COVID-19 Economic Impact To Last Far Beyond Summer Plus 5 Things To Know

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On today’s show: A Coronavirus update MGM Grand Detroit is laying off 40% of its workforce Protestors are suing the city of Detroit, and the city plans to sue them back Detroit schools have reached a deal between teachers and their administration And Oakland County parks are looking for an […]

On today’s show:

A Coronavirus update

MGM Grand Detroit is laying off 40% of its workforce

Protestors are suing the city of Detroit, and the city plans to sue them back

Detroit schools have reached a deal between teachers and their administration

And Oakland County parks are looking for an expanded millage in November. More here: https://www.candgnews.com/news/oakland-county-seeks-to-renew-increase-millage-for-parks-118483

Plus, it looks like we’re in for not a V-shaped, but a more prolonged economic recovery from the impacts of Coronavirus. Short term, we have some “choppy waters.”

Dr. Robert Dye from Comerica Bank joins me to talk about the latest results of their Michigan Economic Index and what’s ahead for the state.

Here’s a link to the full report, and below is a machine transcription of the conversation.

So what is the state of the Michigan economy? For years, Comerica Bank has had a Michigan economic index to measure what’s happening. And in June, it declined to a new historical low; of 86.6 points.

For context, the index averaged 117.7 points for all of 2019.

To help us be a bit smarter and understand what’s happening and what’s ahead – Dr. Robert Dye from Comerica. Welcome to Daily Detroit.

Dr. Robert Dye: Oh, thank you, Jer. Good to be here.

JS: Absolutely. So for the uninitiated, and I used to work in the corporate world. So I’ve seen this before lunch. I wanted to talk a little bit for a minute or two. What exactly is the Michigan economic activity index? And and what does it tell us?

Dr. Robert Dye: Great question. I think of it as a blender index. And what I mean by that is we blend together nine different economic data streams, nine different variables. To describe the overall Michigan economy. We bring in employment numbers, unemployment insurance claims housing starts house prices, industrial electricity, auto assemblies, state trade, imports and exports, hotel occupancy and state sales tax, and we bring them all in and we smooth the numbers out, we seasonally adjust them, we weight them. And then we combine them into one index, which is designed to show us current conditions in the state economy. And it’s designed to line up with state level gross domestic product. GDP is a national level concept. But we can break it down to the state level and think of it as if Michigan were its own country, this index would describe its overall economy.

And from a practical perspective, how do your clients and the general public seem to use this data?

Dr. Robert Dye: We view it as what we call a current conditions indicator does what is the state of the economy pretty much right now or within the last, you know, few months, so we can get a handle on that because state level GDP gross domestic product, that data comes out with a bit of a lag, we don’t get that for two or three quarters after the fact. So we want to have something that’s a little bit more up to date. And we’re Selecting current conditions in a machine economy.

So looking at the most recent data, it is clear that Coronavirus and the actions taken around it. There has been a lot of impact on the economy. Where are we sitting right now?

Dr. Robert Dye: Well, yeah. So there’s been huge not only from Michigan for just about every other state, but every state has its own mix of industries and obviously the auto sector, very important in Michigan, other manufacturing. Every state has its own demographic mixed. Every state has had its own policy response. But across the board for all states, very fair to say. Every state has been dramatically impacted by the Coronavirus and by the policies to fight Coronavirus. So there’s been a real cost of that has been benefit of course, and there’s economic costs and what we’ve see in our index is there has been a pretty steep economic cost from Michigan as we get the numbers for, especially may and into June. We see a steep drop off in our activity index here showing a pretty strong contraction in the state economy through the second quarter of this year.

So what are a couple of the points that are the most concerning going forward? Or surprising things? Maybe you didn’t expect? And then things that are going to impact us for a while? Or is this something that’s going to, you know, have more of a quicker recovery? What are you seeing?

Dr. Robert Dye: I think the important thing for the average person is to realize this is not a one and done event. And I’ve heard people describe this as a V shape recovery mean, we go down hard in the second quarter and come right back up. I really, really do not like that description. This is going to be an event that even though we do see some good amount of recovery in the third and fourth quarter of this year and going into next year, the echoes and reverberations from those events from the spring and So we’ve seen over the summer in terms of those resurgence in some areas, that’s going to be with us for quite some time. And I think that’s the big lesson. And I think big message for the average person here is listening to this podcast is that we have to expect that we’re going to be seeing impacts to the auto industry, we’re going to be seeing impacts of virtually every sector of the economy. So they’re going to last far beyond the summer.

What are some of the key trends you kind of see in the data and then also just dealing with clients or any of the other things? You mentioned the auto industry, of course, that’s of extreme concern, because you know, Michigan is so dependent on it, but there’s also a variety of other sectors.

Dr. Robert Dye: Well, yeah. And so we can look at different parts of the economy, Western Michigan, aircraft related manufacturing, that we know what was happening now with the airlines in terms of demand remains very, very weak airline expecting to layoff 10s of thousands if not hundreds of thousands of employees total this fall and so their demand for aircraft is weaker, and that impacts the economy. And Michigan. So like I said, lots of moving parts here. And I think what we can say is that every state has been touched by this. Virtually every industry has been touched by themselves. Now, there’s some winners out there if you’re making personal protective equipment, TP for hospitals and healthcare workers, you’re doing great business. But if you’re a casino if you’re in related to air, your aircraft in any way, entertainment, restaurants, things like that, you know, your business was not designed to operate at 50% capacity forever. And those are the kinds of changes and cut back so we’re expecting to see this through this fall and into winter that these long term drags on overall demand are going to start catching up to many businesses.

When it comes to individuals, small businesses, or organizations is there a key piece of advice that you would give them or something that they can take away is like this is actionable. And I need to keep this in mind as I’m going forward?

Dr. Robert Dye: Well, I would give two pieces of advice that sort of go in opposite direction. So I’ll say in the near term, again, be aware that this is not going to go away anytime soon. In terms of the overall economic drag, we’re going to be fighting this for a while. So caution in the near term, also hope for the longer term, we have brought so much fiscal policy to bear we’ve gone through the cares act, I think we’re going to get more this fall. We’ve got monetary policy in terms of very low interest rates. We have an awful lot going to stimulate the economy. And I have no doubt that we will emerge from this and as we go through next year, we’re going to have some choppy water to go before we really feel like we’re in smooth sailing. If I can push that analogy.

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