Comerica Bank's Michigan Index Rebounded in October Despite the UAW Strike

Rhea-AI Summary

The Comerica Michigan Economic Activity Index rose 7.2% annualized in the three months through October, but was still down 0.4% from a year earlier. Employment fell due to the United Auto Workers strike, but the labor market is expected to recover in early 2024. Auto production and housing starts showed mixed results, with housing prices rising sharply. Michigan's real GDP grew by 1.6% in 2022, below the national average. The state's economy is likely to slow along with the national economy in late 2023 and into 2024.

Positive

• None.

Negative

• Michigan's real GDP growth was below the national average, indicating slower economic performance.
• High interest rates will likely slow output and sales in credit-intensive sectors, pressuring carmakers' margins.
• The Comerica Michigan Economic Activity Index declined 0.4% from a year earlier, indicating a slight decrease in economic activity.

Insights

Economist

The Comerica Michigan Economic Activity Index serves as a barometer for the state's economic health, encapsulating various sectors. The reported annualized growth of 7.2% for the last three months up to October is a positive sign, indicating a rebound from the previous quarter's contraction. However, the year-over-year decline of 0.4% reflects a more complex economic landscape.

Particular attention should be paid to the auto industry, a cornerstone of Michigan's economy. The recent UAW strike's impact, leading to a significant drop in employment and auto assemblies, underscores the industry's volatility and its substantial influence on the state's economic performance. While the post-strike recovery is encouraging, it is essential to monitor how the industry adapts to challenges such as high labor costs and the influx of new EV models, which could pressure carmakers' margins.

Moreover, the housing market dynamics, with housing starts showing growth but still trailing the previous year's performance, coupled with rising house prices, suggest a tight housing market. High interest rates, as noted, may further dampen housing and credit-intensive sectors. This could have a ripple effect on related industries and consumer spending.

In the broader context, Michigan's GDP growth lagging behind the national average is a point of concern, highlighting potential headwinds for the state's economy. Stakeholders should consider the implications of these trends for local businesses, employment and investment opportunities.

Market Research Analyst

From a market research perspective, the decline in consumer spending as indicated by reduced sales tax receipts is significant. Consumer spending is a critical driver of economic growth and its softening could signal broader economic challenges ahead, potentially impacting local businesses' revenue forecasts and stock valuations.

Additionally, the industrial electricity use decline is a proxy for industrial activity and could be indicative of reduced manufacturing output beyond the auto sector. This may affect utility companies and other businesses that are dependent on industrial consumption.

It is also worth noting the contrast between the uptick in housing starts and the decline in hotel occupancy, suggesting divergent trends within the real estate sector. Investors and businesses in the hospitality industry should be mindful of these trends when strategizing for the coming year.

Financial Analyst

Analyzing the economic indicators from a financial standpoint, the mixed signals presented by the Comerica Michigan Economic Activity Index could lead to cautious investor sentiment. While the index's growth is a positive sign, the underlying components present a nuanced picture. For instance, the auto and light truck assemblies slump, although temporary due to the strike, could have short-term implications for supply chains and auto-related stocks.

The real estate sector's performance, with the sharp rise in house prices, could impact consumer wealth and borrowing capabilities, potentially influencing banking and financial services sectors. High interest rates, as projected to continue into 2024, will likely have a dampening effect on credit-dependent purchases and investments.

Investors may look for sectors that are less sensitive to these economic fluctuations or consider defensive strategies in anticipation of a potential economic slowdown in Michigan. Diversification across industries and geographical regions could be a prudent approach in light of these state-specific economic challenges.

DALLAS, Jan. 22, 2024 /PRNewswire/ -- The Comerica Michigan Economic Activity Index rose 7.2% annualized in the three months through October, reversing a drop in the prior three months. Nonetheless, the Index was still down 0.4% from a year earlier, and declined in those terms for most of 2023. Six of the index's nine components fell in October, while three rose.

Reflecting the effects of the United Auto Workers strike, employment in the Great Lakes State fell 13,000 in October and 13,700 in September. Similarly, continuing claims for unemployment insurance and the unemployment rate rose further in October. The Michigan labor market is likely to recover to its pre-strike condition in early 2024, since the strike ended before 2023's critical holiday shopping season. 

Auto and light truck assemblies slumped by 1.6 million to 8.9 million annualized units in October. Industrial electricity use also fell. The timeliest data on auto production, which are not yet incorporated into the index, largely rebounded to pre-strike levels in late 2023.  Housing starts rose by a sharp 8.5% in October, the fourth consecutive monthly increase, but were still down 1.3% from a year earlier. Despite the gains in the past few months, housing starts through October 2023 were 14.1% down from the same period of 2022.  With listings tight, house prices rose sharply for the eighth consecutive month and have now more than reversed their decline from mid-2022 to early-2023. Seasonally-adjusted hotel occupancy declined on the month and also from a year earlier. Sales tax receipts, adjusted for seasonality and price differences, were also lower on a monthly and annual basis in October, indicating that consumer spending softened during the strike.

Michigan's real GDP grew by 1.6% in 2022, below the national average of 1.9%. The state's economy grew at a more subdued pace in the first three quarters of 2023 compared to the same period of the prior year and lagged behind the national growth rate. Michigan's economy will likely slow along with the national economy in late 2023 and into 2024. High interest rates will slow output and sales in credit-intensive sectors, such as housing, manufacturing, and commercial real estate. Carmakers' margins will likely be pressured by the combination of higher labor costs and increasing pricing competition amid many new EV models coming to market.

The Comerica Michigan Economic Activity Index is a monthly composite indicator of state economic activity. The Index provides a wholistic advance view of the state of Michigan's economy, using economic data that are available about one quarter earlier than real GDP is released. The index is comprised of nine components: Nonfarm payroll employment, continuing claims for unemployment insurance, housing starts, house prices, industrial electricity sales, auto and light truck production, foreign trade, hotel occupancy, and sales tax revenue. All data are seasonally adjusted with nominal values converted to constant dollar values as appropriate. To filter out month-to-month volatility in the index components, the index is calculated from the three-month moving averages of its components. Values for a minority of components are projected from the prior months' release due to the timing of data releases.

Comerica Bank, Comerica Bank, a subsidiary of Comerica Incorporated (NYSE: CMA), is a financial services company headquartered in Dallas, Texas, and strategically aligned by three business segments:  The Commercial Bank, The Retail Bank, and Wealth Management. Comerica focuses on building relationships and helping people and businesses be successful, providing more than 400 banking centers across the country with locations in Arizona, California, Florida, Michigan and Texas. Founded 175 years ago in Detroit, Michigan, Comerica continues to expand into new regions, including its Southeast Market, based in North Carolina, and Mountain West Market in Colorado. Comerica has offices in 17 states and services 14 of the 15 largest U.S. metropolitan areas, as well as Canada and Mexico. Comerica reported total assets of $85.8 billion at Dec. 31, 2023. Learn more about how Comerica is raising expectations of what a bank can be by visiting www.comerica.com, and follow us on Facebook, X (formerly known as Twitter), Instagram and LinkedIn.  

To subscribe to our publications or for questions, contact us at ComericaEcon@comerica.com. Archives are available at http://www.comerica.com/insights.

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SOURCE Comerica Bank

FAQ

What was the growth rate of the Comerica Michigan Economic Activity Index in the three months through October?

The Comerica Michigan Economic Activity Index rose 7.2% annualized in the three months through October.

What caused the decline in employment in Michigan?

Employment fell due to the United Auto Workers strike.

What is the expected timeline for the Michigan labor market to recover?

The labor market is expected to recover to its pre-strike condition in early 2024.

What were the trends in auto production and housing starts in Michigan?

Auto production slumped, but housing starts rose sharply, with prices also increasing.

What was the growth rate of Michigan's real GDP in 2022?

Michigan's real GDP grew by 1.6% in 2022, below the national average of 1.9%.