Top economist sees more growth for state
A noted and respected economist who is retiring this week said the state’s economy should continue to grow and at a faster pace than the national average for the short term. But then growth in Michigan will slow, due to a small labor pool, and fall behind the economic activity that the rest of the country will see in the next few years.
“We basically saw the classic pattern where, in a national recession, the manufacturing sector, in particular, in Michigan got slammed and then it came back pretty fast. Because Michigan has a bigger manufacturing sector than the national economy, sometimes for a while Michigan outperforms (the nation). I think we had some version of that story over the past 12 months,” said Johnson, who spoke with the Business Journal prior to the invitation-only luncheon Comerica held here last week in his honor.
Looking ahead, Johnson said the national economy is going to continue to grow in a mediocre fashion, with the manufacturing sector likely to be among the strong sectors — but maybe not quite as strong as it was in the first part of the recovery.
“So I think Michigan is going to tend to grow pretty much parallel to the national economy over the balance of this year into next year. Slowly but surely what is going to re-emerge is, Michigan is going to start growing more slowly than the national economy. We just don’t have as much of a growth in the labor force. The state is probably going to continue to lose some people who will move elsewhere,” he said.
“I think we’re going to have smaller increases in the labor force as we go into 2012 than the national economy, and similar kinds of productivity growth. We’re going to go from this period where Michigan’s strong manufacturing presence was an advantage to a situation to where the weak population growth is going to allow the Michigan economy to grow, but not grow as fast as the national economy.”
Johnson said the growth has generally been across the state’s entire manufacturing sector over the past year rather than in a niche or two, which has fostered a broad-based improvement. Durable consumer products, like autos, strong capital spending on equipment, and strong exports have driven the growth. “The three main things, where there is strong demand for manufacturing goods, have all improved. So it hasn’t been narrowly focused in any one particular part of the manufacturing sector,” he said.
Johnson also said household income in the state has grown a bit as the stock markets have risen. More importantly, he said there now are more jobs for the heads of those households. At the same time, he said the business sector has seen a nice increase in profits and is beginning to use some of those profits to finance capital spending.
“A recovery in global growth is what has led to the recovery in our exports of manufactured goods. So there’s been a very broad-based strength in manufacturing, and therefore all parts of the manufacturing sector are doing better, particularly durable manufacturing,” he said.
Johnson said it will take years to see what role the state’s new tax plan will play in the economy. The plan taxes profits on C corporations at 6 percent and has other business owners paying taxes through individual returns. But Johnson said the new plan does give the state a stronger environment to retain and attract businesses because it’s much easier now for companies to know what their tax liabilities will be compared to the two previous plans.
“I think until now, it was very hard to say that things have stabilized in that regard. But now they have. That’s a big consideration for anybody who is trying to decide where to locate their operations. So for me, to create that certainty and to create a structure that looks relatively business friendly, it can’t help but make Michigan a more attractive place to locate enterprises,” said Johnson, who has been an economist for 35 years, the past six and a half at Comerica.
“So I think we’ll see Michigan do a better job of retaining the companies it has and attracting new companies. But that plays out very slowly. That’s not a cyclical sort of rebound. That’s sort of a structural feature that could influence things over the next five to 10 years.”