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By Kojo Quartey, Dean
Davenport University
Donald W. Maine School of Business

A former econ professor once joked that economists and weathermen are two professions where one can be constantly and consistently wrong, yet still have a job the next day. Knowing that, I will make some bold predictions for the economy based on a review of previous trends.

For a long time now, the state of Michigan has had the worst economy in the nation based on unemployment rates. The main factors keeping Michigan at the bottom centered on the automobile industry. The great news is that Michigan is no longer in last place! We have moved up to 49th place, thanks to the state of Nevada. Even though this doesn’t seem like great improvement, the fact is that Michigan’s economy is steadily improving. The unemployment rate, which soared to more than 14 percent only a year ago, was down to 12.8 percent in October — the first time it had dipped below 13 percent in nearly two years. This slight improvement was due to progress in the manufacturing and healthcare industries.

The auto industry has been the bane of the Michigan economy, and it also will be part of the remedy. Ford, Chrysler and GM year-over-year sales were up 21, 17 and 11 percent respectively in November compared to last year. GM is once again a publicly traded company and continues to make progress in paying back its debt to the federal government. Meanwhile, although Michigan’s foreclosure rates have been among the worst in the nation, there are signs the real estate market is stabilizing for both number of sales and home prices.

With the auto industry leading the way, but with help from a diversified economy, here’s what I expect to happen in the next six months:

• Automobile sales will continue to rebound, especially as the Big Three continue to expand their expertise in hybrids and electric cars. Combined with expansion in the health industry plus more state incentives, the unemployment rate will slowly decrease to around 12 percent and GDP growth in the state will outpace the expected national rate of 2.5 percent.
• Inflation is not a problem in this economy since we will continue to get cheap products from China. I expect prices to increase between 2 and 3 percent through the first two quarters of next year, mostly as a result of increases in food and energy prices as the price of oil reaches $90 a barrel and average gasoline prices exceed $3 a gallon in Michigan by spring 2011.
• The stock market, as measured by the Dow Industrial Average, will settle above 12,000 by mid-year, primed by increasing corporate profits and the rebound of the auto industry. This bodes well for Michigan as the auto industry initiates more hiring with other industries following suit.
• Gross Domestic Product, the broadest measure of the economy, will have increased by 3 percent by the end of the fourth quarter of this year and will increase by at least 3 percent in each of the first two quarters of 2011. The increase in consumer confidence, extension of the Bush tax cuts, Federal Reserve quantitative easing measures and low prices will spur consumers to have spent much more during this holiday season and well into the New Year to make all of this happen.

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