Michigan economy in ‘soft patch,’ facing uncertainty under Trump, reports say

• Michigan remains far from its goal of becoming a top 10 state for business and prosperity
• Yet a new forecast suggests it also won’t lose ground over the next two years
• Flat job growth ‘can’t be taken for granted’ in Michigan

Two new reports show Michigan’s economy continues to tread water, making few gains, while also raising hopes it won’t fall further behind under incoming President Donald Trump.

Combined, the reports offer both a look at where the state is stagnating and a glimpse of what may be coming in the next couple of years in the new administration.

“The path of economic policy in the second Trump administration remains uncertain,” University of Michigan economists said Thursday, noting that decisions made on tariffs, electric vehicle and other green energy subsidies, personal and business tax rates, and the federal deficit all could change expected outcomes. 

The uncertainty looms as the state’s economy has been “hitting a soft patch recently,” Gabriel Ehrlich, director of U-M’s Research Seminar in Quantitative Economics, told Bridge this week. 

Already in Michigan, “the manufacturing industry is slowing down,” Ehrlich said. “And just more broadly in the state, things have been slowing down.”

The group released forecasts for the state and US, with both calling for some growth. 

The U-M forecast comes as the latest benchmarking study of the state by Business Leaders for Michigan, also released on Thursday,  shows that by most of its measures of business growth and prosperity, Michigan remains below average. The poverty rate, along with income and business productivity gauges, all are in the bottom one-third when compared to other states.

The business group, which released its last report in 2022, tracks the changes with the goal of making Michigan a Top 10 state “for talent, for a thriving economy and widely shared prosperity,” CEO Jeff Donofrio said on Thursday during a media briefing.

The top three states — Utah, Colorado and New Jersey — have high educational attainment, household income and labor force participation, along with low poverty rates. 

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“There's really the theme of strength in both talent and in job creation,” Donofrio said, with the most successful states experiencing a “virtuous cycle” of higher levels of education, higher pay and more job creation. 

One bright spot for Michigan, Donofrio said, was labor force participation, or the number of working-aged adults who held a job.

Michigan's rate was 62.4%, compared to 62.6% across the US. Here, the number is the highest since the Great Recession, showing “significant” progress. 

But, with the labor force participation measure now at 33rd, Donofrio added, “we've got to find ways to  increase that growth even more.”

The state added 48,100 jobs early in the year, but lost one-third — about 16,000 — by the end of September. 

Much of that is a result of the Federal Reserve raising interest rates to cool inflation, Ehrlich added. The unemployment rate is now at 4.7%, which Ehrlich said remains within a healthy range. In comparison, the US unemployment rate is 4.1%.

Michigan is on track to add about 19,000 jobs in 2025 and 26,000 in 2026, he added. Those gains of about 0.5% over two years are about flat for a job market employing 4.8 million people.

However, Ehrlich said,  “In Michigan, we shouldn't take that for granted.”

Benchmarking Michigan

Overall, Michigan jumped to 27th on the Business Leaders for Michigan’s benchmarking of business growth and prosperity metrics across 50 states. The initiative measures how close Michigan comes to the nation’s Top 10 states. 

The overall ranking of 27th is a leap from 31st in December 2022, the last year for a report. However, unclear is how Michigan would rank if Business Leaders for Michigan had not adjusted two key metrics this year.

Instead of measuring net talent migration as in previous years, the benchmarking now looks at overall population and its growth rate. Michigan ranks 10th, with just over 10 million people. That is down from 8th in 2000 and 2010. The state's three-year population growth rate, the report notes, is 43rd in the US.

Previous reports showed Michigan ranked 20th in net talent migration. Since the 2022 report, the state has prioritized population growth, given projections that by 2050 Michigan will have fewer than 10 million people while most other states grow. From 1990 to 2020, Michigan ranked 49th in population growth, ahead of only West Virginia.

Even with the business group’s change of its population metric, “our population growth … has continued to trail other states significantly, and that represents not just a challenge for filling jobs, but also for attracting new companies to investments,” Donofrio said. 

The business group also changed its reporting on median household income. This year, it made adjustments for regional purchasing power. With the change, Michigan’s median household income of $69,183 moved from 38th place to an adjusted 35th. 

The Top 10 rankings do not measure per-capita income. The latest federal data showed that Michigan ranked 39th, its lowest ever. 

Another change came this year in ranking business climate, with the research adding some quantifiable measures — such as the cost of labor and tax competitiveness — to the opinion surveys, which moved Michigan to 24th place, compared with 18th a year earlier.

Donofrio said he’s hopeful about policy changes in Michigan to boost talent and job creation. As an example, he mentioned free community college. 

He also said his business group is looking for legislative approval of economic development incentives that could encourage more innovation. They include the R&D tax credit, proposed tax breaks for data centers and proposals to allow businesses that create jobs to keep a portion of the newly generated state income taxes. 

Michigan’s economic forecast

Michigan still has an interest-rate sensitive economy, U-M’s Ehrlich said, due to its industry mix, which remains heavily manufacturing. Auto sales and construction have slowed, as has the state’s mortgage industry.

“Poor affordability due to high vehicle finance interest rates is one factor holding back vehicle sales, but we expect interest rates on auto loans to decline as the Fed’s cutting cycle proceeds,” according to the U-M report.

U.S. light vehicle sales — the total for cars, SUVs and non-commercial trucks — should reach 15.9 million units this year, Ehrlich said, rising to 16.3 million by the end of 2026. 

Job growth is expected to come in government, which includes education; health care and the leisure and hospitality industry.

The forecast also says:

• Michigan’s unemployment rate will fall to 4.3% by the end of 2026.
• Michigan’s personal income per capita is expected to reach $68,500 in 2026, or 41% higher than in 2019.
• Local headline inflation is expected to slow to 3.3% this year, down from 5.4% in 2023 and 8.2% in 2022.