LANSING, Mich. (MIRS News) – Ask anyone on the street how they view the economy, and you’re likely to hear answers riddled with uncertainty.

According to Daniil Manaenkov of the University of Michigan’s Research Seminar on Quantitative Economics (RSQE), that’s not too far from where economists are in their view.

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“If you come away with no clear picture of the economy, that’s fine,” he told the Consensus Revenue Estimating Conference (CREC) at the beginning of this morning’s meeting. “That’s how we want you to feel because that’s how we’ve been feeling for the past several quarters.”

While consumer prices continue to be high, employment rates continue to be historically low and consumer demand is pushing the economy forward despite a federal monetary policy aimed at slamming on the brakes.

“So that’s (consumer demand) a big part of what’s driving the economy and consumption has been doing pretty great in the first quarter,” Maneankov said.

Manaenkov and his colleague Gabriel Ehrlich broadly expect a slight downturn across the U.S. economy in 2023 as the Federal Reserve’s rate hikes begin to take effect. They believe that, unlike past downturns, Michigan might be buffeted as automakers seek to work through the downturn to restore inventory.

So, what are the threats to the economy?

One is financial stress, specifically within the banking industry. Manaenkov noted that the banking index (stock prices of banks) is off 40% right now.

“Broader banking is also under stress,” he said. “We don’t have access to detailed bank-level statistics, we can only look at the macro data, and we have looked at a bunch of statistics from the Federal Reserve, it’s not obvious what is driving the stress.”

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He noted that part of the stress could be on what assets banks are invested in, including commercial real estate – a sector that right now “is in some trouble.”

Other threats to the larger U.S. economy according to RSQE are:

-Inflation dynamics

-Monetary policy

-Housing sector weakness and if it turns around or not

-Geopolitical shocks

-Fiscal path (debt limit debate in Washington D.C.)

For the Michigan economy, RSQE sees the following risks:

-Inflation remaining elevated

-Demand for autos falling

-Job losses in the construction industry as the housing sector struggles

-Looming UAW strike

Ehrlichman also identified a very real, long-term threat to Michigan’s economy – that’s if the state’s auto sector’s transition to electric vehicles isn’t successful. He noted that failing to properly handle the transition could result in a dramatic falloff of auto-related jobs, which have a tremendous multiplier impact across the economy. Under one scenario, he presented a forecast where Michigan could shed 60,000 auto-related manufacturing jobs by 2050.

State Residents’ Standard Of Living Likely To Decline For Awhile

Because higher prices are likely to outstrip wage increases, the state’s residents will “see a decline in living standards over a period of six years from 2019 to 2025,” Ehrlichman said.

“We’re forecasting that Michigan’s real disposable income per capita will hold flat this year and next year, and then growth will pick up to 1.7% in 2025,” he said. “What that means is that by 2025, Michigan’s real disposable income per capita will actually still be lower than it was in 2019.”