Detroit Area Employment Growth Continues to Slow

November 23, 2019
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Author: ThinkWhy Analyst

ThinkWhy™ It Matters

The Detroit employment landscape:

  • Slowing job growth
  • Increasing unemployment
  • Increasing average hourly earnings
  • More people moving out than moving into the metro area
  • Affordable for-sale and rental housing
Detroit Job Growth Slows Impacting Area Businesses

The current Detroit labor market remains weak, creating a challenging environment for companies to grow their revenues. While annual job growth was slightly negative for September 2019, annual job loss has been the trend over the past three months. For companies in the Merchant Wholesalers of Durable Goods and Arts, Entertainment and Recreation subsectors, job growth is well above the Detroit metro area’s annual rate. However, for companies in the Manufacturing and Education and Health Service sectors, job growth is negative and worse than the overall performance of the area.

Detroit businesses can:

  • Slow hiring plans for the balance of 2019 and 2020.
  • Consider ways a business’ products or services can be used in faster growing industries.
  • Look for other metro areas with stronger markets where you can sell your products or services.
  • Work on uptraining and cross training your employees to increase productivity.
  • Watch expenses closely.

Average Hourly Earnings Growth (all private employees, September 2019)

Average hourly earnings in the Detroit metro area increased by 2.8 percent from last year but from January to September 2019, growth was just 1.2 percent. For context, average hourly earnings were $28.36 in December 2018 and $28.59 in September 2019. The strongest recent average hourly earnings increase of 3.1 percent and 4.2 percent were seen in 2017 and 2018, respectively.

Unemployment Rate (September 2019)

For the first nine months of 2019, the number of employed persons increased by 21,835. However, the number of unemployed persons also increased by 9,192, driving the seasonally adjusted unemployment rate to 4.4 percent in September 2019. Over the past twelve months, the unemployment rate has been as high as 4.6 percent and as low as 4.0 percent. These numbers reflect Detroit’s difficult time of recovering from the past problems of urban decay, population decline, high unemployment, high rates of poverty and crime, and the City of Detroit’s bankruptcy.

Job Growth by Industry (September 2019)

Detroit’s metro area annual job loss trend has continued for the past three months, compared to the same period last year. Annual job growth averaged -0.04 percent* which is well below the 2018 annual average rate of 1.3 percent and the five-year average of 1.7 percent.

*seasonally adjusted

The industries listed below are performing ABOVE the Detroit metro area’s annual job growth of -0.04 percent in September 2019. The industries highlighted in green are growing faster in September 2019 than the five-year annual average. For investors and business owners looking to grow faster, organizations in these industries can be considered for merger and acquisition opportunities.

As one of the highest job producers in the area, the State Government subsector may provide sales opportunities for companies. The State Government in the Detroit metro area has increased employment well above the metro’s annual average, and also above the five-year annual average as well. Consider providing your goods or services to this sector in the near term to see positive revenue impact.

Detroit Industries Growing Jobs Above the Metro Annual Average

Industries with job growth BELOW the Detroit metro area’s annual rate of -0.04 percent in September 2019 may experience a decline in revenue. If an industry is reducing employment, companies in this industry could experience declining revenue growth and will need to monitor costs. Labor costs alone are estimated to account for up to 70 percent of a business’ total costs. If you are currently selling products or services to companies in these sectors, revenue growth will be challenging, and you may want to revise your projections for the year.

Detroit Industries Growing Jobs Below the Metro Annual Average

Population Growth

The vibrancy of a metro area is driven by population growth. In turn, that leads to job and GDP growth. As is well known about the Detroit metro area, the population fell from 4.461 million people in 2001 to 4.291 million in 2011, a total loss of 170,400 persons or 3.8 percent. Since the population decline in 2011, population has grown by 35,000 persons or 0.8 percent to 4.326 million in 2018. While this is a good sign, the gain is largely due to natural increase. In other words, births are greater than deaths.

The additional two components of population growth are migration, both international and domestic. On these measures, net domestic migration is negative which means more people are moving out of the Detroit metro area than are moving in from other areas. Domestic migration has created a population deficit with international migration sources every year since 2001. In 2018, international migration was 12,280 and net domestic migration was -14,546, a difference of 2,266 people. Population growth was positive in 2018 only because births (49,115) exceeded deaths (42,028) by 7,087 persons.

For a company operating in this area, vibrancy is still not strong and revenue growth will be hard to come by until net domestic migration turns positive.

Cost of Housing

In the Detroit metro area, the cost of for-sale and rental housing is affordable. This makes the cost of living more affordable, which helps companies attract and retain talent.

For-Sale Housing - According to a report by Realcomp Ltd. II on “Metro Detroit Home Sales” for October 2019, total home sales declined by 2.0 percent year-over-year due to a lack of inventory. That move triggered an increase in home prices for the City of Detroit (2.4 percent) and the counties of Macomb (3.6 percent), Wayne (3.7 percent), Oakland (8.5 percent), Livingston (5.1 percent) and Washtenaw (11.9 percent).

According to the U.S. Census Bureau, the median value of owner-occupied housing units in the Detroit metro area in 2018 was $180,300, about 80 percent of the U.S. median value of $229,700. This is good news for home-buying employees as the median household income in the Detroit metro area ($60,513) is similar to the U.S. median household income ($61,937).

Rental Housing - The Detroit metro area is mostly a single-family market with only 31.3 percent of the occupied housing stock being renter occupied. According to Marcus & Millichap, market rental rates for the Detroit metro area are estimated to increase by 3.9 percent in 2019 at a 3.6 percent vacancy rate. That is up from a 3.3 percent vacancy rate last year.

Rents in the city of Detroit, according to Apartment List, are “more affordable than many other large cities nationwide.” Apartment List reports the following for October 2019:

  • Troy has seen the fastest rent growth in the metro, with a year-over-year increase of 2.4 percent.
  • Dearborn has the most expensive rents of the largest cities in the Detroit metro, with a two-bedroom median of $1,356; rents were up 0.2 percent over the past month but remained flat year-over-year.
  • Taylor has the least expensive rents in the Detroit metro, with a two-bedroom median of $887; rents were up 0.9 percent over the past month and 0.6 percent over the past year.
  • Detroit’s monthly median rent for a one-bedroom unit is going for $690 and $890 for a two bedroom.

The cost of housing, in any area, is one of the largest incurred expenses by employees who live near their employer. If the cost of housing is high, companies will have to pay more to attract and retain talent. Add in the more expensive cost of living items such as taxes, transportation, food and entertainment, employers will be challenged to maintain a workforce of high-caliber employees.