Opinion: Detroit's economy will grow over the next 5 years

As an economic forecaster at the University of Michigan, I often receive questions about the economic trajectory for the city of Detroit. The city’s economy has sometimes resembled a roller coaster in recent years, with the unemployment rate shooting up to more than 25% in 2009 before falling below 8% by the end of 2019. In light of that variability, it is natural for people to wonder whether the ride will shift into reverse.

My team and I have recently completed our first forecast for the Detroit economy as part of the city’s University Economic Analysis Partnership, along with our partners at Michigan State and Wayne State universities.

In our view, the outlook is positive for the Detroit economy over the next five years. Detroit’s economy should continue to grow, and it should outpace the state economy in terms of employment and income growth. In fact, we expect Detroit’s ongoing recovery to form a key component of Michigan’s economic growth through 2024.

We are projecting employment among Detroit residents to grow an average of 0.6% per year for the next five years, versus 0.4% for Michigan. Likewise, we expect incomes in Detroit to grow an average of 4.3% in that time, versus 3.5% for the state overall. People are often surprised when they hear our outlook, but in fact Detroit’s economy has tended to grow more quickly than the state’s over the past five years — we are forecasting that trend to continue.

Despite that progress, Detroit’s economy continues to face well-known challenges, including an elevated poverty rate and relatively low educational attainment among its residents. Perhaps for that reason, one question we frequently receive after sharing our forecast is whether the economic growth in Detroit is benefiting its residents widely. That is a tougher question, as it involves notions of fairness and equality in addition to numeric projections.

I personally believe that increasing the amount of economic activity occurring within Detroit is a necessary, but not sufficient, condition for generating broadly shared prosperity in the city. Another key component is reducing the barriers many Detroiters face to accessing the new employment opportunities in the city.

Our colleagues at the University of Michigan’s Poverty Solutions Initiative have recently estimated that up to 140,000 working-age Detroit residents are not in the labor force. Many of those Detroiters face one or more barriers to employment, including lack of a car, no high school diploma, or a disability. Detroit has launched a number of initiatives to overcome those barriers, but catching up with Detroit’s peer cities will take time.

Finally, my description of Detroit’s economic outlook would be incomplete without mentioning two caveats. The first is that our forecast does not feature a national recession over the next five years. Detroit’s economy is very sensitive to the external environment because of the importance of the auto industry, so a recession could easily put the brakes on the growth we are forecasting.

The second caveat is that our forecast for growing household incomes may not translate one for one into growing tax revenues. Tax revenues tend to move around for many reasons in addition to the economic fundamentals, including national and state policy changes, compliance behavior and even factors as mundane as the weather, which influences utility use.

Our best bet is that Detroit’s economic upswing will continue over the next five years. All economic forecasts come with substantial uncertainties, but we are increasingly confident that Detroit’s future will be brighter than its past.

Gabriel Ehrlich is the director of the University of Michigan’s Research Seminar in Quantitative Economics.