Stomach-churning: Highs and lows in Mich. economy

Michigan has starred in its own disaster movie in the first decade of 21st century. The economic equivalents of F5 tornadoes and magnitude 9 earthquakes have battered the automotive industry and smashed construction work in the state.

You knew all that, having lived here.

But amid all the destruction there was surprising growth over the past 10 years in health care, information, finance and educational services -- knowledge sectors that some experts say must become the foundation of a more prosperous Michigan economy.

It wasn’t entirely a lost decade. Wholesale trade and educational services also grew as the overall service sector became a larger slice of the state's economy.

Agriculture, although a small segment of Michigan’s output, was the state’s fastest growing sector, boosting output 59 percent since 2000.

Those are some of the highlights of Bridge Magazine's in-depth look at state gross domestic product data for dozens of industry sectors and sub-sectors from 2000 to 2010.

The data, which measure the output of final goods and services in the Michigan economy, provide a look at critical trends likely to shape the state’s economy for years.

Understanding those trends is essential for policy-makers in making smart tax and investment decisions. And knowing where opportunities are likely to be will guide citizens in preparing for the future.

“We’ve paid a lot of lip service to diversification, and we’ve had some success,” said Michigan State University professor Charles Ballard, an expert on the state economy. “But we have this very complicated love affair with manufacturing.”

Many say we can’t abandon manufacturing because it’s been such a good provider for decades and still is the foundation of our economy.

But others say we should end the affair and pursue the sexier knowledge jobs.

An upcoming report by Michigan Future. Inc. in Ann Arbor says Michigan is getting poorer largely because its major metropolitan areas lag their competitors in other states in the concentration of high-education-attainment knowledge jobs.

In 2009 metro Detroit ranked 41st in per capita income and 31st in the concentration of knowledge-based industries among the 55 largest metro areas of the country, according to the Michigan Future study.

Metro Grand Rapids, seen by many as an economic success story, ranked 54th in per capita income -- next to last among big metros -- and 54th in concentration of knowledge industries.

“Michigan and its largest metropolitan areas are lagging in the transition to a knowledge-based economy,” said Michigan Future President Lou Glazer.

When Michigan plunged into a decade-long recession in 2000, manufacturing represented 18.9 percent of the state’s overall gross domestic product of $371 billion. By 2010, manufacturing still accounted for 17 percent of state GDP of $345 billion.

Michigan’s GDP fell 7 percent over the past decade, largely because of the domestic automakers’ near collapse, and a banking crisis that shattered the housing industry.

But no other segment of the economy came close to approaching manufacturing’s output over the past decade. The next-largest Michigan industries were real estate, rental and housing at 11.6 percent of GDP and government at 11.5 percent.

Ironically, the industry that experienced the biggest growth in output over the past decade was the one that manufacturing leapfrogged a century ago -- agriculture.

Agriculture’s GDP jumped 59 percent, from $1.7 billion in 2000 to $2.7 billion in 2010.

Other high-growth sectors over the decade were information at 53 percent; finance and insurance 30 percent; health care and social assistance, 19 percent; and wholesale trade, 19 percent.

Agriculture’s growth resulted from a number of factors, including rising exports, a boost in biofuels and greater efficiencies that allowed farmers to increase crop yields.

Michigan Agribusiness Association President Jim Byrum said he foresees continued growth in state agriculture because of an escalating global demand for food.

“We still see export demand growing,” Byrum said. “The world is hungry.”

But despite its impressive growth, agriculture represented just 0.8 percent of state GDP in 2010, up from 0.5 percent in 2000.

The Snyder administration largely agrees with Glazer’s assessment that Michigan’s future is in knowledge-based industries, including design, engineering and marketing jobs in manufacturing.

Previous governors have tried to diversify the state’s economy by luring new companies with costly tax incentives. But Snyder’s economic development strategy focuses on helping home companies expand.

For instance, it recently formed a pilot project with the Edward Lowe Foundation in Dowagiac, to help 50 midsize companies find new markets for their products and services.

The Lowe Foundation, which provides educational support for entrepreneurs, will assist the 50 businesses with market research to identify new business opportunities.

“If the pilot works, we want to scale it up in a big way,” said MEDC President Mike Finney. “The reinvention of our state depends on the diversification of existing Michigan companies.”