Economic Outlook Highlights Labor Market Stress and Tariff Impact on Growth

The Michigan Legislature's Consensus Revenue Estimating Conference on May 15, 2025, revealed a mixed outlook for the state's economy, with significant concerns about the labor market and consumer sentiment. The headline unemployment rate has remained steady at around 4.2%, but the U6 rate, which includes those wanting jobs but not actively searching, is trending upward, indicating a loosening labor market.

Despite robust payroll job growth, with over 50,000 jobs added in April, experts warn that the labor market may face stress in the coming months. The anticipated impact of tariffs is expected to weigh heavily on consumer spending and business investment, particularly as consumer sentiment has plummeted to levels not seen since inflation was above 5%. This decline in consumer confidence could lead to reduced consumption as higher prices from tariffs take effect.

The conference also highlighted the ongoing uncertainty in the manufacturing sector, where expansion has stalled due to tariff-related confusion. While the service sector remains in expansion territory, the overall business outlook has dimmed, with hiring expectations dropping significantly.

Looking ahead, the conference projected economic growth to slow, with real GDP growth expected to fall to 1.3% this quarter and potentially dip to 0.7% in the third quarter. The labor market is likely to show signs of stress, with unemployment rates projected to rise as federal layoffs begin to impact statistics.

In terms of fiscal policy, the anticipated tax cuts and increased tariff revenues are expected to partially offset the federal deficit, which is projected to stabilize around 6% of GDP. However, the Federal Reserve's approach to monetary policy remains cautious, with two rate cuts expected this year and next.

Overall, while the economy enters this quarter in decent shape, the looming tariff headwinds and declining consumer sentiment present significant challenges that could reshape Michigan's economic landscape in the near future.