The yo-yo threat of tariffs and implementation of steel and aluminum tariffs combined with federal budget cuts have economists reevaluating what the economy could look like as the state government negotiates the budget.
University of Michigan Research Seminar In Quantitative Economics (RSQE) Director Gabriel Ehrlich said the economic forecast that was given during the January Consensus Revenue Estimating Conference would be impacted, but not drastically at this point.
“We do expect incomes in Michigan to keep growing,” Ehrlich said.
The RSQE released an updated forecast at the end of February, and Ehrlich said the forecast for moderate job growth would continue in the state over the next couple of years.
“One of the points I make is that it was always inevitable that job growth would slow down in Michigan as we came out of the pandemic. So a lot of that is mechanical. There’s just not as many people on the sidelines and available to work,” he said.
The forecast for job growth goes from about 30,000 in 2025 to about 18,500 in 2026. Steel and aluminum tariffs could cost Michigan about 2,300 jobs by 2026.
He said the losses would come from the transportation equipment manufacturing sectors.
He said economics in the state were sensitive to interest rates, particularly because of the automotive industry. He pointed to the Federal Reserve having raised interest rates to fight inflation over the past few years and the recent interest rate cuts that could help with auto and housing sales.
“In some ways, Michigan is where the rubber meets the road,” Ehrlich said.
The Federal Reserve did not cut interest rates on Wednesday, but Ehrlich said that was expected. He said they were now anticipating two cuts this year, one possible in summer 2025 and one in the late fall or early winter.
“The reality is it’s going to be data-dependent,” he said.
He expected short-term interest rates to go back to a normal rate, because the 10-year treasury rate and 30-year treasury rate were way off in what is referred to by economists as an “inverted yield curve.”
“I do expect the yield curve to un-invert, so to speak,” Ehrich said.
He said when it comes to personal economics that people could end up making more as income grows and taxes shrink.
“We expect to finally get back on the pre-COVID trend as we move forward on both because we expect inflation to moderate, even with the tariffs, and also we do expect tax cuts in the next year or so, and that will increase disposable income for Michigan residents,” he said.
Overall he said he was “cautiously optimistic” about his forecast for the next two years and said while interest rates were going down, they would still be higher and the uncertainty with the looming trade policy and tariffs proposed by President Donald Trump.
“I’m keeping my fingers crossed,” he said.
Northwood University McNair Center for the Advancement of Free Enterprise and Entrepreneurship Vice President Emeritus Tim Nash said on Michigan’s Big Show starring Michael Patrick Shiels that the state could see some potholes where that rubber meets the road.
“I’m optimistic that by the end of the year we’ll be on the right track, but I have to be real frank, I don’t quite understand the President’s tariff policy,” Nash said.
He said he based his prediction on the decline of consumer confidence and the regional Federal reserves in Atlanta and St. Louis that the gross domestic product would go down in the country.
“There’s a lot of reasons to be pessimistic, and yet falling gasoline prices, falling mortgage prices are all reasons to be optimistic,” he said.
He also said the yo-yo threat of the tariffs was making businesses skittish about investing any money in new production or innovation.
“Markets want certainty. Businesses want things they can depend on,” he said.
Article courtesy MIRS News for SBAM’s Lansing Watchdog newsletter
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