Detroit in Transition

Job growth in the Detroit metro area is moderately above the U.S. average through the first three months of 2015. On a year-ago basis, Detroit added jobs at a 2.4 percent rate in March, while the U.S. as a whole added jobs at a 2.2 percent rate. A key support to job growth in Detroit has been the manufacturing sector. Employment in Detroit area manufacturing is up a strong 4.8 percent over the past year, significantly above the U.S. average of 1.6 percent growth. The employment component of the Southeast Michigan Purchasing Managers Index was very strong at 76.3 in April.

A key question for Detroit is how sustainable is the strong performance in manufacturing employment? We believe that manufacturing employment will stabilize in the area, and that job gains for Detroit will ultimately be driven by non-manufacturing industries. Since peaking in July 2000 at 397,000, the Detroit MSA has lost 148,000 manufacturing jobs. Michigan manufacturing employment faces headwinds. First, U.S. auto sales are already near the cyclical peak of the previous expansion cycle. In April, U.S. light vehicle sales dipped to a 16.5 million unit annual rate, after posting a 17.0 million unit sales pace in March. These rates are already very close to the 16.9 million units sold in 2005, so there is only limited upside potential for more auto sales. Second, a strong U.S. dollar suggests that less U.S. manufactured goods will be sold overseas, and more foreign manufactured goods will be sold in the U.S. Third, as the business cycle matures, it becomes more difficult to sustain corporate profits. Labor costs are a huge part of total business costs and so hiring typically slows in the late stages of the business cycle.

Detroit’s role as a key gateway for U.S./Canada trade is slated to expand in 2020 with the completion of the $2.1 billion, 6-lane Gordie Howe International Bridge over the Detroit River, funded almost entirely by Canada. Because of the lopsided funding for the bridge, we expect relatively little of the economic benefit of construction to land on the Detroit side.

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Click here for the complete Detroit Regional Economic Update: Detroit2015Q2.

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