Michigan’s economy is bigger than ever. Now is the time to diversify

Michigan’s economy has bounced all the way back. And then some.

After years of bad news, Michigan’s gross domestic product is finally above pre-Great Recession levels. Jobs are plentiful, and unemployment remains at lows not seen since the beginning of 2000.

Related: Ten things that might surprise you about Michigan’s economy​
Related: See what industries are fueling economy in your Michigan area
Slideshow: Michigan's regional economies ranked by growth since 2009

Since 2009, the state has the nation’s seventh-fastest growing economy, and many of its 14 metropolitan regions are chugging along. Nationwide, the Grand Rapids and Midland metro areas had the 24th and 25th fastest growing economies since 2009 out of 382 metro regions.

And the six-county region of Metro Detroit, which accounts for more than half the state’s economy, was 44th. That’s a huge rebound after Michigan’s so-called lost decade, when Detroit’s economy fell 15 percent as the national GDP rose 15 percent.

The economy, and its challenges, will be the focus today (Thursday) of the Michigan Prosperity Summit hosted by The Center for Michigan and Bridge Magazine. The event is 12:30 to 5 p.m. at The General Motors Auditorium at the College of Creative Studies in Detroit.

Related: Meet the powerhouse panel for our March 22 Michigan Prosperity Summit
Related: Demand for Michigan workers is very high, but many have given up looking 

“(Michigan’s) done very well,” said Paul Traub, an economist for the Detroit branch of the Federal Reserve Bank of Chicago.

As with nearly all others familiar with with the dark days of 2009, Traub added a caveat: The state is back “from a really low trough.”

Despite the progress, the recovery is uneven, several regions (particularly the I-75 corridor and northern Michigan) lag, and growing the economy already is shaping up as a defining issue in this fall’s gubernatorial campaign.

All candidates surveyed by Bridge Magazine said Michigan’s economy still has plenty of room to improve, particularly as it relates to the growth of talent and well-paying jobs.  Indeed, despite an unemployment rate that is at a nearly 20-year low, there are 400,000 fewer workers in the workforce than in 2000, when it was comprised of 5 million residents.

“Are we back in the game? Yes, that’s what we’ve accomplished in the last nine years,” said Doug Rothwell, president and CEO of Business Leaders for Michigan, a group of leaders who advocate for policy changes to help improve the state’s economy. (Editor’s note: Rothwell is a member of the steering committee of The Center for Michigan, the nonprofit that operates Bridge Magazine.)

Rothwell ticked off positives for the state’s business climate: radical changes to the state’s tax structure (which greatly benefitted businesses) and a more efficient state government. But Rothwell and others say there are warning signs: lower median incomes, education attainment levels, and performance by K-12 students.

Related: Snyder’s Michigan: Business taxes fall, burden shifts to residents

The state cannot continue its rebound without improving those areas, Rothwell said, and his group launched a plan recently to push for more investment to continue reshaping the state.  Without more changes, and investment, the state could continue to fall behind the rest of the nation, as it has in the recoveries following the last two recessions.

“We’ve been losing some ground now for quite some time. We can’t let that happen again. We’ve got to make this the last dip,” Rothwell said.

Back with a bang

How well is Michigan doing? Using federal data on metropolitan regions (which don’t include areas such as northern Michigan or the Upper Peninsula), Bridge found that some in Michigan are among the fastest-growing of 50 Midwestern and industrial regions.

Grand Rapids has seen the second-fastest GDP growth among those regions since 2009 (29.2 percent), while Midland is third (27 percent) and Detroit is seventh (20.6 percent.)

Those areas comprise the bulk of the overall state economy, but the pain of the Great Recession endures in Saginaw, Genesee and Bay counties.  Each economy is smaller than it was in 2001 as manufacturing in the three counties fell nearly 20 percent, compared to a 13 percent increase statewide.

Compare that to the economy of the four counties of metro Grand Rapids: it’s nearly 22 percent bigger than in 2001; Kalamazoo is 14 percent larger.

Experts say the reasons aren’t complicated: Diverse economies do better than monolithic ones.

West Michigan relies almost as heavily on manufacturing as the I-75 corridor, but it isn’t as reliant on automotive work. Its factories build everything from boots to aircraft components to furniture and it’s a center for engineering and biopharmaceuticals.

“They were more diverse to begin with,” said the Fed’s Traub. “They weren’t as wedded to the auto industry as, say, Flint.”

New markets, same business

Take Humphrey Products. The Kalamazoo-based company was founded in 1901, making components for gas streetlights.

But as it got its start, it did so amid the introduction of a huge competitor: Thomas Edison’s lightbulb was set to make electric streetlights the nationwide standard –  and turn gaslights into comparative dinosaurs.

That left Humphrey Products with a choice: Find new markets or die.

“Diversifying is how a company gets to 117 years old,” said Dave Maurer, president of the family-owned private company. It employs about 200 workers in Kalamazoo and South Haven and makes pneumatic valves and other products.

The company has reshaped itself a couple of times in the wake of competition and it recently made changes again when imports threatened a portion of its business. With the help of the Great Lakes Trade Adjustment Center, a federally funded program at the University of Michigan, Humphrey Products identified new customers in the life sciences field.

The switch allowed the company to solidify its business and and maintain its workforce. It remains both a Michigan-based manufacturer – and one that has almost no ties to the auto industry. Should that industry stumble, it would have little effect on Humphrey, Maurer said.

“We are fairly bullish for the foreseeable future,” he said.

That might be relatively easy for one company. But for an entire region or state?

The state lost anywhere from 800,000 to a million manufacturing jobs as the state economy began contracting in 2003 through 2009, long before the rest of the nation officially went into the Great Recession.

Better than ever, even if it doesn’t feel that way

Michigan’s economy may be back. But one thing isn’t: Paychecks.

“The Michigan economy is bigger than it’s ever been. It may not feel like it, but it is,” said Charles Ballard, an economist at Michigan State University.

That’s because, for all the economic growth, the jobs that return often pay less than the ones they replaced. Michigan’s household income of $52,492  now ranks ranks 34th in the nation, below the national average of $57,616. Michigan ranked 24th as recently as 2006.

Related: Michigan business climate improves, but educated workforce is shrinking

The frontrunners for governor –  Republican Bill Schuette and Democrat Gretchen Whitmer –  agreed that stagnant wage growth is a significant concern and makes many feel left out of recovery.

“Too many people are working two or three jobs just to get by when what they need is one good job,” Whitmer wrote in an email to Bridge.

Schuette said “we must do better.”

“Michigan has made progress since bottoming out during the Lost Decade of Jennifer Granholm, but because how bad off we were,” he wrote in a statement to Bridge.

And even though everyone from economists to Michigan gubernatorial candidates says the key to healthy economies is diversification, Michigan is even more reliant on manufacturing jobs than it was before the downturn.

Manufacturing comprises 19 percent of Michigan’s economic output, compared to 11.8 percent nationwide.

Nationwide, the finance, insurance and real estate sector is the nation’s largest single sector, comprising more than a fifth of the economy (in Michigan it’s No. 2, at nearly 18 percent).

They’re relatively close, in terms of size but nationally, that sector grew nearly 32 percent from 2001 to 2016, and just 8 percent in Michigan.

“In theory, you don’t have to be diverse – if you plan for when you aren’t going gangbusters,” said David Brasington, an economist at the University of Cincinnati.

But how? Diversifying an economy isn’t easy.

“I think diversity occurs by historical accident,” Brasington said. Engineers may come for one industry, he said, and discover another process that spawns a new sector.

Thinking that city council or the state legislature can make moves to create a more diverse economy – building an office park, offering incentives -- might be fantasy. The state doled out millions in tax credits to attract the film industry. But it left town when the tax breaks went away.

And when times are good, no one seems to worry about economic diversity.

“When the auto industry is doing well, people take their eye off the ball,” Traub said.

Race for other industries

Now is one of those times, Traub and other economists warn.

Rothwell and the business leaders are pushing politicians in Lansing with a plan they say will inoculate the state from a downturn by investing more in K-12 education, higher education, job training, and mass transit that can boost the economy further.

“We didn’t have money to invest eight years ago,” Rothwell said.

What he and others don’t want, however, is to turn away from one of the state’s greatest strengths – the manufacturing might that helped birth the middle class and win a world war.

Part of the Business Leaders for Michigan “Plan for a Stronger Michigan” calls upon leveraging advanced manufacturing technology that has boosted productivity while reducing jobs and the manufacturing acumen that stretches from Monroe to Bay City to Grand Rapids and Muskegon.

States, including Michigan, have chased new technologies and industries before. Rothwell said the state should focus on those things it’s already good at – autos, advanced manufacturing, tourism – and do them well.

Michigan might not be a center for battery development, nor the place where films get made, two industries that had gotten federal and state incentives in the past. But a battle in motor vehicle looms and the winners – and losers – will be profoundly affected.

“We need to diversity the economy,” said Westland Mayor Bill Wild, who’s running for the 13th congressional seat vacated by U.S. Rep. John Conyers Jr., “and we can't afford to lose the race for mobility."

Both engineers in Silicon Valley and Michigan are racing to develop autonomous vehicles. Which region “wins” could have a many-billion dollar impact on Michigan, far and away the leader in automotive and already home to research centers in Ann Arbor and at the former Willow Run auto facility, where the American Center for Mobility is based. Rothwell is on the board of directors.

As part of their prescription for helping the economy, Business Leaders for Michigan wants to expand the public-private partnerships that have helped fund the mobility center as well as Mcity, a city streetscape on the University of Michigan’s north campus developed to test  autonomous s.

“We’re starting from a position of strength,” Rothwell said.  “This by far has to be priority No. 1 in terms of leveraging our assets.”

Don Grimes, a UM economist who has long developed forecasts of the state’s economy, couldn’t agree more. Gov. Rick Snyder’s 2011 tax reform package, which cut business taxes $1.6 billion and increased them on individuals, was a positive step, Grimes said.

“Going forward, the benefits of those (reforms would be) curtailed if we lose the race for autonomous vehicle technology or fail to attract more young educated people,” Grimes said.

In an election year, when talk of change rarely includes talk of how to pay for those changes, finding solutions to a problem that currently doesn’t exist – the economy is doing well – may be a hard sell. But if it’s not addressed in good times, the bad times could return, many warn.

“We were flat on our backs seven or eight years ago,” said Rothwell.

Ever the optimist, he hopes for progress.

“Our journey will not be a straight line,” he said. “If we can stay on the same trajectory …. We’ll come out of the next recession.”

How Michigan regions compare to industrial areas across Midwest, East

Here's a look at how Michigan's regions compare with similar industrial areas in the Midwest and East Coast.