Michigan’s economy: ‘Constant uncertainty’ sparks fear, hope for stability

• Bridge compared Michigan economic indicators to the nation’s
• Consumer and business owner attitudes are turning less pessimistic
• Michigan is 2nd in unemployment growth and risks tariff job losses

Michigan was among just 11 states whose economies grew in the first quarter of 2025. That revelation from the Federal Reserve offers a glimmer of positive news for a state facing a laundry list of economic challenges.

But there’s a catch: We barely made the cut, eking out a 0.19% increase in gross domestic product. 

That razor-thin gain comes after a national decline early this year that prompted CEO worries in the state. Their concerns: losses, ongoing trade uncertainty and continued inflation will keep the pressure on the state’s economy. 

“Michigan tends to be more exposed to those factors than other states,” Jeff Donofrio, president and CEO of Business Leaders For Michigan, said this spring as the group released its CEO outlook. Among the state’s top leaders, 87% — up from 20% a year earlier  — are bracing for an economic decline this year.

The national economic picture warns of a slowdown, hints at a possible interest rate cut and still surprises with stable unemployment amid unexpected job losses — even as the stock market largely holds onto early-year gains.

US businesses in turn reported growing anxiety this spring, a mood that appears to be tapering even as many aspects of federal business policy — from clean energy to tariffs —  remain in flux. 

Here are some glimpses into midyear economic data indicators for the state. They show a state facing challenges but also signs that Michigan is weathering the uncertainty. 

Employment

In Michigan, payroll employment got off to a strong start this year, with 13,000 job gains in the first quarter, but momentum quickly slowed.

“Unfortunately, we expect the job count to hold roughly flat over the remainder of the year,” University of Michigan economists wrote in May in their state economic forecast for state government and legislators.

Overall growth, they said, should resume in the next two years. But particularly concerning — and difficult to predict — are the effects of new import tariffs on the auto sector, as well as on steel and aluminum. 

Over the next several years, about 13,000 Michigan jobs could be lost to the higher tariffs, the economists said.

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That leaves growth to come from private education and health services, leisure and hospitality and government sectors, they said.

However, the predictions did not factor in the new federal spending bill, which passed the Senate this week and moved to the House, where it faced a vote with few changes on Thursday. Michigan could benefit from a $10,000 tax deduction for buying an American car; yet cuts to Medicaid and other health-related benefits could impact the health sector.

Meanwhile, the US lost 33,000 private-sector jobs in June, according to numbers released on Wednesday. Economists had expected growth of 115,000 jobs. 

The job-growth report, released monthly by payroll provider ADP, was the worst in two years. 

“New entrants into the labor force are struggling,” economist Diane Swonk wrote on X (formerly Twitter). She noted the losses were largest in professional business services, health and education, with federal funding freezes likely playing a role. 

Another side of employment data was released Thursday, when the Bureau of Economic Analysis showed 147,000 jobs gained in June. While seemingly contradictory to the ADP numbers, this latest number from BEA reflects a lot of government job gains (like in education and public health care) but also some increases in the private sector, including health care.

Unemployment

The jobless rate in Michigan increased 0.9% in May, the most recent data available. The increase was the second-highest in the nation behind Nevada.

The state’s unemployment rate measured at 5.4%, a slight dip from 5.5% in April. That rate means that about 277,000 people in the state’s 5.1-million workforce are not working but seeking jobs.

Michigan also ranks 2nd among states for the highest year-over-year change, with just Mississippi having a higher percentage of workers seeking jobs. Michigan’s rate increased by 0.9 percentage points from May 2024 to May 2025, compared to Mississippi’s 1.2 percentage points. 

Over the last year, Michigan was one of 35 states showing an increase. 

The nation’s unemployment rate was 4.2% in May, meaning the gap between Michigan and the nation was 1.2 percentage points. (Notably, the gap was wider in April, when it stood at 1.6%)

Economists are watching that gap for signs that Michigan’s economy will veer far off the national average, as it has in many periods of slowdowns. There was no significant unemployment gap between the state and nation as recently as February 2024.

Regional unemployment

Also worth noting when considering unemployment in Michigan: The rate varies significantly from county to county. 

The lowest rates generally remain in the I-94/I-96 corridor. While many counties there ranged from the mid-3% to 4%, Livingston County was the lowest at 2.75.

Among Michigan’s industrial areas, Metro Detroit stood at 4.6%, Flint at 6.9%, Saginaw at 7.1% and Bay City at 6.8%.

And in April, eight counties were above 10%. (That rate is likely lower now, due to seasonal tourism). They were Alger, Luce and Mackinac in the Upper Peninsula, and Cheboygan, Presque Isle, Oscoda, Alcona and Ogemaw in the northeast Lower Peninsula.

Manufacturing

Manufacturing remains a dominant industry in Michigan, as well as a bellwether for the state’s economy. The sector accounts for just over 16% of the state’s $706 billion gross domestic product, generating $115 billion in 2024. 

The sector also has faced turbulence so far this year — namely in automotive — as the Trump administration sets tariffs and calls for policy rollbacks on clean energy, which the state has aggressively pursued.

Tariffs remain a dominant concern among all types of manufacturers, said John Walsh, CEO of the Michigan Manufacturers Association (MMA). That includes supporters of the Trump administration who have told him their survival is now threatened. 

“It's the constant uncertainty in the broadness of it all,” Walsh said of the multiple changes to policy. 

The MMA is asking Congressional leaders to “use a scalpel and not a hammer,” Walsh added as they consider changes that will affect the industry. 

“The uncertainty really has our members,” Walsh said. “They're not ordering, or they're not receiving orders, they're not hiring, they're not investing in their facilities because they're just not sure which way it's going to go.”

Today, the state employs about 598,000 manufacturing workers. The total is about 29,000 fewer than in May 2019, just before the pandemic, and about 300,000 fewer than in summer 2000. The number has dipped 1.8% over the past year, the highest sector decline tracked by the state. 

The national numbers have been essentially unchanged so far this year after dropping slightly last fall. 

Automotive tariffs

When it comes to automotive, the Trump administration’s series of tariffs levied this spring are a particular concern in the state — notably as early sales numbers suggest that new car buyers pulled back in June on their pre-tariff shopping sprees. 

“Tariffs on auto and parts imports, the length and delicacy of the automotive supply chain, and the local importance of the automotive industry all place the state economy at a higher risk than the nation overall,” U-M forecasters said in May.

Some manufacturers — including General Motors Corp. — have been making decisions to bring some production to Michigan or increase existing production. More could follow, as suppliers line up their domestic production, too. On the flip side, planned electric vehicle production is slowing as well, to align with sales forecasts and expected declines in tax breaks.

Economists are watching monthly vehicle sales trends for keys to where the year will end up. U-M economists have predicted 15.6 million units will be sold in 2025, down from 15.8 million in 2024 (the best year since 2019). 

But a decline could follow in 2026, with sales falling to 15.2 million, they said. The number is comparable to around 2012, as the nation emerged from the Great Recession, and during the pandemic, when supply-chain shortages confounded the industry. The recent high is 17.4 million units in 2016.

Consumer sentiment

Consumers have stopped bracing for a worst-case scenario, according to the University of Michigan national Survey of Consumers, which until June recorded five straight months of declining economic expectations. 

Despite the bump in confidence since the start of the year, the results are not strong, leading the survey’s chief economist, Joanne Hsu, to say consumers still expect an economic slowdown.

Ultimately, Hsu added, “consumers are hardly optimistic about the economy.”

Tariffs appear to be coloring much of the outlook, Hsu said, though a bit less than in May. Today, just over half of consumers expect business conditions to worsen over the coming year, compared to 29% in November.

Commercial real estate

In the second-largest regional market in Michigan, commercial real estate sectors are bucking some national trends.

The Grand Rapids office market is still sorting out the “work from home” and hybrid scheduling for employees, said Tim Mroz, senior vice president of community development for The Right Place economic development group. 

But while the national office vacancy average is close to 20%, the rate in Grand Rapids early this year climbed to 13.8% from 12.7%, according to a recent report from The Right Place. 

In addition, Mroz said, “we actually saw lease rates go up. So not only are things holding steady, but .. lease rates are actually staying pretty strong.”

 In Metro Detroit, the vacancy rate was 21.9% during the first quarter, according to Newmark commercial real estate firm. A glut of sublease space pushed the number higher, the firm said, but it noted that rates for the better spaces remained flat instead of decreasing.

The industrial market remains very tight, Mroz said, and one of the biggest challenges to business growth in west Michigan. 

The vacancy rate is 2.9%, up from 1.9% a year ago, Mroz said, “and it hasn’t been higher in three years.”  

Nationally, the rate is just under 7%. The metro Detroit area rate during the first quarter was 5.59%, according to commercial real estate firm Signature Associates. 

Buildings in demand in west Michigan are from 173,000 square feet to 265,000 square feet, Mroz said, which could accommodate significant numbers of employees. This quarter, about 775,000 square feet is under construction. 

Retail

The state’s retailers saw sales dip slightly in May but reported rising optimism, according to the Michigan Retailers Association monthly survey.

But on a wider view, this year’s surveys have been more volatile than in recent years, said William Hallan, CEO of the advocacy group.

The situation, he said, is “a clear indicator of the uncertainty business owners are facing today.”

One surprise from the Grand Rapids commercial real estate survey, Mroz said, was the retail sector’s strength. “There's a largely held perception that retail continues to trend down,” he said. “But actually we've seen it hold pretty steady here in the region.”

That’s the case at FarmSudz handmade skincare store in downtown Jackson, manager Erin Valkuchak told Bridge Michigan.

But the store recognizes some trends: Valkuchak says the store's consumable items are powering sales. Sales of foaming face wash and shampoo bars have been high enough to power FarmSudz and its sister store in Chelsea to a steady business amid spring’s uncertainty. 

“As long as people like what they bought, they're coming back and getting it again,” she said. 

Home accessories — like eco-friendly kitchen scrubs — are moving more slowly. “I feel like people are shopping less for things that they don't absolutely have to have.”

The body products business has had to monitor all aspects of pricing to keep in-person and online sales goals.  So far, the store has raised prices after some essential ingredients, like cocoa butter, leapt an estimated 50%. Staff is watching the price of containers, too, in the hopes that consumers won’t face another price hike. Every supply re-order comes after a round of price checks.

Customers coming through the door “calms some of our worries,” she said. “It just tells us that they want us to still be around, and they want us to make it through this crazy time that we're all living in right now.”