As the Federal Reserve continues to cut interest rates amid a cooling job market, the economy is poised for moderate growth in Michigan and nationally over the next two years, according to University of Michigan economists.

The national economy is projected to grow 2.3% in the fourth quarter of 2024 with the unemployment rate averaging 4.2%, while growth may ease slightly in the near future due to a slowing labor market, the UM economists said in a U.S. Economic Outlook for 2025–2026.

Meanwhile, Michigan’s economy has slowed since spring, with heightened uncertainty due to the recent elections, the economists wrote in a Michigan Economic Outlook for 2025–2026. Both reports were written by Jacob T. Burton, Gabriel M. Ehrlich, Kyle W. Henson, Daniil Manaenkov, Niaoniao You and Yinuo Zhang.

“The U.S. economy has gone through times of great uncertainty before and emerged intact,” the economists wrote. “We are projecting that both Michigan and the nation will follow that path over the next two years.”

Job growth in Michigan is expected to decline in the second half of the year, but grow moderately in 2025 and 2026.

“We believe the election results have amplified the uncertainty surrounding Michigan’s economic outlook,” the economists wrote. “We project a small dip in Michigan’s job count in the back half of 2024 to give way to moderate job gains in 2025 and 2026, but the outlook depends critically on uncertain policy decisions and the subsequent market responses.”

The economists expect job growth in the state to be strongest in health care, leisure and hospitality and government, while sectors including manufacturing and professional services are expected to remain stable.

“We are projecting the state economy to return to growth over the next two years as easier monetary policy and another round of tax cuts boost medium-term growth,” the economists wrote. “Michigan adds 19,000 payroll jobs next year and an additional 26,700 in 2026. The unemployment rate in Michigan is projected to fall from 4.6% in late 2024 to 4.3% by the end of 2026.”

The Detroit, Grand Rapids and Ann Arbor metro areas showed a downward trend in job growth, with Detroit and Grand Rapids seeing 0.1% growth during the past year. Ann Arbor saw relatively stronger job growth of 1.3% as of September, according to the report. Metro-level data for October was not available for the report, officials said.

The report attributes the underlying cause of the slowdown in Michigan’s job market as the Federal Reserve’s policy of monetary tightening to control inflation.

“Although the Fed has recently pivoted toward reducing short-term interest rates, we believe that real interest rates remain at a restrictive level and that the effects of the Fed’s past tight monetary policy continue to impact Michigan’s economy,” the economists wrote. “Indeed, in many ways, the national rebalancing in the labor market is precisely what the Fed hoped to engineer with its policy actions. Unfortunately for Michigan, our relatively rate-sensitive industry mix means that higher interest rates have taken a larger economic toll than nationally.”

The Michigan outlook points to stronger personal income growth, with per capita income increasing to $64,000 in 2024 and reaching around $68,500 by 2026, up 41% from 2019.

Inflation is expected to slow to 3.3% in 2024 and 2.2% in 2025 before increasing to 2.7% in 2026 due to new tariffs that the incoming Trump administration is expected to impose.

The U.S. and Michigan economic outlook reports follow the presidential election, which economists say will result in significant changes in U.S. economic policies. In the reports, the economists shared their thoughts on about the impacts of a second Trump administration.

The recent election of Donald Trump as well as the Republican majorities in the U.S. Senate and House will likely to result in a continuation of tax cuts Trump enacted during his first term, the economists said. Also expected is a sharp rise in tariffs on imports from China to take effect by 2026. 

While rising tariffs on Chinese imports and tax cuts for corporations and individuals are expected in upcoming years, revenue increases from tariffs are unlikely to offset revenue losses generated by tax cuts, according to the report. This could result in slower revenue growth and a sharp increase in federal deficits.

“As the stimulative effects of the expected tax cuts dominate the drag from the anticipated new tariffs, we project quarterly GDP growth to accelerate modestly during 2026, reaching a 2.5 percent annualized pace by 2026 Q4,” the economists wrote.

The report notes that the Federal Reserve has started cutting interest rates after keeping them at a 23-year high of 5.25% to 5.5% for 14 months. The rate was reduced by 50 basis points in September and 25 basis points in November, bringing it to 4.5% to 4.75%.

Additional cuts will depend on economic data, with the economists expecting another 25 basis point cut in December.

Looking ahead at next year, the economists say they expect the Fed to make four more 25-basis-point cuts in 2025 and reach a range of 3.25–3.5% by the end of the year.

“In our view, the temporary uptick of inflation related to tariffs will not prompt the Fed to tighten policy in 2026,” economists wrote. “We believe that risk management concerns related to the potential negative growth effects of tariffs, which played a role in the 2019 rate cuts, will balance the upside risks from new tax cuts, prompting the Fed to stand pat.”

cwilliams@detroitnews.com

@CWilliams_DN

Associated Press

KALAMAZOO, Mich. (AP) — Quandre Bullock scored 20 points off of the bench to lead South Dakota past Western Michigan 80-76 on Wednesday night.

Bullock also contributed three steals for the Coyotes (5-1). Paul Bruns scored 18 points, shooting 6 for 13 (3 for 8 from 3-point range) and 3 of 3 from the free-throw line. Cameron Fens had 16 points and shot 7 of 9 from the field and 2 for 4 from the foul line.

The Broncos (2-4) were led by Markhi Strickland, who posted 20 points and six rebounds. Western Michigan also got 13 points and six rebounds from Owen Lobsinger. Javaughn Hannah also recorded 12 points.

Bullock scored 12 points in the first half and South Dakota went into the break trailing 34-33. Bruns’ 18-point second half helped South Dakota close out the four-point victory.

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The Associated Press created this story using technology provided by Data Skrive and data from Sportradar.

With all the talk about running back carries in recent weeks, Michigan is planning to work another player into the rotation this week.

True freshman Micah Ka’apana could make his season debut for the Wolverines in their game Saturday against Northwestern (3:30 p.m., FS1), head coach Sherrone Moore said this week.

On Monday, Moore raved about Ka’apana’s “dynamic speed” and said Michigan has plans to “put it on display a little bit this week,” signaling plans to get the Hawaii native touches as the season winds down.

Under revised NCAA rules, football players can appear in up to four games without burning a redshirt. Ka’apana has not played this season; instead spending much of it on the scout team.

“He’ll be implemented into the game plan a little bit more this week,” Moore said on the “Inside Michigan Football” radio show. “Very shifty, great contact balance. He’s small but he isn’t little. The dude plays with power — he’s strong — but he’s super fast.”

More: Ben Hall views himself as Michigan’s next RB1, and wants more carries to prove it

The 5-foot-11, 190-pound Ka’apana is a former three-star recruit from Bishop Gorman High School in Las Vegas, where he put up big numbers during his final two seasons. The Hawaii native rushed for 723 yards and nine touchdowns as a senior, and topped 1,000 yards and 15 touchdowns as a junior in 2022, while also catching 11 passes for 192 yards and four touchdowns.

Michigan (5-5, 3-4 Big Ten) has spent the bulk of its disappointing season leaning on two backs, Kalel Mullings and Donovan Edwards. Redshirt freshman Benjamin Hall saw some playing time during the non-conference portion of the schedule, then got four carries in the loss to Indiana on Nov. 9.

Another true freshman, Jordan Marshall, has yet to receive a carry despite appearing in two games as a kick returner on special teams. Marshall will continue in that role this week, Moore said, while the Michigan staff takes a closer look at Ka’apana.

“He had a game in high school where he had five carries and five touchdowns,” Moore said. “So the dude is really, really dynamic. Really excited to see what he does with the ball in his hands.”

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