Friday, June 19, 2009

Michigan personal income losses among highest in U.S.

Brian J. O'Connor / Detroit News Finance Editor

Another day, another batch of reports bearing bad economic news for Michigan.

Coming on the heels of Wednesday's staggering 1.2-point jump in the state unemployment rate, the Bureau of Economic Analysis announced Thursday that Michigan was among states posting the biggest first-quarter losses in the nation for personal income. Meanwhile, a Comerica Bank economic report predicted that Michigan would record a 5 percent plunge in economic activity this year, on top of the 1.5 percent drop that came in 2008.

Said University of Michigan economist David Grimes, "Michigan just is continuing to decline."

Personal income among Michiganians dropped 0.8 percent in the January through March period, compared with the last three months of 2008. Overall personal income in the United States fell 0.5 percent. Income fell by more than 1 percent in five other states, and Alaska recorded the worst drop, a 3.2 percent hit reflecting lower oil prices.

Other states seeing big drops included Idaho, Wyoming, North Dakota, Minnesota, Iowa, Missouri, Florida and Connecticut.

The difference between the other states and Michigan is that only Michigan is being hit with a double-whammy: a huge, permanent structural change to the manufacturing base of the economy, coupled with an even bigger cyclical fall in auto sales caused by the recession.

All the other states saw their personal income levels drop because of the burst bubbles of credit, housing and commodities that popped after the global economic meltdown. The plains and farming states' income drop was due to sharp declines in the prices for commodities, including oil and farm crops. In Florida and Connecticut, the bureau attributed much of the drop to finance, real estate and construction, which all took hits in the collapse of credit and real estate markets.

For those states, "There's a limit to how much more construction will go down, and oil prices already have started to come up," Grimes said. "Michigan still is suffering this permanent loss of a lot of jobs in the auto industry, and permanently lower income."

Personal income in Michigan has lagged the U.S. level for several years, and has been much more volatile because the manufacturing sector is so sensitive to changes in consumer spending.

In Comerica's "Michigan Economic Brief," the bank's chief economist predicted a 5 percent drop in the state's gross domestic product for 2009, continuing the state's trend of underperforming U.S. GDP by two points.

The key to turning the Michigan economy around is the end of the national recession, so that consumers start buying cars again, economist Dana Johnson said, but because of the downsizing of the auto industry, even that will bring only a muted improvement to the state economy.

"The car sector is such a smaller part of the state economy now that even if it bounces back, it's not going to have as much of an impact on the overall growth rate in the state that it used to have," Johnson said.

That muted rebound after an economic downturn may already have happened between the recession that ended in November 2001 and this one, noted David Lenze, an economist with the Bureau of Economic Analysis.

"Manufacturing states tend to have large amplitude throughout the business cycle," Lenze said. "Typically what happens is they have severe recessions, but also very vigorous recoveries. That may not have been the case between the last recession and this recession in Michigan."

boconnor@detnews.com (313) 222-2145

Find this article at: http://www.detnews.com/article/20090619/BIZ01/906190342/Michigan-personal-income-losses-among-highest-in-U.S.

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