Detroit Finds Breathing Room but Faces Challenges

  • The Detroit metro area economy is stabilizing with the help of increasing auto sales and an upsurge in auto production. U.S. auto sales were at a 14.3 million unit pace in March and are expected to continue to climb through 2012. The gain of over 30,000 manufacturing jobs in the region since June 2009 is expected to level out in the year ahead due to the high productivity growth of manufacturing industries. The Detroit MSA unemployment rate fell to 9.8 percent in February, well below its recent peak of 16.0 percent in September 2009, but still above the U.S. average of 8.3 percent for the month.
  • The City of Detroit has entered into a consent agreement with the State of Michigan to allow for greater oversight of its finances.  The agreement requires that the city operates under a balanced budget. The city is expected to show a revenue shortfall of about $200 million before the end of the current fiscal year in June.  The budget for FY 2012 will likely require significant layoffs and program cuts by the city as well as concessions from suppliers and workers along with higher taxes. At least 4,100 Detroit public school teachers received layoff notices in April and have been advised that they can reapply for their jobs in May. Cost cutting measures to Detroit bus service will take effect April 28.  Conversely, a private group expects to receive federal aid in building a new downtown streetcar line for Detroit.
  • Michigan will continue to face demographic challenges.  As job creation warms up in other parts of the country, net migration out of Michigan may increase.  Persistent out-migration may be a long-term dampening factor on residential real estate markets. On a positive note, home sales in the metro area are beginning to lift and building permits are also increasing.  Wayne State, Grand Valley State and Michigan State universities have all announced proposed construction projects for Detroit.

Click here for the complete Detroit MSA Regional Economic Update for 2012Q2: Detroit2012Q2.

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