Eight out of nine indicators on Comerica Bank’s Michigan Economic Activity Index were positive in September, according to the bank’s latest quarterly report on the state’s economic performance.
Comerica Bank’s Michigan Economic Activity Index increased in September to a level of 105.6. September’s reading was 22% higher than the cyclical low of 86.9.
The index averaged 117.9 points for all of 2019, 0.7 points below the index average for 2018. August’s index reading was revised to 103.
The bank’s Michigan economic activity index increased for the third consecutive month in September. While the rate of increase was still strong, at +2.5% for the month, the three-month trend points toward smaller monthly gains ahead, according to Robert Dye, Comerica’s senior vice president and chief economist.
In September, eight out of nine index components were positive, including nonfarm employment, unemployment insurance claims (inverted), house prices, industrial electricity demand, light vehicle production, total state trade, hotel occupancy and sales tax revenue. The only declining element in September was housing starts, which Dye said always experiences some measure of volatility, even when interest rates are low. On the plus side, sales of existing homes — especially single-family — remain strong, he said.
Due to increasing coronavirus infections this fall, Michigan has again tightened its social mitigation policies, and this will drag on state economic performance in the fourth quarter, according to Comerica. An order from the Michigan Department of Health and Human Services was effective from Nov. 18 through Dec. 9 and then was extended again, closing schools, ending indoor dining at bars and restaurants and mandating working from home when possible to slow the holiday spread of the virus.
“Michigan and every other state have been tremendously impacted by the coronavirus this year, in terms of the shutdowns in the spring and the re-openings, and of course, the surge here at year-end. … We certainly have near-term risk factors staring at us very closely in terms of the surge, but we’ve got the vaccine approval, (and) I’m very hopeful that once the vaccines get distributed and utilized, consumer confidence will improve in the second half of the year, and that, in combination with very low interest rates, I think that will encourage businesses to make business investments and for consumers to unleash their pent-up demand,” Dye said. “So, once we get through these next few choppy months, I’m actually very positive about Michigan and the U.S. economy, but … I know for all those who were affected by the current surge in coronavirus, these are very, very difficult months to get through.”
Spectrum Health began vaccinating its frontline health care workers the week of Dec. 14.
Gov. Gretchen Whitmer has asked the state legislature to approve a $100 million relief plan that would provide immediate support to businesses and households. She also has asked for an extension of unemployment insurance benefits as a stopgap.
Michigan’s auto industry might see reduced demand for new automobiles at year-end, according to Comerica’s report. The surge in coronavirus cases, plus election uncertainty, weighed on consumer confidence in November. The financial institution said it expects to see strong demand for new automobiles once confidence recovers as vaccines are distributed.
“In general, the auto industry has held up a little bit better than I expected through the fall. We did give a little bit back on sales in November, and it remains to be seen what we did in December, especially with increased tightening social mitigation policies,” Dye said. “But even with that said, there is a silver lining in that cloud for Michigan, in that there’s a lot of pent-up demand for autos out there. And like I said, once we get through the next couple of months, I am expecting sales to do well in the second half of next year and beyond, and that will definitely be a lift for Michigan.”
He added Michigan’s aviation supply chain will get a boost from the Federal Aviation Administration granting Boeing approval to resume production of its 737 Max jet after it was grounded for nearly two years following deadly crashes in Indonesia and Ethiopia. With vaccine distribution on the horizon, Dye said he expects air travel and orders for airplane parts to pick back up in 2021, which will impact the Mitten state, as it is home to a large network of aviation manufacturing suppliers.
Dye said there’s still a question mark about whether the office furniture industry will resume growth given the disruption in demand for commercial real estate and office furnishings in a new era of working from home for many folks.
Another top-of-mind concern Dye had is what impact the expiration of the student loan repayment moratorium and temporary hiatus on evictions would have with people still out of work heading into the first quarter of 2021.
Dye also will keep an eye on the results of the 2020 U.S. Census and what they reveal about net migration in and out of Michigan during the era of remote work, as net migration trends are “fundamental” to the long-term outlook of any state, he said.
The Michigan Economic Activity Index consists of nine variables: nonfarm payroll employment, continuing claims for unemployment insurance, housing starts, house price index, industrial electricity sales, auto assemblies, total trade, hotel occupancy and sales tax revenue.
All data are seasonally adjusted. Nominal values have been converted to constant dollar values. Index levels are expressed in terms of three-month moving averages.
Comerica Incorporated (NYSE: CMA) is a financial services company headquartered in Dallas and strategically aligned by three business segments: The Commercial Bank, The Retail Bank and Wealth Management. In addition to Texas, Comerica Bank has locations in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico.