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Economists: state budget to suffer from auto industry weakness

Economists: state budget to suffer from auto industry weakness . BY CHRIS CHRISTOFF FREE PRESS LANSING BUREAU CHIEF January 12, 2006. http://www.freep.com/apps/pbcs.dll/article?AID=/20060112/NEWS11/60112009. Job Losses.

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Economists: state budget to suffer from auto industry weakness

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  1. Economists: state budget to suffer from auto industry weakness BY CHRIS CHRISTOFF FREE PRESS LANSING BUREAU CHIEF January 12, 2006 http://www.freep.com/apps/pbcs.dll/article?AID=/20060112/NEWS11/60112009

  2. Job Losses • LANSING – Continued job losses among Michigan’s automakers and their suppliers will leave Gov. Jennifer Granholm and lawmakers struggling again to balance the state budget this year and probably in 2007, state economists said Thursday. Stagnant tax revenues and a certain deficit are likely to ignite tense debate over small business tax cuts proposed this week by Republican leaders. Granholm has said the state can’t afford to cut with reducing state programs.

  3. Details • The state will have about 1% less to spend than last fiscal year from an $8.2 billion general fund, the part of the budget not earmarked for specific items. That will not keep up with rising demands for health services, and increased costs for universities, prisons and employee wages. However, money for public schools will increase nearly 3% to $11.2 billion, thanks to relatively healthy sales and use tax revenues that support schools. Still, it’s $18 million less than predicted five months ago. Michigan’s unemployment is expected to top 7% in 2006, compared to a national rate of 4.8%.

  4. The Auto Industry • State economists reached agreement on a forecast for state finances, after hearing yet another bleak forecast of a state economy that is expected to lose another 30,700 jobs in 2006. Five consecutive years of job losses are the longest decline since World War II. • The decline is directly tied to loss of market share by the Big Three automakers, said George Fulton, economist for the Research Seminar in Quantitative Economics in Ann Arbor. • He said a significant economic recovery in Michigan a few years away. “The only conclusion you can come to is that Michigan’s economy remains heavily dependent on the health of the Big Three auto manufacturers,” Fulton said.

  5. What will happen to whom? • One auto industry expert predicted that Toyota will build a new engine factory in Michigan, a plant Granholm has tried hard to lure. Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, based his prediction on discussions with Toyota executives Wednesday. On a dimmer note, McAlinden said the Big Three automakers will continue to lose market share to foreign automakers, and many auto suppliers in Michigan face insolvency, putting at risk many of the 165,000 supplier jobs in the state. “GM will become the size of Ford, Ford will become the size of Chrysler, which, thank God, will remain the size of Chrysler,” McAlinden said.

  6. The Economics Deficit! Revenues $ • How are revenues and expenditures related to economic activity? Start with a balanced budget. Expenditures • If expenditures rise, and revenues don’t rise as much, we’re in deficit. Can’t stay there! • Must either increase revenues, or decrease expenditures. Economic Activity

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