Bolstered by the mild winter and continuing weakness in housing, the auto rebound is spreading to other parts of the Michigan economy, boosting economic conditions to their best level in six years.
According to a new Comerica Bank estimate of the state economy, the recovery is starting to reach beyond Detroit’s Big Three. That trend also is reflected in the February jobs report released Wednesday, which showed that during the past 12 months the state added as many jobs in business and professional services as it did in manufacturing.
Another piece of encouraging economic news released Thursday was the state’s announcement that personal income in Michigan grew at the strongest rate since 2000, just before Michigan entered its decade-long “one-state recession.”
“We can see a big uptick in the index in January that I think is starting to show the auto industry rebound broadening into other parts of the overall Michigan economy,” said Robert Dye, chief economist for Comerica Bank. “It really represents a significant improvement above the stable trend we saw for most of 2011.”
Comerica’s index measures nonfarm payrolls, exports, sales tax revenues, hotel occupancy rates, continuing claims for unemployment insurance, building permits and motor vehicle production.
All seven of those improved in January, sending the index up 7 points, to a level of 98, the highest since January 2006.
Despite potential threats, including higher gas prices and defense spending cuts, Dye sees the economy emerging from its halting recovery to a stronger expansion.
“My view is that we’re on the verge of transitioning from a faltering or hesitating recovery into a self-sustaining economic expansion,” Dye said. While the economy got a bit of a boost from the mild winter, which kept home heating and other bills down and left more money in consumers’ pockets, there’s more to the current improvement than warmer temperatures and short snowfalls. “That helped a bit,” he said, “but this represents a more fundamental improvement.”
Kurt Rankin, an economist with PNC Bank, agrees that the Michigan’s rebound in automobile manufacturing is spreading to the rest of the state economy.
“The income from high paying jobs in manufacturing, once that money gets spent in the local economy, it starts to generate economic activity,” Rankin said. “Those are all signs that the economy is back on track. Those are signs of sustainable recovery.”
With auto sales recently topping an annualized rate of 15million vehicles, Rankin said, consumers seem to be unleashing some of the pent-up demand they’ve been holding in since 2007. The auto industry also benefits from the lack of any significant improvement in the housing market. With home values down and still dropping in most of the country, consumers aren’t shopping for new homes.
“When big-ticket items are in question, it’s just autos now, and it will stay that way while housing remains weak,” Rankin said. “That will support auto sales, and Detroit and the southeastern Michigan economy for the next year or even two years.”
Neither Rankin nor Dye sees rising gas prices as a threat to auto sales for the Detroit carmakers, now that they’re offering more fuel-efficient models. Dye added that he sees gas prices easing and dropping to $3.60 to $3.70 a gallon by summer.
And while higher gas prices may trim some pickup and SUV sales, car sales won’t be lost to the foreign nameplates as in past periods of increased fuel prices, Rankin noted.
“As the domestic automakers become more competitive,” he said, “Detroit’s going to see that continue to support job growth for the coming decade.”
By Brian J. O’Connor, The Detroit News