GM closures cause concern, but Michigan economy still looks strong for 2019

Uncertainty over the closure of multiple General Motors plants aside, economists continue to have a favorable view of the West Michigan, state and national economies going into 2019.

Speaking last week during an economic forecast event at the Amway Grand Plaza in Grand Rapids, economist Jim Robey said that while the GM plant closures have yet to fully play out, they weren’t unexpected. He added that the broader West Michigan economy continues to outperform the rest of the country.

“I’m not surprised that GM has taken this approach,” said Robey, director of regional economic planning services for the W.E. Upjohn Institute for Employment Services, a Kalamazoo think tank. “If you look at the number of units they were producing in a 1 million square-foot plant, it didn’t make sense.”

The event was hosted by West Michigan economic and business development firm The Right Place Inc.

In what the Detroit-based automotive company called a “transformation for the future,” GM announced last month that five plants — including the Detroit-Hamtramck Assembly plant and the Warren Transmission plant — would be shut down next year because the cars they produced are being phased out.

The news has been met with scorn from President Donald Trump, who has beaten the drum for a resurgence of traditional American manufacturing. On Thursday, he told Fox News that GM would not be treated well due to the cutbacks and called the company’s CEO “nasty.”

In a meeting with new governors on Thursday attended by Michigan Gov.-elect Gretchen Whitmer, GM came up briefly. As the Advance reported, Whitmer told reporters at a briefing afterward that she told Commerce Secretary Wilbur Ross that the Trump administration’s tariffs and trade policy are hurting agriculture, GM and Hemlock Semiconductor in Michigan.

Whitmer also said she had a conversation on Wednesday with GM CEO Mary Barra and they plan to sit down after Jan. 1.

To Robey and other economic experts, some kind of cutback at GM and Ford’s legacy facilities was inevitable. They cite changing demographics, as well as consumer preferences shifting away from sedans and toward trucks and SUVs,

The question becomes whether the companies have plans to reuse those facilities.

“I think it’s sort of … not fully played out yet,” Robey said. “The GM thing is so new, [we don’t know] what they’re really doing.”

Robey noted that companies down the supply chain from GM have likely already factored the cutbacks into their business models, as the global automaker has slowed down production on its sedans.

The announcement that GM would be making such large cutbacks continues to produce concerns and even some anger, but the general outlook for the economy remains strong. A recent report from economic firm Moody’s puts the probability of a recession of a recession in the next six months at 15 percent.

Diversifying the economy

Observers of Michigan’s current economy tend to agree that the state’s largest challenge is finding enough people to fill jobs in high-demand industries like manufacturing, health care, information technology and the professional trades. The state projects that there will more than 811,000 open positions in those careers by 2024.

Demand for an abundance of workers in fields like I.T., computer science and other technology-related fields is good news for the state, said Birgit Klohs, president and CEO of The Right Place Inc..

While acknowledging that Michigan — and West Michigan in particular — are still heavily dependent on manufacturing for its employment base, she said she’s seeing more and more projects in industries like food processing, technology and health care.

“We’re diversifying our economic basket, if you will,” said Klohs, referring specifically to the West Michigan area. “That to me is one of the big stories in West Michigan. Because it gives us strength beyond just [the manufacturing] industry. This community … has always had different industries, but to see the growth in these new ones is really gratifying.”

Tariffs taking a ‘bite’

In 2010 in the midst of the Great Recession, Michigan’s unemployment rate stood at more than 14 percent. It’s since dropped down to 3.9 percent in October, according to the U.S. Bureau of Labor Statistics.

But business groups still see multiple areas where the state could improve.

Twenty-nine states still have higher personal incomes than Michigan, according to Business Leaders for Michigan, a Detroit-based business group. The group has long pushed for Michigan to become a “top 10” state in terms of metrics like personal income.

The organization says that if Michigan became a top 10 state, an average person would be making $10,000 more per year. The state would have 36,000 more employed people and the gross domestic product (GDP) per person would grow $12,000.

“These numbers reflect a strong imperative for change and many opportunities for more growth,” said BLM’s top executive, Doug Rothwell.

While generally optimistic about 2019, economic observers like Klohs still see challenges in terms of leadership change in Lansing, a lack of workers and the ongoing tariffs and trade war, which she said is now “biting” into many Michigan companies.

“It’s not quite as sunny as it was a year ago, but that’s why we all work together on these things,” she said.