It was a year of continuing disappointment and frustration for the Michigan economy in 2006, as the state’s recession dragged into its sixth year with few signs of an imminent turnaround.
Seasonally adjusted unemployment in the state stood at 6.9 percent at year-end 2006, up slightly from year-end 2005’s 6.8 percent but down from the 10-year peak of 7.1 percent at the end of 2003. Compared to 1980-85, a six-year period during which Michigan’s jobless rate averaged in the double-digits, the current numbers seemed mild — to the superficial observer. But there were underlying factors that made 6.9 percent unemploy-ment in 2006 arguably more troubling than the 15.2 percent in the jobless rate Michigan suffered through in 1982.
To begin with, the entire U.S. was mired in a severe recession in 1982, while in 2006 most of the country outside Michigan enjoyed steady economic growth and a healthy job market. National unemployment in 2006 stood at just 4.5 percent and GDP growth came in at a solid 3.4 percent, with projections for a more modest but still positive 2.5 - 2.9 percent gain in 2007.
Further, many economists see Michigan’s current economic troubles as profoundly different in character from those of previous downturns. Unlike the recessions of the early 1980s and 1990s, today’s job losses in the automotive and manufacturing sectors appear to be permanent. Indeed, the Michigan Department of Treasury is forecasting that the state’s unemployment rate will average 7.4 percent in 2007 and 7.7 percent in 2008.
The statistics are just as unappealing in the area of personal income, where Michigan’s per capita income as a percentage of the U.S. average now stands at 95 percent. We are, for the moment at least, no longer a “rich” state. In fact, Michigan’s only place at the top of the economic data charts appears to be in the area of home foreclosures. The number of Michigan homes under foreclosure doubled from 2004 to 2006 to a rate that is 2 1/2 times the national average.
No economist is necessary, however, to pinpoint the primary reason for this ongoing economic malaise. Unlike its sister states, Michigan has remained painfully dependent on manufacturing jobs — particularly in the automotive sector. In fact, Michigan’s automotive-based employment is seven times the national average, and a recent study showed that each Michigan job lost in the automotive industry sets off
a cascading effect that eventually eliminates up to five jobs in other sectors of the economy.
This broad economic pain has made itself felt in the coffers of state and local government, as declining employment rolls translated into declining tax rolls. Lansing has struggled with serious budget shortfalls, exacerbated by the Michigan Legislature’s decision in 2006 to accelerate the phasing out of the state’s Single Business Tax (SBT) to the end of 2007.
Inevitably, Michigan’s economic troubles have impacted on Michigan credit unions. Membership growth was flat in 2006, and assets, savings and loans experienced anemic increases of 0.6, 1.9 and 0.4 percent, respectively. These numbers compare with healthy national growth rates in 2006 of 2.0 percent in membership, 5.5 percent in assets, a robust 9.0 percent in loans and 5.1 percent in savings.
Still, Michigan credit unions have largely managed the poor economic climate with prudence and skill. While Michigan credit union loan charge-offs and member bankruptcies were above the national average in 2006, Michigan credit unions’ net capital/asset ratio and loan yields remained above the national norms.