Professor Leo Wolman, a labor economist from Columbia University, talked to the Detroit Economic Club on Jan. 13, 1947, about the “Rising Spiral of Higher Wages and Higher Prices.”
The irony wasn’t lost on Steve Grigorian almost 70 years later, when the DEC hosted two more economic experts for a roundtable discussion at its 2022 Economic Outlook meeting, held virtually last week.
The meeting took place as the country was saddled with inflation rates it hadn’t seen in 40 years.
“I bring (Wolman) up because his speech that day parallels, interestingly enough, what’s going on today,” Grigorian, the DEC’s president and CEO, told his virtual audience.
And sure enough, inflation was a frequent topic during the meeting, which featured Dr. Elaine Buckberg, the chief economist at GM, and Quentin Messer, the new CEO of the Michigan Economic Development Corporation. Daniel Howes, the business columnist at The Detroit News, moderated the roundtable discussion.
The conversation centered around the economy and the 2022 Michigan Economic Outlook Survey commissioned by the DEC and authored by the Baker Strategy Group. The survey measures a variety of factors using questions on which scores between “the high 70s and low 80s,” according to Baker Strategy Managing Director David Baker. The survey was conducted in November and December.
The survey rates factors in four basic categories, including individual organization performance, local community, regional economy and an overall look at Michigan.
The study pointed out:
- Michigan has 10 million people, with a labor force of 4.8 million, 4.5 million of whom are employed.
- At the time of the study, Michigan’s unemployment rate sat at 5.9%, a couple of percentage points above the national rate of 3.9%.
- Michigan’s gross domestic produt is $567 billion, putting per-capita GDP at around 56.7.
The study found:
- Michigan’s score moved up 6 points (to 67) for being “business friendly,” and 5 points (to 64) for being “on the right track.”
- Still concerning, though, is the 5-point drop for being a great place to raise a family. Michigan needs to be a great place both for families and young professionals for us to continue our economic growth in our state.
- The score for having a “large pool of skilled, educated talent” went up 8 points (to 68).
- The score for Michigan being a great place to raise a family dropped 5 points.
Baker called that statistic “concerning.”
“Michigan needs to be a great place both for families and young professionals for us to continue our economic growth in our state,” he said.
Buckberg, the GM economist, said it’s “not surprising” the state hasn’t seen a full recovery yet, pointing out that consumer confidence and business confidence haven’t fully recovered.
“It’s been a very complex pandemic and even as we developed vaccinations and done better with each successive wave of the virus, there have been a lot of challenges in navigating and recovering from the pandemic, including for businesses,” said Buckberg, who holds a Ph.D. in Economics from the Massachusetts Institute of Technology and a B.A. in Economics and English from Yale University. “We’ve been hit by a wide range of challenges, from supply chain issues, freight issues, inflation issues … the fact things have gotten on a better level from last year, but not as high as they were pre-pandemic, I expect will continue to improve.
“There have been a lot of challenges and while I’m optimistic about the outlook … a national survey of economic forecasters has GDP growth forecast between 2 and 3.9%,” she added. “That’s twice pre-pandemic growth rates, but it’s still a bumpy road. There have been a lot of surprises. Omicron is causing a lot of absenteeism across the economy that’s disrupting everything from schools to hospitals to the number of people who deliver goods and put them on the shelves. It’s still a complex situation. I’m hoping the freight situation will improve, but omicron could slow that process. So it’s a bumpy road, but it’s moving in the right direction.”
Messer said he looks at three different “big-picture” things.
“What distinguishes Michigan from a lot of places is a fundamental core belief in Michigan as a place of the possible,” said Messer, who earned a Bachelor of Arts degree from Princeton University and a master’s degree from Columbia. “I see fatigue; this is taking longer than anyone anticipated, there are mental health consequences, there are supply chain, labor shortages. It’s an overused term, but it’s been unprecedented. Business leaders would tell you, ‘even if I don’t like an answer, I need the predictability of the process by which you got to that answer.
“What we’ve experienced the last few months … we’re all dealing with – unless you were around in 1918 – with something where there is no pattern recognition,” he added. “When there’s no pattern recognition, it’s difficult to provide that type of predictability, and I think you saw that in the survey results.”
Howes, the moderator, pointed out something “a lot of us have never dealt with in our adult lives” is rampant inflation, the highest in 40 years. He talked about a chart he saw in The Washington Post that pointed out several increases in prices:
- Gas prices are up 58%
- Used cars and trucks are up 31%
- Meats, poultry and fish prices have risen 13.1%
- New vehicles costs are 11%
- There’s no question that llinflation is extremely high. The reading fo rdecember was 7% year-over-year inflation on the headline # (versuks Dec 2020), and 5.5% core inflation, which srips out the volatile food and energy component.
Buckberg, while agreeing inflation “is too high and the biggest cloud on the horizon,” blamed it largely on supply chain shortages. But she said she’s seen numbers that provide some cause for a little optimism.
“The single most important thing in resolving that issue is easing supply chain bottlenecks,” she said. “The rapid run-up in consumer prices in the last nine months is a combination of very strong demand – obviously a good thing – and broad supply shortages, including global energy stores.
“In the December data, energy pretty much across the board came down in price, as did food prices,” she added. “When I look at the month over month data … the headline number came down by about a third, and core inflation was essentially flat. That’s encouraging, actually.”
Buckberg also said she’s seeing improvements in the easing of supply bottlenecks, pointing freight prices have come down from record highs, and the chip supply is stabilizing for the auto industry.
“The good news is we’ve got better chip supply in the auto supply chain,” she said. “GM is normalizing production, all of our plants are operating on normal schedules … we’re adding a few shifts at some plants, we’re doing overtime. When I look at other automakers, I’m only aware of one that is taking much downtime.
“I see (inflation) easing over the course of the year,” she added. “The consensus forecast says inflation will be about 4.6% year-over-year, and that means we get under 3% by the end of the year. I still think that’s a reasonable forecast. Omicron could slow progress in the near-term, but I really do think we’re on a path toward lower inflation.”
Asked about their outlooks on the Michigan economy over the next year, both panelists expressed optimism.
“I am optimistic,” Buckberg said. “Michigan is a state that takes on challenges well and knows how to work through them.”
Said Messer: “Absolutely optimistic. Michigan still knows how to see, design and build, and that is the essence of creativity and problem-solving, which is the hallmark of capitalism.”