Michigan Economic Overview
With a gross state product (GSP) of some $381 billion, Michigan has the 12th biggest economy in the nation. Manufacturing (cars and trucks, heavy equipment, office furniture, chemicals), agriculture, life sciences, and high technology dominate the economic landscape. Natural resources include significant reserves of timber, iron, copper, and natural gas. Michigan’s unemployment rate stands at around 14.6 percent, well above the U.S. rate of 10.4 percent. At roughly $48,600, the 2008 median household income in Michigan was more than $3,400 below the national average.
The earliest permanent economic activity in what would become the state of Michigan began with French settlements in the late 17th century, which engaged in fur trapping and trading with Native Americans around the periphery of the Lower Peninsula for the next century. Shipping grew in importance with the opening of the Erie Canal in 1825 and the Soo Locks at Sault Ste. Marie 30 years later, which opened up access to the interior of the country.
After becoming a state in 1837, Michigan derived wealth from the exploitation of iron and copper reserves on the Upper Peninsula, while agriculture thrived in the Lower Peninsula. From the 1850s to the 1880s, Michigan was the leading producer of lumber in the United States. Furniture manufacture was a leading industry from the 1830s, centered first in Detroit and then in Grand Rapids.
Beginning with the Olds Motor Works in 1897 and the Ford Motor Company in 1903, Detroit became the center of the automotive industry in the United States. This industry continued to dominate the Michigan economy even as it began to retrench late in the 20th century. Michigan’s economy suffered greatly in the first decade of the 21st century with the near collapse of the U.S. automotive industry during the worldwide economic crisis. In early 2010, the state experienced the highest level of unemployment in the nation at over 14 percent, a rate that peaked at more than 15 percent in late 2009.
Once the core of the state’s economy, agriculture’s importance to Michigan is again growing as its manufacturing sector contracts. Michigan has more than 55,000 farms on some 10 million acres, mainly in the southern portion of the state. Many farms remain family owned, with 86 percent reporting sales of under $100,000.
Michigan is the third-ranked producer of ornamental flowers in the United States, with an estimated wholesale crop value of $393.5 million. Other leading agricultural products include milk, corn, soybeans, cattle, poultry and eggs, wheat, hogs, sugar beets, potatoes, and small fruits such as blueberries. Total agricultural output grew to over $7.6 billion in 2007–2008, led by the growth of large livestock, dairy, and poultry farms.
Important specialty products include Christmas trees (of which Michigan is the third largest producer in the nation), honey, and trout. Farming, fishing, and forestry employ some 5,300 workers, with an average annual income of $27,620.
BANKING AND FINANCIAL SERVICES
Michigan is home to 147 FDIC-insured commercial and savings institutions, as well as other state-regulated financial institutions. Although historically more conservative in its lending relative to the rest of the nation, the Michigan banking sector suffered during the recent worldwide economic crisis, as real property values dropped and delinquency rates among both individual and business borrowers rose to historic levels.
Michigan banks have seen their capital accounts erode and liquidity sources dry up, while having to increase their loss reserves. Consequently, credit available to Michigan businesses and home buyers has contracted significantly, while bank closures have increased. In the third quarter of 2009 nearly 40 percent of banks in the state reported having made no profit, and the average quarterly return on assets stood at 0.25 percent. One response has been an increase in bank mergers to reduce costs and increase resiliency.
The communications sector contributes some $6.2 billion to the GSP. This sector has shown consistent growth, regardless of economic conditions. Michigan was a pioneer in telecommunications deregulation with the Michigan Telecommunications Act of 1991. The act has been supplemented and amended several times to increase competition—not only among companies, but also among technologies—and to optimize residents’ access to new and mature technologies. Much of the state has been covered with fiber optic cable to increase the speed and reliability of communications. For example, in 2007, Merit Network, Inc. completed a high-speed fiber optic network that connected the Upper and Lower peninsulas.
Construction in Michigan employs approximately 140,000 people and contributes more than $13 billion to the GSP. Employment in the building trades is well paid, with an average wage of approximately $47,000 annually. Some 24,000 construction jobs were lost during the economic crisis, but the industry began to recover with the help of stimulus funding provided by the American Recovery and Reinvestment Act of 2009.
Michigan primary and secondary schools, both public and private, serve 1,894,866 students in 4,328 schools. There are more than 70 community colleges, four-year colleges, and universities in the state. The education sector contributes some 2.8 billion to the GSP. Average public school spending of $7,352 per student per year puts Michigan squarely in the middle of U.S. states in terms of spending. More than 242,000 state residents are employed in education, training, and library occupations, with an average annual income of $52,000. Employment has remained fairly steady in this sector.
Michigan produces three percent of its petroleum consumption and 20 percent of its natural gas needs. Petroleum is imported through pipelines from other states as well as Canada. Natural gas is the primary home heating source for about 80 percent of households in the state; consequently, Michigan’s consumption of natural gas is high—802 billion cubic feet. Electricity-generating capacity in the state is approximately 30,100 megawatts, about 60 percent of which comes from coal-fired plants. Michigan is the 8th leading consumer of coal in the nation.
Three nuclear power plants provide 26 percent of the state's electricity, natural gas generates 10 percent, and renewable energy sources (including hydroelectric, wood waste burning, and methane from landfills) account for four percent. Michigan’s Renewable Portfolio Standard requires that it derive 10 percent of its electricity needs from renewable sources by 2015 and 25 percent by 2025. Utilities contribute some $2.8 billion to the GSP.
About 53,500 Michigan workers are employed in arts, design, entertainment, sports, and media occupations, earning average wages of about $47,000. This category includes everyone from art directors and fine artists to actors, producers, and directors to professional athletes and referees to singers, dancers, and choreographers. The Michigan legislature has enacted incentives to incubate the film production industry in the state as part of the overall effort to diversify the state economy beyond manufacturing. Partly as a result, in 2008 film production generated $65.4 million and paid $25.1 million in wages, employing nearly 2,800 Michiganders during production.
There are some 1,550 insurers authorized to do business in Michigan, and between insurers, brokers, and agents, the insurance industry employs an estimated 55,000 people. In 2007 it generated a contribution of $11.2 billion to the GSP. Direct written premiums in Michigan total approximately $52 billion and the industry as a whole shows annual net income after taxes of over 10 percent of equity.
Michigan’s manufacturing sector has long been the largest economic sector in the state, contributing $61.8 billion to the GSP. Twenty-three percent of U.S. vehicle production is located in Michigan, whose manufacturing base has experienced deep and sustained losses since the recession of 2001. According to the Bureau of Labor Statistics, overall manufacturing employment in the state dropped from 650,800 in 2006 to 575,300 in 2008.
Nonetheless, manufacturing still employs approximately 19 percent of the state’s workforce. The state has responded to the downturn by pushing to diversify its manufacturing and achieve a more highly trained and technologically adept workforce to support 21st century industries. Such initiatives as the Michigan Manufacturing Technology Center help small and medium-sized manufacturers learn and implement the best and most competitive practices and technologies available.
In addition to automotives, Michigan factories also produce processed cereals, office furniture, pharmaceuticals, farm machinery, machine tools, and chemicals. The Kellogg Company of Battle Creek, the breakfast cereal maker, is one of the state’s largest companies, along with pharmaceutical giant Pfizer, Detroit Diesel Corporation, and Dow Chemical.
MINING AND EXTRACTION
Although historically a much larger sector, mining and resource extraction remains a constant of the Michigan economy, contributing some $1.5 billion to the GSP in 2008. Michigan is the second largest producer of iron ore in the nation and is an important source of various nonmetal minerals. According to figures published by the National Mining Association, the state hosts some 480 mining operations with more than 5,700 employees. Another 26,000 residents derive income indirectly from mining. Employment has remained relatively steady in this sector through the worldwide economic crisis. Mining is one of the highest paying fields in the state, with average annual wages of over $60,000.
Beyond the causes they espouse and the services they provide, Michigan nonprofits have a significant economic impact through the wages they pay and the funds they take in, distribute, and expend. Michigan is home to more than 47,000 nonprofit organizations, with more than 440,000 employees—approximately 10 percent of the workforce—earning average annual wages of over $36,000. They receive total revenues of over $133 billion per year, and expend more than $60 billion. Nonprofits participate in various service industries, such as health care, human services, and education. Led by large private foundations such as the W.K. Kellogg and Kresge foundations, Michigan nonprofits hold assets exceeding $179 billion.
The retail trade generates nearly $26 billion to the Michigan GSP, employing some 444,000 workers who earn an average of $24,400 annually. Among the internationally prominent retailers based in Michigan are discount department store chain Kmart and bookseller Borders Group. Walmart, the state’s largest retailer, has 33,230 employees in 112 stores and one distribution center, leading a trend toward larger-scale "big box" retailing. Full-time employees earn an average of $11.63 per hour. Walmart collects some $235 million per year in sales taxes for the state.
Michigan is perhaps best known as the home of the U.S. automotive industry for more than a century. The "Big Three" automobile and truck makers—General Motors, Ford, and Chrysler—maintain their corporate headquarters, much of their research and development, and a sizeable share of production in Michigan. In addition to the Big Three, there are also numerous subcontractors and suppliers of automotive components and systems.
Despite the fact that each of the Big Three has established other production facilities around the United States and the world, and many vendors and subcontractors have also migrated away, Michigan continues to have the greatest concentration of automotive manufacturing activity and employment in the U.S. Automotive R&D expenditures in Michigan lead the nation at $12.4 billion per year. However, industry-related employment in the state dropped more than 40 percent from 2006 to 2009 as automotive manufacturers struggled to compete in a global environment.
Michigan has been ranked 11th in the nation as a technology center, employing 174,800 workers with a total yearly payroll of $13.7 billion. The state enjoys the second highest level of research and development expenditure in the nation and the third highest concentration of engineering graduates.
Michigan has encouraged the emergence of technology companies by creating "smart zones," synergistic clusters of similar companies and supporting structures, including universities and research institutes, as well as by providing technology start-ups with incubator facilities, services, and seed funding. The state also funds the Michigan Technology Tri-Corridor, dedicated to biotechnology, homeland security, and alternative energy research.
High-technology growth industries in Michigan include computer systems design and renewable energy technologies such as wind turbines, solar panels, and bio-energy. Information technology services in the state employ 88,600 workers, with average annual incomes of over $60,000. Michigan is also home to 542 biotech and life sciences companies with $4.8 billion in sales.
Michigan’s 40 commercial ports handle 71 million tons of domestic and international freight each year. The state’s rail cars carry 112 million tons of cargo annually. In 2008, over 724,000 passengers rode its trains. More than 81,000 people are employed as truck drivers and more than 284,000 are employed in transportation and material moving occupations.
Michigan’s air transportation industry ranks 12th in the United States. Detroit Metropolitan Wayne County Airport, the largest in the state, is an international hub for Northwest Airlines, Delta Airlines, and Spirit Airlines. It was 13th in passenger volume among American airports and 24th worldwide in 2008, with over 35 million travelers passing through its gates.
TRAVEL AND TOURISM
The Michigan travel and tourism industry earns $18.1 billion per year. Attractions range from the natural beauty and recreational areas of Lake Michigan’s shoreline, islands, bays, and woodlands, to the Henry Ford and Motown Museums in Detroit. Leisure and hospitality services employ approximately 384,000 workers in Michigan, with an estimated annual income of $30,442.
-World Trade Press