Data shows the state economy is recovering, but Michiganders don’t feel it in their wallets

Unemployment has dropped. Job rates are improving. And the Michigan economy is on the road to recovery after being battered during the COVID-19 pandemic. But many aren’t feeling those gains where it matters most: their wallet.

Veronica Kuhl, who has worked as a secretary in the Grand Rapids area for three decades, has a lot of concerns about the economy.

“Gas prices just went way up, which affects all of us. I don’t think people are getting the raises they should to keep us where we need to be. I think a lot of businesses have bounced back but there’s still so many people who need help,” she said.

While people are feeling the pinch of inflation at the gas pump and the grocery store, experts say Michigan’s economy has made big strides since nearly a quarter of the workforce was unemployed in April 2020.

“The idea that the pandemic wasn’t going to disrupt the economy, it’s just not realistic right?” said University of Michigan economic forecaster Dr. Gabe Ehrlich. “It’s just going to take time to get back to where we were. It was a humongous economic disruption, and it has had long lasting effects on the economy.”

Michigan has made progress in some areas while others lag. Here are four signs of economic recovery.

Rebounding unemployment shows ‘healthy labor market’

The labor market is one of the most important parts of the economy, Ehrlich said. It can be measured in multiple ways, but economists usually point to unemployment to assess the health of an economy.

“The unemployment rate really asks, how many people are out there who are looking for a job and can’t find one,” Ehrlich said. “That’s a really important measure of how the economy and how the labor market is functioning for people.”

Michigan’s unemployment rate skyrocketed to 22.7%—much higher than the national average of 14.7%—when COVID first hit two years ago. As of January, it has dropped to 4.9%, only slightly higher than 4% nationally.

The unemployment rate plummeted in the summer of 2020 and continued to inch down last year. Getting below 4% will be a sign Michigan’s labor market is back to pre-pandemic levels, Ehrlich said.

Another metric is the number of unemployed people per job opening. And in Michigan there’s just under one unemployed person for every job opening, according to the Bureau of Labor Statistics (BLS).

“That’s a pretty clear sign of a labor market where if people want a job, they can find it. And that’s pretty much a healthy labor market,” said Dr. Steve Woodbury, a senior economist at the W.E. Upjohn Institute for Employment Research and a professor at Michigan State University.

The number of jobs is bouncing back, despite a labor shortage

The labor market is both the ability to get a job and the types of jobs that are available, Woodbury said. It’s going through an awkward period of aligning employee wants and employer demands and that includes skill level and pay, too.

Woodbury points to retail and restaurants as an example where there’s been a lot of change within an industry. The service industry has adopted changes forced by the pandemic like curbside takeout, delivery, cashless and e-commerce and workers are expected to follow suit.

“There’s this mismatch between worker skills and employer demands, and they’re feeling that,” Woodbury said. “The culture at work has changed dramatically.”

This lends itself to what Ehrlich calls “the tale of two labor markets.” There’s a disconnect between those job seeking and those hiring. That’s evident with the data showing the unemployment rate decreasing while employers struggle to find workers.

The unemployment measures the success of job seekers, but that metric can be skewed by several variables – such as Woodbury’s mismatch between employee and employer.

The number one metric Ehrlich looks at to determine recovery is job count.

Michigan lost more than a million jobs from February 2020 to April 2020. About 80% of those have been recovered as of December, according to BLS data. The state has been on an upward trajectory, with January numbers showing nine straight months of job gains.

The state’s job recovery recently made headlines as a Bloomberg opinion piece praised Gov. Gretchen Whitmer for leading the pack on post-pandemic recovery. This analysis placed Michigan at number one among 37 states with a population greater than 2 million.

While Ehrlich agrees Michigan has seen gains, stacking its success against other states requires nuance.

“The horse race is tricky between Michigan and the United States,” he said. “We are further from a full recovery than the country is, but we also had a bigger hole to climb out of.”

High inflation is the price paid for fast recovery

As economists point to the labor market as signs the economy is healing, inflation remains the fly in the ointment. Last clocking in at 7.9% over a year, stubbornly high inflation rates are eating up personal gains in income and savings.

“I can see how it would affect people living paycheck to paycheck,” said Andrew Eckert, an architect from Grand Rapids. “For the most part, just grin and bear it and hope things calm down a bit.”

Consumers must “grin and bear it” every week at the checkout line.

Nationally, bacon now rings up to $7 a pound, a dozen eggs cost about 50 cents more and potato chips exceed $5 a bag, the Consumer Price Index shows. Price hikes are currently most visible at the gas pump where fuel prices have rocketed past $4 a gallon.

Steadily rising prices on food, housing and energy have driven inflation to its highest rate in 40 years. A stew of factors contributed to this, experts say, including low interest rates, high demand from consumers whose cash reserves were boosted by stimulus checks and shortages worsened by supply chain issues.

Related: 51% of Michiganders struggling with monthly bills as inflation swells, survey finds

Wage gains have also been swallowed up by the higher prices with hourly earnings dropping 2.6% since February 2021, national data shows.

Ehrlich said the federal reserve aims for inflation to be around 2% year over year. The best-case scenario would be improving supply chains this year to see prices slow down in 2023.

Will consumers have the patience?

“It doesn’t necessarily feel great to people right now, but when you look at what’s happening with jobs, what’s happening to the unemployment rate, the economy really is recovering,” Ehrlich said.

Has life returned to normal?

Beyond unemployment data, job counts and inflation rates, unofficial measures like restaurant reservations and public outings track if the economy is getting back to normal.

OpenTable, an international restaurant reservation service, has been collecting data on restaurant visits since March 2020 on its State of the Industry website. This shows that restaurant visits took a hit during the omicron wave this winter and they still have not leveled out to pre-pandemic levels.

Another tracker is cell phone data, collected by the Google COVID-19 Mobility report, which show visits to restaurants, museums, libraries and movie theaters are still 13% below pre-pandemic movement in Michigan. Trips to the grocery store and pharmacies, often viewed as essential, remain 14% lower.

Meanwhile, Michiganders are spending 7% more time at home and 19% more time outside at parks and public beaches.

Both metrics demonstrate that life connected to the economy still has not bounced back from the pandemic.

The soft landing

For much of the pandemic, economists pointed to the virus itself as the reason for the turbulence. As the spread of coronavirus becomes manageable and headed toward endemic status, economists are wondering how the federal government will land this plane.

Both Ehrlich and Woodbury immediately point to The Federal Reserve Board raising interest rates for the first time in three years.

On March 2, Federal Reserve Chairman Jerome Powell told the U.S. House Committee on Financial Services he would support a 0.25% interest rate hike this month. The Fed is looking to slowly bring interest rates back up without disturbing job growth.

Powell said the Fed is being cautious as to not repeat history, referencing the double-dip recession in the early 1980s brought on by tightening up interest rates too quickly.

“The big question now is ‘Can the Fed actually pull off a soft landing?’” Woodbury said. “The really, really soft landing the Fed has ever turned off was the recession we never saw in the mid-90s. I would be happy with a with a semi bouncy landing.”

At the start of the year major investment banks predicted anywhere from five to seven interest rate hikes throughout the year. But that was before Russia invaded Ukraine.

Consumers and economists alike are wringing their hands as gas prices rise beyond record levels.

The war and the United States’ response has already begun to impact everyday expenses, but Ehrlich doesn’t see it changing the course of the post-pandemic recovery.

“That will be a pain point for people,” he said. “But in terms of derailing the recovery here we don’t expect the war to derail the recovery in the United States or in Michigan right now.”

An ideal soft-landing would mean interest rates settle around 2% and unemployment around 3-4%, Woodbury said.

“There’s just enormous uncertainty, of course, because of Ukraine,” Woodbury said.

Even factoring in the unknown, University of Michigan economists forecast the state will be recovered by the second half of 2023.

Recovery is a delicate balance. On one hand the federal stimulus has contributed to high inflation. On the other hand, Ehrlich said this post-pandemic recovery is moving faster than that of The Great Recession, because of the stimulus.

“In some ways, the high inflation that we’re seeing right now is part of the price we’re paying to get that fast recovery,” he said. “There is a tradeoff there.”

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