Mich. economy to grow in 2011, 2012--but slowly

By Kathy Barks Hoffman

Associated Press

ANN ARBOR (AP) -- Michigan will add more jobs than it loses next year for the first time in 11 years, but many residents won't feel much better off despite the slight recovery, University of Michigan economists predicted last week.

The slow upward trend will mirror the gradual improvement expected nationally in 2011 and 2012, economist George Fulton said in presenting the university's annual state economic forecast. Michigan has already seen an increase in manufacturing jobs but will see its biggest growth over the next two years in service jobs. Government employment will continue to drop, he said.

Fulton and Senate Fiscal Agency director Gary Olson, who will retire by year's end, said the state faces tough decisions in dealing with the $1.7 billion projected shortfall in the budget that starts Oct. 1. Gov.-elect Rick Snyder has said he wants to cut business taxes by $1.5 billion, further deepening the hole.

Olson said the size of state government is significantly smaller than it was a decade ago, and some politicians' assertion that there's a lot more to cut isn't realistic. The state would have to eliminate nearly a fifth of its general fund if it was going to deal with the deficit entirely with spending cuts.

"We've done a lot of downsizing over the past decade, and I seriously doubt if there's a huge amount of money to save from the elimination of programs," said Olson, who has been working on the budget for nearly 33 years.

He added that Snyder and a new crop of legislators may have to consider eliminating state tax exemptions, which have doubled in the past decade, and cutting state worker pay and benefits, which have grown even as the number of state workers has shrunk by 13 percent in the past 10 years.

They also might want to consider extending the sales tax to services, something legislators tried in 2007 but repealed after two weeks, Olson said, adding that the change wouldn't initially cost taxpayers more if the tax rate was dropped at the same time.

Fulton said he expects state revenue to go up slightly next year and down the next until faster economic growth occurs in Michigan and nationally. He doesn't expect that to happen until 2013, although the end of 2010 should be the last quarter where Michigan loses more jobs than it gains.

"The heartbeat of the Michigan economy seems to be getting a little stronger," he said. "We haven't yet turned the corner to sustained growth, but the prognosis is encouraging."

He expects that the state will add about 24,500 jobs next year and 63,000 in 2012, far less than the 285,600 jobs lost in 2009 alone and a long way from replacing the nearly 860,000 jobs -- more than half in manufacturing -- lost since seasonally adjusted nonfarm employment peaked in June 2000.

The state's unemployment rate, now 12.8 percent, should average 12.4 percent next year and 11.5 percent in 2012, Fulton said. Jobs in manufacturing and services such as health care and financial activities will grow in the next two years. The state likely won't see a net increase in construction jobs until 2012, Fulton said.

He expects high rates of home foreclosures to persist, continuing the economic distress many residents are feeling.

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Online:

University of Michigan forecast:

http://www.umich.edu/~rsqe

Senate Fiscal Agency:

http://www.senate.michigan.gov/sfa

Published: Tue, Nov 23, 2010

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