The Building Tradesman Newspaper

Friday, December 14, 2018

Jobs incline is old but good, U-M outlook says

By The Building Tradesman

After a record-matching nine straight years of economic growth, Michigan's aging pace of positive job creation has cooled during 2018 and is likely to continue to do so through the fourth quarter. 

But job growth is expected to (barely) continue to be on the positive side at least through 2020. So say the findings of the Research Seminar in Quantitative Economics University of Michigan, which released its annual forecast on Nov. 16. 

"We examined data back to1939, and Michigan’s current streak of yearly job growth now matches the longest previous episode of job recovery," the study said. "We are thus poised to set a new record for the longest period of job expansion in Michigan since the World War II era."

The U-M forecasters said Michigan's pace of job creation cooled from an annualized 2.2 percent in the first quarter of 2018 to an average of 1.1 percent in the second and third quarters. The group expects growth to drop off "a bit further in the fourth quarter before inching up slightly in 2019.  The  path  of  quarterly growth in 2020 is complicated by the 2020 Census, but job growth settles in at an annual pace of 0.6 percent by the end of 2020."

The forecast was authored by U-M economists Jacob T. Burton, Gabriel M. Ehrlich, George A. Fulton, Donald R. Grimes and Michael R. McWilliams.

Fueled in good part by the $1.3 trillion Republican tax break, which was heavily tilted to benefit the business community, the researchers said nationwide, economic growth during the first three quarters of 2018 has been stronger than Michigan's growth, averaging 3.3 percent at an annual rate. The U-M forecast said that U.S. economic growth, as in Michigan, is expected to downshift throughout  2019 as the fiscal stimulus fades, and to slide below the 2 percent mark in 2020.

Following are a few other nuggets from the forecast, which didn't break out information on specific industries. 

*The flip side of employment, of course, is the unemployment numbers, which are also good. "We expect Michigan’s unemployment rate to tick up a bit from its September reading of 4.0 percent to 4.1 percent in the fourth quarter of 2018," the U-M forecasters said. "It then declines to averages of 3. 9 percent in 2019 and 3.8 percent in 2020. The level in 2020 would be the third-lowest  annual  average  since the modern vintage data begin in 1976."

(In fact, according to the Economic Policy Institute, Michigan's October 2018 unemployment rated dropped to 3.9 percent, a 0.8 percent improvement compared to October 2017. Michigan's jobless rate  currently ranks No. 31 among the states - lowest to highest).

*"Wage  growth—the  one  thing  that  had  been  missing from the full-employment labor market picture—finally appears to be picking up," the forecasters said about the U.S. economy. "The October reading of average  hourly  earnings  of  workers  in  private  nonfarm employment clocked in at a well-received 3.1 percent year-over-year rate, the first time since May 2009 that this measure of wage growth has exceeded 3 percent."

For a little historical perspective, according to Trading Economics, "wage growth in the United States averaged 6.22 percent from 1960 until 2018, reaching an all time high of 13.78 percent in January of 1979 and a record low of -5.88 percent in March of 2009."

*Higher wages, as always, are leavened by higher inflation, which eats away at the benefits of wage hikes. The U.S. inflation rates was 2.5 percent in October. The U-M researchers said the nation's inflation rate "seems to have steadied in recent months," and should moderate next year to 1.9 percent and 2.0 percent in 2020.

*In Michigan, wage hikes are a bit better, and should increase 3.76 percent by the end of 2018. That wage growth should stay steady in 2019, before jumping to 4.3 percent in 2020.

*The massive GOP tax break helped move the federal budget deficit for fiscal 2018 to grow to $925 billion "the largest it has been since 2012," the U-M researchers said. "Interest payment s on the federal debt increased by almost 14 percent from fiscal 2017, and the slashing of the corporate tax rate caused federal corporate tax receipts to plummet by almost 40 percent."