A decade after financial crisis, Michigan still recovering

September 16, 2018

State's GDP per capita is up but household income, ownership is down

 

Unemployment is down, but fewer Michiganders are actually working

 

Labor force participation rate dropped to 61.5 percent in July this year from a peak of 69 percent in 2001

 

On Sept. 15, 2008, global financial service firm Lehman Brothers filed bankruptcy and the entire economy was sent into a tailspin.

 

Lehman was the tip of the spear of the banking crisis that exacerbated Michigan's "Lost Decade." The state lost more than 800,000 jobs between 2000 and 2009 as the subprime housing bubble burst, sending hundreds of thousands of homes into foreclosure as the automotive industry collapsed among the rubble, leading to the bankruptcies of General Motors and Chrysler. 

 

Ten years later, things are looking up. Michigan's gross domestic product per capita is up 21 percent from its annual low in 2009, and up 2 percent from its peak in 2005. Michigan hit bottom and the automotive industry's rapid recovery out of the bowels of the Great Recession For instance, General Motors' market cap has nearly doubled since its low in 2012, thanks to record sales in 2015 and 2016

But despite improved business operations and a strong automotive sector, the question looms: Are Michiganders better off now than before the economic collapse a decade ago?

 

The answer largely depends on your socioeconomic standing in the state. 

 

And it's not always evident in the data. Michigan's GDP per capita actually eclipsed the 2005 peak in 2016 by a tenth of a percent. Michigan is, in fact, wealthier. But most of its residents are not, and GDP per capita growth is still stagnant when compared with other states. 

 

Michigan's income inequality gap has widened, as it has nationally, since the Great Recession — ranking as the 11th worst income gap in the nation, according to a 2016 study issued by the Michigan League for Public Policy.

 

Median household income for the state adjusted for inflation is down more than 15 percent — $57,700 in 2017 — from its peak in 1999 and remains down 3 percent from its pre-Great Recession peak in 2006. Homeownership also hasn't recovered, with fewer young people buying homes and many of those who lost homes not recovering enough to buy again. There are more renters in the U.S. than in any period since 1965, according to a report last year by the Pew Research Center. The ownership rate was down nearly 6 percent last year at 72.9 percent, down from the peak of 77.4 percent in 2006.

 

 

Charles Ballard, an economist at Michigan State University, said the recovery has largely been reserved for the wealthy and upper-middle classes. 

 

"This is a continuation of the disequalization of the last 40 years, which has been called the 'Great Divergence,'" he said. "The folks at the very top have pulled away from the folks near the top, and those near the top have pulled away from those in the middle, although the middle hasn't pulled away from the bottom."

 

Employment remains the reason. While the unemployment rate for the state plummeted to 4.8 percent in July this year from 15.4 percent in July 2009, there are fewer people actually working. The unemployment rate only captures the part of the labor force that is either working or seeking work. The number of people of working age, 18 years old to 64 years old, who have left work altogether is also growing.

 

Michigan's labor force participation rate dropped to 61.5 percent in July this year from a peak of 69 percent at the beginning of 2001. The labor force has only recovered by 1.5 percent since its low point of 60 percent in 2012, despite having nearly 100,000 fewer residents and 250,000 fewer jobs than before the recession. Meanwhile, more than 64,000 unfilled jobs are posted on the state of Michigan's talent recruitment site.

 

But hurdles remain for the state's lower classes, such as failing schools in Detroit and other communities. Michigan ranks 40th in the nation in high school graduation rate, with only 79.7 percent of students receiving a diploma. And roughly 13 percent of Michigan's youth between 18 years and 24 years old are neither in college or seeking employment, which will further perpetuate adult poverty.

 

In 2000, Michigan ranked eighth highest in per-pupil K-12 spending, but slipped to 24th by 2016. In inflation-adjusted numbers, Michigan's per-pupil spending fell by $663, while the U.S. average increased by more than $1,400 per student.

 

Michigan ranks 46th in the U.S. for fourth-grade reading proficiency — a metric that continues to trend down — 42nd in career and technical education and 47th in out-of-state college enrollment, according a 2017 Business Leaders for Michigan report.

 

And with an inevitable recession looming, there's no indication the future for Michigan's residents will be any better than before Lehman Brothers collapsed. 

 

"If times are hard, you can't put off buying groceries, but you can put off buying a car," Ballard said. "Thus any recession is likely to be unusually difficult for a state, like Michigan, that concentrates in the production of durable goods. Because of the long-term shrinkage of the manufacturing sector, Michigan isn't as heavily dependent on manufacturing as we used to be, but we still depend on manufacturing more than the average state."

 

 

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