State sees downturn deepening

Friday, December 19, 2008

Senate Fiscal Agency reports jobless rate to hit double digits, budget deficit to grow.
Mark Hornbeck / Detroit News Lansing Bureau

LANSING -- The jobless rate in recession-wracked Michigan will climb into double digits the next two years, plunging the state budget $265 million in the red in the coming year and leaving it with a whopping $1.5 billion deficit in 2010, according to a state economic forecast released Thursday.

The unemployment rate, 9.6 percent in November, will average 10.6 percent in 2009 and 11.3 percent in 2010, says the Senate Fiscal Agency report. That assessment, by the financial arm of the Michigan Senate, will be used next month along with similar reviews by the House Fiscal Agency and the Michigan Treasury Department to revise the state revenue picture.
In raw numbers, the state is expected to lose 203,000 jobs, or nearly 5 percent of its work force next year, followed by the loss of another 105,000 jobs, or 2.6 percent of state employment, the following year. The state has lost more than 530,000 jobs since 2000, many in the manufacturing sector as the auto industry restructuring takes a heavy toll.
The forecast is even more pessimistic than the dismal University of Michigan version that came out late last month, which forecast the loss of 123,000 jobs next year and 49,000 in 2010.
Auto sales will total 13.1 million vehicles this year and fall to a low of 10.5 million vehicles in 2009 before rebounding slightly to 11.9 million units in 2010, according to the Senate Fiscal Agency study -- which assumes that the domestic automakers will still be in business the next couple of years. These are also well below the U-M figures, which predicted 12.2 million unit sales next year and 13.6 million in two years.

"These are terrible numbers, once-in-a-lifetime numbers," said Gary Olson, director of the Senate Fiscal Agency. "This may be the worst economic forecast we've put out as long as I've been handling it," which totals 27 years.

Dana Johnson, economist at Comerica Bank, said the forecast appears to be "in the ballpark."
"I expect the national unemployment rate to keep rising to 8.5 percent to 9 percent next year, and to say Michigan's will be a couple points higher is very possible," he said. "It means at least another year of recession for Michigan. The structural problem in the auto industry against the backdrop of a weak national economy makes it very difficult for the state."

The cash-starved state budget is actually about $940 million short in the current budget year, which goes through next September. But a surplus of more than $600 million carried over from last year and $134 million in cuts already enacted by the governor and lawmakers earlier this month trim the deficit to a more manageable $265 million, according to the Senate Fiscal Agency forecast.

The report indicates a $1.5 billion shortfall for 2010 but notes that doesn't take into account a federal stimulus package coming early next year that could wipe out that debt -- should the state decide to use the money to balance its books. The package is being debated in Congress and is expected to win passage in late January or early February, after President-elect Barack Obama takes office.

But Olson warns "we'd only be kicking the can down the road," because the federal windfall is one-time cash that won't be included in Michigan's revenue base when it runs out in 2011.
Robert LaBrant, senior vice president of the Michigan Chamber of Commerce, underscored that point.

"It's time for the Legislature to stop putting band-aids on the problem and go for substantial and long-term reform," LaBrant said. "Stimulus packages come and go. Michigan has to address its fundamental structural problem."

The Senate Fiscal Agency report is far gloomier than the economic forecast consensus reached in May by the agency itself, the House Fiscal Agency and the Treasury. In that report, it was predicted the state unemployment rate would be 8.3 percent in 2009. But that was before the financial market collapse, the auto bailout attempt and the national recession declaration.
Terry Stanton, spokesman for Treasurer Robert Kleine, declined to comment on Thursday's report, saying its own numbers will be released next month, just prior to the Jan. 9 revenue estimating conference. House Fiscal Agency Director Mitchell Bean also said his report will be out the first week of January.

But in past years, the three forecasts generally have been similar.
You can reach Mark Hornbeck at (313) 222-2470 or mhornbeck@detnews.com.


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