Strong Auto Industry Bolsters Detroit

Lower gasoline prices, strong job creation and improving consumer confidence are a potent combination for U.S. auto sales, and that is good news for Detroit. U.S. auto sales look like they are getting close to the top of the cycle, edging down to a 16.6 million unit rate in January. We forecast sales for 2015 to total 17.0 million units, slightly better than the top-of-the-cycle 16.9 million units sold in 2005. Auto production in Michigan will get a boost from the Bolt, General Motor’s new electric vehicle. GM will invest $200 million at its Orion Assembly plant and at its Pontiac Metal Center to support the Bolt. As GM hopes to get a bang from their Bolt, auto industry jobs will get a boost. According to the Anderson Economic Group, Southeast Michigan ranks first nationally in the number of advanced automotive industry jobs. However, the Motor City is getting more competition from Silicon Valley for leadership in transportation innovation. Apple is developing an electric vehicle and Google is pushing self-driving technology.

Much ink has been spilt about relatively weak wage growth in the aftermath of the Great Recession. As we progress through 2015, we expect to see more evidence of tightening labor markets and increasing wages. Wal-Mart has just announced a $1 billion pay and training package for its U.S. hourly workers. This will help to raise for the floor for minimum wage workers nationally. Unions are starting to reassert themselves as the U.S. economy improves. Dockworkers in California are making their presence felt. The United Auto Workers’ four-year contract expires this September 15.

The Southeast Michigan Purchasing Managers Index for January took a big step down to 50.0 indicating neither expansion nor contraction in area manufacturing. Some of the drop was due to lower commodity prices, which may be reflective of lower oil and natural gas prices and not indicative of increasing slack.

DetroitRegional_02_20_2015Click here for the complete Detroit Regional Economic Update: Detroit2014_Q4.

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