One year into pandemic, these numbers frame Michigan’s uneven recovery

A year ago, as a pandemic descended on Michigan, worries went far beyond health: Many feared it would plunge the state's economy into depths unseen since the Great Recession.

While two federal stimulus packages that pumped billions of dollars into Michigan’s economy likely prevented economic calamity, business leaders and economists warn the recovery is two-tiered, as some of the lowest-wage workers continue to suffer.

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As vaccinations become more prevalent, Michigan’s business leaders are weighing whether changes inspired by social distancing will become permanent — and what the future of work looks like.

“As the changing nature of employment moves forward, what does that mean for us and what does it mean for our communities?” asks Jeff Donofrio, new president and CEO of Business Leaders for Michigan. “Not all of that is well understood yet.”

As of now, consumer expectations show Michiganders remain guarded: A University of Michigan survey of attitudes show that residents’ optimism of the economy has dropped 24 percent over the past year.  Even as vaccination production increased, it fell 3 percent in February from a month earlier. 

The decline  “was concentrated among households with below median incomes, and focused on future economic prospects,” said the report issued February 26 through U-M’s Institute for Social Research. 

While the worst of the pandemic appears to be nearing its end, consumers aren’t expecting widespread economic growth. 

“The recent data reaffirms the growing divide between households who retained their jobs and those that lost jobs and incomes,” according to the report. 

Bridge Michigan has spent weeks examining a wide range of numbers for the state and nation that tell our story of economic change during the pandemic. 

The data reflects how much has changed in one year about our jobs, our money, our homes and our lives. 

OUR JOBS

Michigan’s employment is now a tale of two economies. 

High numbers of jobless workers and open jobs seem contradictory. The economy continues its rebound, adding jobs as it does. But many lower-skilled, low-wage jobs were lost and may take years to come back. 

Michigan’s shutdown for COVID-19 came “harder than any other state,” said economist Paul Isely of Grand Valley State University. In April 2020, unemployment claims overwhelmed the state’s benefits system as the state was among the leaders in jobless residents. 

Since then, “white collar jobs came back strongly and production jobs did, too,  whether they’re in factories or controlled areas where workers do not have to interact with tons of people,” Isely said.

In contrast, many lower wage workers remain jobless. They’re in industries that have not  yet recovered, such as restaurants, hotels, events, and other tourism-related activities. 

University of Michigan economists say it could be two years or longer until all of the jobs lost in the pandemic return. 

And average wages are down slightly this year, falling to $1,110 in the second quarter of 2020 from $1,115 at the end of 2019.

When it comes to jobless workers, the unemployment rate only tells part of the story. Some economists, like Isely, say it's a poor economic indicator during this pandemic. Instead, he and others look to more nuanced data that tells the story of who is struggling to find work or who stopped looking for a job. 

Michigan’s labor force participation rate reflects how many noninstitutionalized adults are in the workforce. The decline indicates more people have stopped looking for work — possibly, in the pandemic, due to child care needs or health concerns.

One measure of the state’s recovery can be seen in job postings on the Pure Michigan Talent Connect job opening website.

Bigger picture, we can look to Michigan’s overall productivity, as a jobs and economic indicator. The state’s gross domestic product, or GDP, measures the value of the goods and services produced in the state.

The largest sector responsible for that third-quarter growth is durable goods manufacturing, which had a 9.93 percent increase over the second quarter. 

Meanwhile, as is always the case in Michigan, the auto industry is an important economic gauge, especially when it comes to employment.

OUR MONEY

The $2 trillion federal CARES Act, signed into law in March 2020, is credited with stabilizing an economy rocked by the pandemic. Job loss, virus fears and mandated business closures all exposed the state’s financial vulnerability. 

Many residents are struggling with job loss and lower incomes, yet others are benefitting from industries that seem untouched. The federal stimulus benefited both groups of people, while jobless workers were eligible for additional weekly payments, which influenced a higher savings rate.

Many are now waiting for stimulus payments from the American Rescue Plan, which President Joseph Biden signed last week. The $1.9 trillion plan focuses heavily on low-wage earners and families hurt by the pandemic.

On the business side, the U.S. Census Bureau forecasts a 42.9 percent increase in new businesses this year.

Yet small businesses that were open in Michigan as of this month decreased 40.6 percent since the pandemic, according to TrackTheRecovery.org.

About 127,000 Michigan businesses received $16 billion in Paycheck Protection Plan loans, a number expected to grow as the later rounds of funding are completed. The loans could become grants that don’t have to be repaid if the companies maintained employment, among other criteria.

Stock market investors enjoyed overall gains in the Dow Jones Industrial Average in 2020 and that’s continuing — despite a dip during the start of the pandemic.

Now, economists are watching for signs of inflation as some industries fight for supplies. 

“For the moment, I think we are in OK shape,” said Daniil Manaenkov, economist at the University of Michigan.

Michigan residents took on what economists call “precautionary savings” during the early days of the pandemic. Personal income climbed, in part due to stimulus payments from the CARES Act and expanded unemployment benefits.

Many people also recognized they had less to spend money on, such as travel, going out to eat, business attire, personal services. The savings rate climbed, but so did some discretionary spending, such home improvements as residents found themselves homebound for months.

As a result, jobs in the leisure industry declined.

In 2019, Michigan’s median household income was $59,584. The 2020 figure is not yet released by the U.S. Census Bureau.

Meanwhile, personal income rose in Michigan in 2020 due to stimulus checks and higher unemployment pay. From April to June, the increase in our state was 54.1 percent, compared to 34.2 percent nationally.

Even as overall consumer spending rose 4.3 percent in Michigan from the start of the pandemic through February, economists watched for signs of financial struggle.  

OUR LIVES

During the pandemic, Michigan residents changed many ways they spent their time and their money. Online shopping grew along with retail sales, and initial state budget deficit projections had to be revised as tax collections beat estimates. 

Two major factors will continue to drive economic change over the coming year, according to University of Michigan economists in their first-quarter forecast for 2021. The first is COVID-19 vaccines.

“Ongoing improvement of the health crisis will provide the necessary environment for a vigorous economic recovery,” they wrote.

The latest round of federal stimulus is the other. While that will affect the overall economy, many of the measures also are likely to be felt by individuals, given the payments and tax credits for low- and moderate-wage earners.

“Our baseline expectation is that a large fiscal injection will supercharge the recovery. Another round of stimulus checks, a boost to unemployment benefits, and the expanded child tax credit will certainly fuel consumption growth if passed,” according to the report.

Some Michigan retailers reported sales growth in 2020: grocery, home furnishings and specialty retail experienced significant growth, according to the Michigan Retailers Association. Sharp declines hit restaurants, clothing retailers and personal services.

Michigan tax collections give a glimpse into spending changes during the pandemic, as residents stuck at home — sometimes with new income from the stimulus — increased purchases on lottery tickets and tobacco, as well as big-ticket items like cars.

OUR HOMES

Still-climbing home prices in Michigan are “indicative of a strong housing market,” said Robert Dye, chief economist at Comerica Bank. However, there’s another side to that, he added: The same market “works against affordability.”

Buying an existing house became more difficult in many parts of the state – a situation that continues so far this year, especially in Grand Rapids, Ann Arbor and northern Michigan.

New home construction last year almost reached 2019 totals, despite a slowdown that lasted months last year amid Michigan’s stay-at-home orders. Even so, the numbers of new homes built still remains behind the levels just before the Great Recession.

Housing experts say that home prices are likely to remain high as long as interest rates stay low and the supply is limited. Builders say they are years away from addressing the need for new construction.

“We should be building closer to 25,000 to 30,000 homes a year to catch up,” said Bob Filka, CEO of the Michigan Association of Home Builders.

American homeowners started 2020 with an estimated $6.2 trillion in equity in their homes, according to Black Knight Mortgage Monitor, a national analytics firm for the mortgage industry.

As this year begins, they are taking equity out of their homes at a higher rate than before the recession, as most of the new mortgages are refinances.

But the prosperity from higher values and lower interest rates isn’t universal. Federal restrictions on foreclosures have kept people in their homes, but non-current loan rates show some of the struggles from the uneven economic recovery.

Close to 3.6 million mortgages became 90 or more days past due during 2020, with 2.1 million still considered seriously delinquent at year-end.

As of March 31, when some approved nonpayment periods end, about 2.5 million mortgages could be delinquent, about 1.5 million more than the start of the pandemic, according to Black Knight Mortgage Monitor.

Average rent in Michigan increased last year, too.

— Bridge Michigan reporter Mike Wilkinson contributed