Detroit Is Finding Stability but Long-Term Issues Remain

  • The Detroit metro area economy is stabilizing with the help of increasing auto sales and an upsurge in auto production. U.S. auto sales at a 13.5 million unit pace in December have lifted off the 9.2 million unit floor hit during the Great Recession. Ample pent-up demand plus recently improved job creation nationwide suggests that U.S. auto sales will continue to climb through 2012. It is important to note, however, that the auto sector has not been a source of consistent job growth in the Detroit area for over a decade.  The gain of about 32,000 manufacturing jobs in the region since June 2009 will level out in the year ahead.  Manufacturing is a productivity driven industry and that fundamental force will reassert itself, leading to flat or even declining manufacturing employment even as output increases.
  • Over the long term, Michigan will continue to face demographic challenges.  Detroit’s unemployment rate of 11.2 percent as of November 2011, represents roughly 225,000 unemployed workers. With job growth of just 22,000 over the year ending in November 2011, prospects for the near-term re-employment of most of the unemployed look dim. This will reinforce Detroit’s demographic drain. As job creation warms up in other parts of the country and attracts out-of-state workers, net migration out of Michigan may increase. Over the decade from 2000 to 2010, the Detroit metro area population declined by about 151,000 people. If a significant percentage of the currently unemployed move out, with their families, the next ten years could see a similar population loss.
  • Since peaking in 2007Q1 the FHFA house price index for the U.S. is down about 16 percent.  Since peaking in 2005Q3, the comparable Detroit  house price index is down about 35 percent. We expect house prices in the Detroit area to remain soft well into 2013.  This represents an enduring drag on the regional economy.

 Click here for the complete Detroit MSA Regional Economic Update, including a forecast table and charts of relevant economic activity: Detroit2012Q1.

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