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Friday, December 28, 2007 2008 industry outlook Mich.'s tough times drawing to a close But more pain expected before gain Louis Aguilar and Sofia Kosmetatos / The Detroit News Michigan's economy in the past few years has often been described as gripped in a "one-state recession," and while no one predicts a rose garden for the state in 2008, there are at least some signs this may be the last tough year before the state begins a slow rebound in 2009. But not before more pain. As it has since 2000, Michigan will lag -- badly -- behind the national economy, which by itself is expected to be sluggish at best. Locally, tens of thousands of job losses will continue, particularly in the auto industry. Home values may continue to drop, and the number of foreclosures should grow. The impact will be deep and wide, from the declining budgets of state and local governments to the tightening of consumer spending. "But a crisis is a terrible thing to waste," said Patrick Anderson, founder of Lansing's Anderson Economic Group, "and we've been facing crisis in Michigan long enough that we've begun to tackle some of the structural issues to turn around." Detroit's auto industry in particular made great strides this year in addressing structural problems as a result of groundbreaking new labor contracts with the United Auto Workers and other cost-cutting measures. But as University of Michigan economist George Fulton says, recently released data show that, alongside the losses, the state's economy consistently produces large job gains in education and health services. "There must be some vitality in an economy that can continue creating jobs even though it's not keeping pace with the leakage," Fulton said. "If the leaks can be plugged, the state's economy and labor market have the capacity to grow and prosper. And therein lies both our challenge and our opportunity." What's ahead for five key Michigan industries: Economy Next year may be Michigan's final year of big economic pain before the state slowly starts to bounce back, according to five prominent economists. For the eighth straight year, the Great Lakes State will bleed jobs, primarily manufacturing work. As many as 51,000 workers will see their jobs disappear in 2008, according to a forecast by University of Michigan economists Joan Crary, George Fulton and Saul Hymans. The state's unemployment could hit 8.2 percent, a level not seen since 1992. By the bleak Michigan standards set so far this decade, next year's jobs losses in auto manufacturing will be moderate -- about 21,000, the UM economists said. That will trickle down to moderate job losses in other sectors, including construction, professional and business services and trade, transportation and utilities, predicts Comerica Inc. chief economist Dana Johnson. Not all sectors will continue to slide. Education and health services will add 10,000 jobs next year, the UM forecasters believe. The tourism industry should grow as the high price of gasoline and even the slow U.S. economy keep people closer to home for vacation, according to Anderson, who also sees the potential for high-tech auto jobs and work created by research at state universities. The national economy will not slide into recession, the economists contend, which helps what most believe will be Michigan's final year of decline before a soft rebound begins in 2009. Auto industry Next year was supposed to be a new, leaner start for Detroit's auto industry. Instead, grim predictions of dwindling U.S. light vehicles sales are casting a dark cloud over the recent progress made by Detroit's Big Three to improve their competitiveness against lower-cost foreign rivals, including reaping savings from groundbreaking labor contracts brokered this year with the UAW that will shift retiree health care costs to the union, among other cost savings. The struggling housing industry, the squeeze on credit, and high oil prices will challenge automakers in the new year. Most analysts predict U.S. vehicle sales will plunge by 500,000 units or more compared to 2007's estimated level of 16.1 million. Forecasts range from CSM Worldwide's estimate of 15.8 million to Ford Motor Co.'s prediction of 15.2 million, based on calculations for the first six months of next year. If auto sales drop by half a million or more, the impact will be wide and deep, including likely consolidation of automotive suppliers, fewer dealerships and lower state tax revenue. Suppliers tied closely to SUV and truck components, where sales are dropping most steeply, are likely to be hard hit, said David Cole, chairman of the Center for Automotive Research in Ann Arbor. Automakers have laid off nearly 100,000 workers in the last two years, and announced more cuts this fall along with more buyouts. General Motors Corp. will offer buyouts to 5,200 of its 34,000 hourly workers starting in January. Chrysler LLC and Ford Motor Co. workers recently learned they'll be on extended layoff early in the year. Energy However you heat your house or run a vehicle, expect to pay higher prices. Assuming normal weather, a typical Michigan resident can expect his or her heating bill from November to March 2008 to hit about $764, a $15.28 increase from last winter, according to the state's semi-annual Energy Appraisal report by the Michigan Public Service Commission. The mix of higher prices and increased usage could cause natural gas bills to increase by 8 percent this season compared to last winter, according to the energy report. Residential natural gas prices now are 2 percent higher than last winter. Residential heating oil prices are up sharply because of increases in crude oil prices. Crude oil's run to nearly $100 a barrel in the second half of 2007 increased the price of gasoline and many consumer goods, and many analysts think prices will average around $75 a barrel in 2008. But due to geo-political risks and supply, the cost of motor gasoline and diesel will remain volatile, according to the federal Energy Information Administration. Both gasoline and diesel prices are projected to average well over $3 per gallon nationally in 2008, with gasoline prices peaking at more than $3.40 per gallon next spring, the EIA projects. Road and bridge builders are seeking a 9-cent increase in Michigan's 19-cent gas tax. The increase would be phased in at 3 cents a year for three years and is being pitched by the Michigan Infrastructure & Transportation Association to collectively generate $1 billion annually in money for road work. But Gov. Jennifer Granholm opposes raising the state's gas tax. She's expected to sign a bill in January that sets up an Alternative Road Funding Task Force made up of legislative leaders and leaders from manufacturing, tourism and public transportation to look for other ways to pay for infrastructure improvements. Her State of the State address in January will likely spell out ways she will try to strengthen Michigan's economy through alternative energy development. Housing This time last year, there was cautious optimism the housing market, both nationally and locally, might stabilize. Now -- though it hardly seems imaginable -- things could get worse for at least half of 2008 before improving, according to home builders, economists and investors. The impact of the subprime mortgage mess is far from over and that will mean more foreclosures and declining home values, experts contend. The National Association of Home Builders expects the national housing market to pick up in 2009 after hitting bottom in the middle of next year, according to David Seiders, the NAHB's chief economist. In Metro Detroit, which lags behind the national economy, home values may continue to decline for most of next year. In March, the number of adjustable rate mortgages in the United States will peak, with $110 billion resetting to higher monthly payments for homeowners, said Drew Sygit, a certified mortgage and equity planner for Meadow Mortgage in Bloomfield Hills. Locally, that will result in more foreclosures, Sygit said. Other experts share in the low expectations for 2008. More than 90 percent of publicly traded home builders have negative outlooks or are under review for downgrade, Moody's Investors Service said in a recent report. And 33 percent of building materials companies have negative outlooks, according to the report. Before the market bottoms out, local counties and municipalities will likely be forced to slash budgets, which will mean fewer services. In January, local governments learn how much their revenues will drop due to falling property tax assessments, said Patrick Anderson, founder of Lansing's Anderson Economic Group. The one bright spot is rentals, which will continue to go strong, as people ride out the housing storm. Health care Metro-Detroit health care systems will continue their race to attract customers with new hospitals, expansions and renovations in 2008. They will spend millions on projects that cater to patients with pampering atmospheres and the latest technology. Industry experts are keeping a close eye on two new suburban hospitals: St. John Providence Park Hospital in Novi, set to open in the summer, and Henry Ford West Bloomfield Hospital, scheduled to open in Spring 2009. The Novi hospital, for example, will look and feel like a modern hotel, with dual corridors (one for patients and visitors, another for moving materials), large patient rooms with room service, flat screen TVs and pull-out couches for visitors. Despite renovations being made at Detroit hospitals, they stand to lose doctors and patients -- and with them, income -- to the new hospitals. "We'll see changes next year that we haven't seen anything like in the last several years," said Adam Jablonowski, executive director of the Wayne County Medical Society.The addition of two new suburban hospitals comes as Flint-based McLaren Health Care grows in Metro Detroit. In northern Oakland County, McLaren is developing a $600 million health care village it hopes will include a 200- to 300-bed hospital. The industry will also keep a close eye on Beaumont, Grosse Pointe, formerly Bon Secours Hospital, which Beaumont Hospitals bought in 2007. It's the Royal Oak-based health system's first major entry into Wayne County. Across industries, companies will continue to grapple with rising health care costs, even though the rate of increases has slowed. Businesses will focus more next year on more aggressive wellness programs in the workplace and will continue to pass some of the cost increases to employees. You can reach Louis Aguilar at (313) 222-2760 or [EMAIL PROTECTED]
