A news service for the people of Michigan from the Mackinac Center for Public Policy

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Not a Model of the Future

Is the governor being too optimistic about rosy predictions for the state economy?

When Governor Jennifer Granholm heard that a University of Michigan report had predicted the state would see 23,000 new net jobs in 2011 and 60,200 new net jobs in 2012, she quipped about it happening after she left office, according to Gongwer News Service.

"The bummer for me is that date," Granholm was quoted as telling Gongwer.

But in reality, the bummer for Michigan residents is that the track record of the U-M's Research Seminar in Quantitative Economics job projections have been a series of job growth projections over Granholm's tenure that have never come to fruition.

For example: RSQE wrote on Nov. 22, 2002: "Our view is that we are not out of the woods quite yet, but we will be soon. ... The Michigan economy continues to shed jobs at the beginning of 2003, but that will be the low point. By the spring of 2003, we expect employment to be growing, albeit modestly. ..By the end of 2003, job creation is at a tempo comparable to the vibrant second half of the 1990s, and during 2004 the local economy reaches cruising altitude at a healthy rate of growth."

However, Michigan lost 71,100 jobs from 2002 to 2003 according to the U.S. Bureau of Labor Statistics.

Then, RSQE wrote on June 2, 2004: "It appears the long-awaited turn in Michigan's job market has arrived. We are forecasting that job gains will be sustained through 2005 and that this growth will be solid, exceeding the trend rate of 1.4 percent."

The RSQE predicted that in 2004 the state would add 27,700 jobs.

However, according to the BLS, Michigan lost 9,300 jobs from 2004 to 2005.

And then on March 31, 2005, RSQE forecasted:"The economy is clearly gaining ground, but has not yet picked up enough steam to return to sustained job growth."

RSQE predicted in 2005 the state would add 15,700 jobs and in 2006 the state would add 60,000 jobs.

However, Michigan lost 63,300 jobs from 2005 to 2006 according to the BLS.

"Their general model has always been Michigan is going to improve 'next year,' " said James Hohman, a fiscal analyst with the Mackinac Center for Public Policy. "There hasn't been a 'next year' for the last decade. The governor is taking these things as something that is definitely going to happen. They have a poor record of actually coming through."

University of Michigan Economist Don Grimes wrote in an e-mail that it was easy to second guess economic forecasters after the fact.

"Forecasting, like preventing terrorism, is a no-win game, people don't remember when you are correct and do remember all of the misses," Grimes wrote. "Anybody who is trying deserves some credit.  People have to have the information and the key is to try to provide the best information you can."

Michael LaFaive, director of the Morey Fiscal Policy for the Mackinac Center, wrote in an e-mail that models forecasters use "are simplifications of reality, not holy writ."

"How is it that forecasters can claim to know how many jobs may be created (and by sector) as much as 20 years in advance when they can't see a bankruptcy staring a company in the face? The answer is easy - and this is the irony: Forecasters can't predict the future because they can't predict the future. In other words, forecasters must make basic assumptions about the economy or events before turning to complex economic models and those assumptions are often dead wrong," LaFaive said.

In May of 2009, Mackinac Center senior economist David Littmann predicted that the unemployment rate in Michigan would go as high at 17 to 20 percent. Unemployment in Michigan peaked at 14.5 percent in December 2009.

The Bureau of Labor Statistics tracks, "Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force" as U-6 unemployment.

"Using the U-6 reports from BLS, when the U.S. rate of unemployment reached 17.4 percent, Michigan's would have been in excess of 24 percent," Littmann wrote in an e-mail. "The actual unemployment rate for the State of Michigan would have been considerably higher if account were taken of those having left the state for lack of work and those for whom jobs as valets (part and full-time) were underemployment for individuals holding graduate degrees."

He continued:

"By the way, even now, the 17.1 % U.S. rate of U-6 unemployment would place Michigan's equivalent rate just above 23 percent. And that's just using proportion ratios.....Michigan's situation is worse than the national average, which means that the proportionality premium would get our U-6 rate above 25%"

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