher for 2018 than the May estimates, and those combined revenues are expected to be $16.4 million lower for 2019.

Net revenues in the general fund — the state's main checking account — are expected to hit $10.3 billion in 2018, up 1.1% from $10.2 billion in 2017. Net general fund revenues are expected to increase 0.3%, to $10.34 billion, in 2019, and 0.7%, to $10.4 billion, in 2020.

Projections are healthier for the School Aid Fund, which gets most of its revenues from sales tax receipts, but is also partly funded from income taxes, property taxes, and lottery revenues. Net School Aid Fund revenues are pegged at $13.1 billion for 2018, up 3.1% from $12.7 billion in 2017. They are expected to increase 2.9%, to $13.5 billion, in 2019, and another 2.7%, to $13.8 billion, in 2020.

State tax revenues are growing, but almost all of that revenue growth has already been spent by the Legislature, with hundreds of millions of dollars committed to improve Michigan roads and eliminate the personal property tax on manufacturing equipment, Treasurer Nick Khouri said.

"Any discussion of tax cuts has to be combined with additional spending cuts," Khouri told reporters after Thursday's conference.

Detroit Free Press


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