Economists: state budget to suffer from auto industry weakness

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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/20
060112/NEWS11/60112009
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Job Losses

• LANSING Continued job losses among Michigans
  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 cant afford
  to cut with reducing state programs.

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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, its 18 million less than
  predicted five months ago. Michigans
  unemployment is expected to top 7 in 2006,
  compared to a national rate of 4.8.

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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
  Michigans economy remains heavily dependent on
  the health of the Big Three auto manufacturers,
  Fulton said.

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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.

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The Economics
Deficit!
Revenues

• How are revenues and expenditures related to
  economic activity? Start with a balanced budget.

Expenditures

• If expenditures rise, and revenues dont rise as
  much, were in deficit. Cant stay there!
• Must either increase revenues, or decrease
  expenditures.

Economic Activity