The Michigan economy is much more than just autos and other durable goods manufacturing, but the auto sector still drives the state economy.
Recent announcements regarding new investments in the state by automakers is good news for Michigan, but risks to the state economy from following the auto cycle are inherent.
Auto sales surged at the end of 2016, hitting an 18.4-million-unit pace in December and propelled total 2016 sales into the record books.
Most automakers expect U.S. sales to ease this year. Even with tapering sales in 2017, the auto industry will remain an incubator of new economic activity as driverless and other new technologies are developed. The Trump administration’s desire to renegotiate the North America Free Trade Agreement also could impact the auto industry. Michigan, perhaps more than any other state, is exposed to a restructured NAFTA in both directions — north to Canada and south to Mexico.
Negotiations with Canada and Mexico are expected to begin this spring. Given the integration of Mexican manufacturers with the U.S. auto industry, it would be extremely disruptive and extremely inefficient to attempt to quickly dismantle existing supply chains.
We look for marginal changes to NAFTA that would seek to rebalance production costs between countries and, thus, reduce incentives for production relocation. If that is achieved, Michigan will benefit from a more stable manufacturing sector.
The reality for manufacturers is the constant push to do more with less, particularly less labor. So, even with stability in output, labor demand will ease gradually as automation pushes productivity gains.
Robert Dye, Ph.D., is chief economist with Comerica Bank, and Daniel Sanabria is an economist with Comerica Bank.