Michigan’s hard-hit economy will record a major dive for the second quarter from the effects of the COVID-19 pandemic, losing nearly one-third of its output, before partially recovering in the third quarter.
That’s according to an updated outlook Comerica Inc. economists issued Thursday. The forecast projects a 32.8-percent decline in state Real GDP for the April-to-June period, led by the manufacturing sector that was largely shut down for weeks and is just now beginning to reopen.
“Michigan, largely through its durable goods manufacturing industries, is heavily exposed to the supply chain disruption, demand curtailment and demand destruction that have come as a result of social mitigation policies designed to fight the spread of the novel coronavirus,” Comerica economists wrote in the updated outlook. “Recessions may be characterized as periods of accelerated economic change. For Michigan’s key auto industry, change was already in the air prior to the current recession. Now, the pace of change will likely accelerate, and may take new directions.”
The outlook estimates state Real GDP began to dip in the first quarter with a 4.3-percent decrease. Comerica projects a rebound of 12.6 percent in the third quarter. Real GDP for Michigan would then dip 2 percent in the fourth quarter, and then return to growth in 2021.
“A silver lining for this current dark economic cloud may be more reshoring of manufacturing processes, bolstering U.S. supply chains,” the economists wrote.
Comerica forecasts Michigan will start next year with 3.9 percent Real GDP growth in the first quarter, followed by 2.6 percent in the second and 2.8 percent in the third.
Michigan’s unemployment rate will balloon to 12.1 percent for the second quarter of 2020, then fall back to 8.6 percent and 9 percent in the third and fourth quarters, respectively. Unemployment in the state will run 8.8 percent in the first and second quarters of 2021 and 8.7 percent in the third, according to the Comerica outlook.
Comerica earlier this week predicted a “W-shaped pattern” for the U.S. economy through 2020 with a steep decline in national Real GDP for the second quarter, a partial rebound in the third and a small decline to end the year before moderate growth kicks in for 2021, as MiBiz previously reported.
The Comerica outlook comes amid word Thursday that the state faces a projected $3 billion budget shortfall for the remainder of the 2021 fiscal year that runs through September.
In a report issued prior to Friday’s revenue estimating conference with legislators, the state House Fiscal Agency cited the 1.3 million unemployment claims filed in Michigan since mid-March.
“And while initial claims have fallen in recent weeks, there is little doubt that the economy will continue to decline before growth returns. However, unlike most prior downturns, the current contraction doesn’t represent any glaring weaknesses in the economy per se, but rather the result of policies designed to contain the spread of the virus,” House Fiscal Agency analysts wrote in their report. “As such, there may be reason for optimism that, as restrictions are relaxed, economic activity will return at a somewhat faster rate than would otherwise normally occur after prior economic contractions.
The agency predicts an unemployment rate of 13.3 percent in Michigan for all of 2020, followed by 8 percent in 2021 and 6.5 percent in 2022.