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RSQE: Michigan faces modest growth, benchmark revisions and tax‑policy headwinds
Summary
University of Michigan economists told the CREC that Michigan shows slow payroll growth, falling labor force participation and revenue headwinds from recent tax changes; they flagged an expected benchmark revision to payroll counts and estimated policy shifts will reduce near‑term state revenues.
University of Michigan researchers presented a cautious Michigan outlook and explained implications for state revenue.
Gabe Ehrlich of RSQE said Michigan’s two employment measures (payroll jobs and resident employment) have diverged; recent preliminary benchmark estimates could remove much of the reported payroll job growth through March 2025, leaving only modest job gains in the short term. "March… it's gonna be about 900,000 jobs lower than currently reported" for the national adjustment framework, the presenters explained when discussing benchmark methodology, underscoring the risk to near‑term labor statistics.
Why it matters: payroll and household employment measures feed withholding and income tax estimates; benchmark revisions and policy changes to federal tax provisions and state decoupling choices were cited as central drivers of downward revenue pressure.
Key points from the RSQE presentation
- Labor markets: RSQE showed Michigan unemployment edging down to about 5.0% in November even as household employment fell, a pattern the presenters attributed to declining labor force participation (from 62% to ~61.3%).
- Tariffs and vehicle markets: presenters estimated tariffs and related rebate policies will raise average vehicle prices (they cited approximately $3,100 added to vehicle price after supply‑chain adjustment) and estimated a net boost to U.S. light vehicle production of roughly 275,000 units per year in the long run; if Michigan held its production share, that could translate to approximately 4,800 additional auto sector jobs relative to trend.
- Revenues: RSQE noted combined general fund and School Aid Fund revenues have pulled back from pandemic era highs and projected modest combined growth of roughly 1.1% in FY26, 1.3% in FY27 and 2.8% in FY28 absent legislative changes; agencies and Treasury adjusted those numbers further in the CREC presentations to account for enacted policy changes.
What RSQE recommended
Presenters emphasized monitoring benchmark revisions to payroll data and corporate income volatility, and they warned that policy choices (tax law changes, fuel tax exemption) materially alter near‑term revenue baselines. The RSQE speakers closed by making their full report and slide decks available on their website for deeper review.
The presentation was followed by questions about consumer resilience, delinquency trends and whether Medicaid work requirements were explicitly modeled; RSQE said they were not incorporated into the baseline forecast.
