LANSING — Michigan economic experts have scaled back growth predictions made earlier this year, now forecasting a tough year ahead for consumers and the long-term loss of thousands of auto jobs.
The analysis from two university of Michigan economists released Friday showed a small contraction in US Real GDP estimates for the first quarter of 2025, the first time since 2022 the figure has dropped.
The decrease was largely attributed to a 4.5% drop in the nation’s net exports, which contributed to a 0.3% contraction of the entire US economy.
Michigan’s unemployment rate has increased from 4% at the start of 2024 to 5.5% in April of this year.
Michigan is running ahead of the U.S. On average, which saw the unemployment rate rise from 3.7% to 4.2% in that same time.
The analysts predicted a net gain of just 300 Michigan jobs in the remaining three quarters of 2025, followed by larger increases next year.
Gabriel Ehrlich, director of the University of Michigan’s economic forecasting group, said that there are now more unemployed people in Michigan than there vacant positions to fill.
Ehrlich says that a variety of factors are dragging down Michigan’s economic outlook.
“We believe that Michigan can continue to add jobs at a moderate pace, even in the face of these new challenges,” he said. “I do have to admit that the risk of a downturn is now substantially higher than we would prefer.”
Ehrlich says tariffs will likely lead to a decline in auto industry employment in the next five years.
“We’re estimating a decline of about 1.8% in domestic auto production, and if that passed through proportionally to employment in Michigan’s auto sector, it would come to about 3,300 job losses,” he said.
But Ehrlich says each lost auto job lost brings with it around three jobs in other sectors, bringing the total losses to 13,300.
The analysts estimated domestic manufacturers would produce 190,000 fewer vehicles per year due to a combination of economic factors.
“There’s a pretty big protective effect, but it’s slightly more than offset by basically the increase in costs,” he said. “By the retaliatory tariffs that we penciled in from our trade partners, and by the reduction in real purchasing power by consumers.”
Analysts also say that troubles in the auto industry will likely to lead to overall higher car prices for consumers.
Researchers estimated that domestic vehicle production costs are set to increase 5.7% under current tariff policy — but the impact would be more pronounced on consumers, raising the price of a non-commercial vehicle by 13%, or $6,200.
Kristen Dziczek, a policy advisor for the Federal Reserve Bank of Chicago, says that uncertainty in the auto industry is creating supply chain stress that could snowball into a larger issue.
“We need all 20,000-30,000 parts to make a car, and just a few of them not showing up means we’re shutting down production,” she said.
Ehrlich also warned of potential supply chain issues.
“The major risk is that without sufficient time for adjustment, key suppliers in the supply chain could fail, and that could cause a cascade of failures along the supply chain,” he said.
87% of Michigan’s imported vehicle parts come from Canada.
Parts incur new tariff fees any time they cross the border, first on the value as an individual piece and then as part of a larger assembly.
Dziczek says she anticipates 2026 car models releasing at a higher base price, with most significant price increases delayed until then.
