Auto Industry Stability Buffers Detroit

  • The Detroit metro area economy has benefitted from a stabilized domestic auto industry, propped up by the post-recession rebound in U.S. auto sales.  Auto sales have increased from a low annual rate of just 9.0 million units in February 2009 to 14.4 million units in February 2012. So far in 2012 auto sales have stalled near 14 million units, reflecting higher gasoline prices earlier this year and weak job creation through the second quarter. With the prospects for job creation now improving and oil prices stabilizing, the outlook for auto sales for the remainder of 2012 is cautiously optimistic. Other positives for auto sales include very favorable auto affordability and still-ample pent-up demand. Negatives center on the uncertainty about the U.S. fiscal cliff.  Higher tax rates and reduced federal spending could potentially take a bite out of auto sales, especially at the end of this year and through the first half of 2012, if nothing is done to change current law.
  • The Detroit MSA unemployment rate fell to 9.2 percent in April of this year, but has since increased to 10.2 percent in July. Weak-to-moderate job creation is expected to resume in the third quarter.  Housing markets are stabilizing, shown by firming prices and increasing construction activity.
  • The City of Detroit’s  financial struggles, stemming from a $265 million budget deficit, are impacting its economic outlook.  In April, the city entered into a financial stability agreement with the State of Michigan, allowing for limited state oversight in return for increased state aid. Detroit’s financial advisory board has approved the mayor’s plan for a $100 million cut to the city’s workforce, to include a 10 percent pay cut, higher healthcare  costs and limits on overtime.  More cuts are expected, including reductions in retirement benefits for city workers and as many as 2,600 additional layoffs for the 11,000 member city workforce.

Click here for the complete 2012Q3 Detroit MSA Regional Economic Update: Detroit2012Q3.

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