Michigan's labor market has hit a soft patch, though a modest recovery is expected in the next couple of years.
Meanwhile, the U.S. economy remains on solid footing, despite renewed inflation pressure, a softer labor market, elevated geopolitical tensions and significant policy uncertainty.
The findings come from state and U.S. economic forecasts produced by U-M's Research Seminar in Quantitative Economics. The team of economic forecasters plan to present results Friday at the Consensus Revenue Estimating Conference, a key step of the state's annual budgeting process.
Here are some key takeaways from the state data:
- Wage and salary employment has declined by 9,000 jobs, and the count of employed residents has declined by 77,000 over the 12 months ending in March.
- Michigan is expected to lose 5,900 payroll jobs in calendar year 2026 before returning to moderate growth of 13,400 jobs next year and 9,300 in 2028. The count of employed residents ekes out growth of 3,000 next year and 1,900 in 2028.
- After a tough 2026 with 17,100 job losses, Michigan's cyclical industries-including manufacturing, construction and finance-should recover an average of 3,700 jobs per year in 2027 and 2028.
- The bulk of the job gains come in noncyclical industries, such as private education and health services, government, and leisure and hospitality. Combined, these industries add an average of 8,800 jobs per year from 2026 through 2028.
- The unemployment rate is expected to hover around 5% from now through the end of 2028 as an aging population puts downward pressure on the labor force participation rate.
Here are some findings of note from the U.S. side:
- Real gross domestic product growth is forecast to register 2.2% this year, then moderate to 2.1% in 2027 and 2% in 2028.
- The tariff landscape appears to have softened modestly compared with a year ago. Recent monthly readings suggest the effective tariff rate dropped from above 10% in January to 7.4% in March. That's expected to average around 8% going forward.
- The unemployment rate so far this year has remained stable in the 4.3%-4.4% range. They project it to edge up to 4.5% in the second half of 2026 and hold through 2028, reflecting a modest impact of the oil price spike.
- While higher oil prices should exert upward pressure on inflation in the near term through heightened input and transportation costs, supply chain disruptions from geopolitical tensions are expected to remain relatively contained. As a result, core inflation should ease through 2026 and return to a normal range in 2027.
- Overall, the broader economy should continue its healthy expansion throughout the forecast period. The economists see a resilient labor market helping to prevent a sharp pullback in household spending, while artificial intelligence-related capital investment plays a larger role in sustaining economic growth.
Of interest to both state and U.S. economies, the researchers note that the light vehicle market's reaction to spikes in the price of gasoline and diesel has been muted so far. In March-April, the sales pace averaged over 16 million units on an annual basis, and they expect the pace to remain broadly stable over the next couple of years-hovering just under 16 million units.
"Michigan's economy has faced a tough external environment recently, with uncertain trade policy, lingering high interest rates and now a spike in oil prices," said Gabriel Ehrlich, an economic forecaster and director of RSQE. "So, it probably shouldn't come as too much of a surprise that the state's labor market has hit a soft patch recently. The good news is we expect moderate growth to return soon and continue over the next two years.
"Our forecast assumes the war in Iran does not escalate any further, and the price of oil will decline gradually from here. We would expect the economic effects of the jump in oil prices to grow the longer that prices stay elevated."
