Summary
The University of Michigan’s Research Seminar in Quantitative Economics released its May 2025 forecast for Michigan’s economy through 2027. The report projects moderate job growth held back by tariff headwinds, with auto and parts tariffs costing approximately 13,000 Michigan jobs via supply chain multiplier effects. Unemployment peaks at 6.0% in H1 2026 before modest recovery. Inflation re-accelerates from 2025’s relative calm to 3.5% in 2026 as tariffs bite.
Key Points
- Michigan unemployment: climbed from 4.2% (March 2024) to 5.5% (March 2025) — largest increase of any state in that period; second-highest in the nation (behind Nevada)
- Tariff impact estimate: auto and parts tariffs + steel/aluminum tariffs = ~13,000 Michigan job losses over forecast period (via ~3x multiplier from transportation equipment manufacturing)
- Auto tariff mechanics: ~13.8% average effective rate on imported auto parts (after reimbursements phase out); 21.6% on imported vehicles → estimated $6,220 average vehicle price increase
- US domestic auto production projected to fall ~200,000 units/year despite ~1.9M unit substitution from imports to domestic (offset by -1.6M total sales decline and -400K export decline)
- Detroit Three market share: 34.2% in 2024 → projected 32.6% by 2027; unit sales declining from 5.4M to 5.0M
- Inflation: 2.1% headline in 2025 (shelter prices declining), but reaccelerates to 3.5% in 2026 and 3.0% in 2027 as tariffs propagate
- Michigan unemployment peaks at 6.0% in H1 2026, easing to 5.8% by end of 2027
- Real disposable income per capita: Michigan 6.8% above 2019 level by 2027, but slightly below pre-tariff trend
- Net job forecast: +56,100 over 2024–2027; 95% from non-cyclical sectors (health services, leisure, hospitality, government)
Newsletter Angles
- Michigan as the canary: Michigan is the most tariff-exposed state economy in the country. Its trajectory is the leading indicator for what happens to manufacturing communities in the Rust Belt more broadly. The numbers here tell a story of managed decline — growth continues, but it’s entirely in services while manufacturing hollows out.
- The multiplier math is brutal: each job lost in transportation equipment manufacturing leads to ~3 additional job losses statewide. The cascade means the 13,000 figure understates the felt impact on communities.
- Vehicle price increases ($6,220 average) is a household-level number that translates into a real affordability crisis for working-class consumers — not an abstract macro statistic.
- The 2025 “tariff front-running” surge (March-April sales >17 million units) followed by the predicted 14.8M unit trough shows how tariff timing creates economic whiplash — a boom, then a hangover.
Entities Mentioned
- Donald Trump — tariff policies driving the forecast’s downside scenarios
Concepts Mentioned
- Tariff-Driven Inflation — central mechanism of the Michigan economic headwinds
- Stagflation — Michigan faces rising unemployment + persistent inflation simultaneously
- Trade War Currency Dynamics — retaliatory tariffs on US auto exports factor into production projections
Quotes
“We expect the tariffs to reduce American consumers’ overall real purchasing power, but we also consider Michigan’s economy to be particularly sensitive to trade policy.”
“The risk of a downturn is now substantially higher than we would prefer.”
Notes
University of Michigan RSQE is a reputable academic forecasting shop. Forecast released May 16, 2025, before later tariff negotiations (some reimbursements granted). Authors acknowledge considerable uncertainty: “We emphasize that these estimates are highly uncertain, both because the tariffs themselves remain fluid.” The forecast assumed tariff rates would settle at lower levels than early May 2025 levels. Compare with Economic Effects of Trump Tariffs Penn Wharton Budget Model for national-level tariff modeling.