Why coronavirus hit Michigan's economy harder, longer

Michigan's economy tends to be more cyclical than the national economy

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DETROIT — The growing economic crisis triggered by the pandemic is expected to last longer and hit harder in Michigan than in most places, as the state deals with the fallout of a severe coronavirus outbreak and ongoing dependence on manufacturing.

Michigan's economy tends to be more cyclical than the national economy, due to its heavy reliance on auto manufacturing, which has been completely closed. The big jump in Covid-19 cases compared with the rest of the country is compounding that impact — forcing the state government to implement quarantine measures stricter than in other states.

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"It's typically the case that when unemployment starts rising in the United States, unemployment in Michigan actually rises by more," said Gabriel Ehrlich, director of the Research Seminar in Quantitative Economics at the University of Michigan.

Manufacturing makes up about 20% of Michigan's gross state product and 14% of its workforce, according to the National Association of Manufacturers. But the shutdown has also hit the state's service sector, construction industry, agriculture business and tourism sectors.

Registered nurse Shelley Oregan test patients for the coronavirus at the Mercy Health Saint Mary's drive-thru testing center in Grand Rapids, Mich., Tuesday, April 28, 2020. (Cory Morse/The Grand Rapids Press via AP)

Geoff McClelland, a contractor who works in the suburbs north of Detroit, was in the midst of a kitchen remodel at a ranch home in Rochester Hills when the government's stay-at-home order went into place in late March. He shut down all his projects to comply with the state's order.

His four employees are furloughed, joining the ranks of the state's 1.1 million workers who have filed unemployment claims -- a figure representing more than one in five workers, one of the highest rates in the nation. His small business, Creative Professional Remodeling LLC, is now essentially on pause, closed by the state government's stringent stay-a-home order.

"I have no income. I'm slowly bleeding," said Mr. McClelland, 36.

Michigan has reported more than 40,000 cases of Covid-19, with the largest outbreak in Detroit and the surrounding counties. More than 3,600 of the state's residents have died -- one of the highest numbers in the nation.

Steve Polet holds a sign during a protest at the State Capitol in Lansing, Mich., Wednesday, April 15, 2020. (AP Photo/Paul Sancya)

The auto industry is aiming to resume some production at its U.S. factories by May 18; while the construction industry is expected to be allowed to resume by May 7. Those reopenings could help the state's economy start to recover.

Still, businesses in all industries across the state are bracing for the economic pain to last for some time. Some supply chains have been disrupted. Seasonal businesses have lost out on weeks of key revenue. And the state's manufacturers are bracing for a drop in demand for cars and other durable goods that typically accompanies a slowdown.

Economists at the University of Michigan forecast that the national unemployment rate will peak at 16% in May, but Michigan's rate will rise even further and remain at 23% during the second quarter of 2020.

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"I don't know what the future holds for me," said Margie Duncan, a realtor who works in the suburbs and exurbs around Detroit. Ms. Duncan said she has closings lined up through May 15 but nothing beyond that.

Michigan is also an important state at the crossroads of the 2020 election. The state's Democratic Gov. Gretchen Whitmer has been discussed as a possible running-mate for presumptive Democratic nominee Joe Biden. She has also been criticized by state Republicans who say her order is too stringent.

This photo provided by the Michigan Office of the Governor, Michigan Gov. Gretchen Whitmer addresses the state during a speech in Lansing, Mich., Wednesday, April 29, 2020. (Michigan Office of the Governor via AP, Pool)

Michigan went beyond the federal guidelines in more narrowly defining essential workers. It closed down larger parts of the retail, service and construction sectors and prohibited some recreational and leisure activities allowed in other states. Many seasonal businesses have complained about the guidelines, saying they could operate safely and rely heavily on spring and summer revenue.

"It stinks," Ms. Whitmer said in a recent interview with The Wall Street Journal, referring to the impact that her "gut-wrenching" decisions have on Michigan businesses. "It's excruciating...every executive order weighs heavily on me."

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For President Trump, Michigan is part of the coalition of Midwestern states that he won in 2016, propelling him to the presidency. He has tangled with Ms. Whitmer, tweeting "LIBERATE MICHIGAN!" in support of protests against the state government and calling her "the woman in Michigan" at one of his recent news conferences.

Republicans in Michigan have been urging a targeted approach that would allow industries to reopen if they could demonstrate they could operate safely.