Forecasting Michigan’s Future

By Don Jordan

The Research Seminar in Quantitative Economics has been forecasting the economy since 1952. What has allowed RSQE to remain a trusted source of economic forecasting for that long?

RSQE is actually the world’s longest continuously running economic forecasting group. We were founded by Lawrence Klein, who went on to win the Nobel Prize in Economic Sciences as one of the pioneers of economic forecasting. So we have a really cool history and tradition, and I’m proud to help continue it.

I think one of the most important reasons for RSQE’s longevity is that we’re independent. We’re part of the university, so we’re an academic group, and we really speak for ourselves. I think that’s part of what allows us to maintain that public trust.

The other factor is our track record. We’re very transparent about it; you can look it up online. Because we have such a long history, people can see how our forecasts have performed over time.

And finally, it’s the quality of the team. I’m very lucky to work with an exceptionally talented staff, and I think that also contributes to the trust people place in our forecasts.

What actually goes into producing the forecasts? And because we’re talking about research, what makes this more of a research endeavor than simply commentary on the economy?


We actually maintain econometric forecasting models. We have what’s called a simultaneous equations model of the U.S. economy. It’s basically a set of interconnected equations that capture historical relationships between economic variables, and we update those equations on an ongoing basis as their predictive power changes over time.

That’s what underlies the forecast. I want to be upfront that there is judgment involved. We make assumptions about what we call exogenous variables – for example, the path of trade policy, fiscal policy and monetary policy. So there are assumptions that go into the forecast, but ultimately it’s produced by an econometric model that captures the relationships between different parts of the economy.

We also do a lot of complementary economic research. One of our major efforts recently has been nowcasting the economy. Economic data comes out with a lag. For example, we just got an estimate of second-quarter GDP. Nowcasting asks: As higher-frequency data comes in before those official reports are released, what’s the best statistical estimate we can form for data that hasn’t been released yet? That’s especially useful because state and local economic data comes out with more of a delay than national data. We have nowcasting models for that data as well, so that’s an ongoing area of research that’s really at the frontier.

I also have a complementary research agenda with another team here at the university focused on improving economic statistics and modernizing them for the 21st century. There’s a lot of complementary research that wraps around our core forecasting work, and one of the goals is to create a kind of synergy.

When you’re talking about these nowcasts and your longer-term forecasts, who’s the customer? Who’s using this information, and what are they using it for?

I’d like to think we have a pretty broad set of stakeholders – not customers, but consumers, so to speak; people who benefit from our work.

We have a longstanding partnership with the State of Michigan Department of Treasury and the House and Senate fiscal agencies. We make our forecasting models available to staff in those groups to help them model the state economy, and we also share our own forecasts. So I think the state government is a major stakeholder.

We also have a major project with the City of Detroit. We’re the lead contractor in the City of Detroit University Economic Analysis Partnership, which includes Michigan State and Wayne State Universities. We produce forecasts for the city’s economy that feed into Detroit’s consensus revenue estimating process. Since the city emerged from bankruptcy, it has held a consensus revenue estimating conference twice a year, and our forecasts help inform those revenue estimates.

More broadly, our forecasts also support budgeting and long-term planning. For example, we’re nearing the end of a long-term demographic forecast for the Michigan Department of Transportation that projects population and economic trends for every county in Michigan through 2055. That’s the kind of information the department needs when it’s planning infrastructure investments.

Beyond government, I also hear from business leaders who use our forecasts to get a sense of where the economy is headed over the next couple of years.

One thing we talk about a lot in OVPR is the university’s public mission – to serve the people of Michigan and the world. Why do you think it’s important for a public university to provide this kind of research?

That’s a great question because I think what RSQE does really exemplifies the value of a public research university, especially to the state.

Because we’re independent – we don’t work for the governor’s office or the state legislature – we’re able to provide an outside voice. I think that independence gives our forecasts a level of credibility that might otherwise be questioned. It’s not a criticism of anyone else; it’s simply that being independent allows us to say, “Here’s what we’re seeing in the state economy.”

I think that’s an important public service.

Being part of a public research university, especially one with Michigan’s caliber and resources, allows us to provide independent analysis that adds real value for the state.

In the latest Michigan Economic Outlook, you described the state’s labor market as going through a “soft patch” while also expressing cautious optimism about the years ahead. What are the biggest factors driving that outlook, and what gives you confidence that growth will return?

I think the first thing I would say is that Michigan has faced a pretty tough external environment over the past few years. Michigan has a large interest rate-sensitive economy. The auto industry is interest rate-sensitive, and that’s obviously a really important industry here. Michigan also has a sizable mortgage industry.

As we came out of COVID, inflation picked up. The Federal Reserve responded by raising interest rates, and long-term interest rates rose as well. That’s been tough for Michigan.

At the same time, all of the uncertainty around trade policy has also been challenging. We’ve seen shifting federal policy with regard to the auto industry, and we have a fairly nuanced view of what tariffs mean for Michigan’s economy. Without diving into all of that, I think the uncertainty around policy has made the past couple of years difficult. It’s hard to quantify, but I do think it’s been one of the state’s biggest challenges.

That said, the state economy has hung in there. The economic indicators for Michigan’s labor market are mixed. They’re sending somewhat mixed signals.

For example, payroll employment – the number of people working for a paycheck in Michigan – has held up over the past year. It’s not going great guns, but it’s hanging in there, and I think that’s encouraging given the challenging environment.

Part of our optimism for the years ahead is that we expect a return to more normal conditions. We expect inflation to continue trending back toward target, we hope there will be more certainty around trade policy, and we think those developments should help Michigan regain some of its momentum. We also expect energy prices to begin declining after their recent increase, and that should provide an additional boost.

That said, it’s important to be upfront that Michigan is facing demographic headwinds to growth. In a lot of ways, it’s back to the future, because we were warning about this even before COVID. We were saying that Michigan’s demographics were going to put a speed limit on economic growth. COVID temporarily disrupted that picture, but now we’re back to facing those longer-term trends.

People are going to have to adjust to slower growth as the new normal because the workforce isn’t growing the way it once did. That’s important to keep in mind.

When you talk about demographic changes, are you referring to Michigan’s aging population?

That’s right. It’s both the aging population and overall population trends.

We expect Michigan’s population to continue growing through the early 2030s, but then begin declining through 2055. At the same time, Michigan’s workforce is aging. The share of Michigan residents age 65 and older has grown from about 12.3% in 2001 to more than 20% in 2025, and we expect it to continue rising modestly through 2055. Meanwhile, the number of residents under age 25 is expected to decline.

Those demographic trends mean we’ll have an older workforce and slower labor force growth, and that’s going to change what we think of as normal economic growth in Michigan.

RSQE has received the Blue Chip Annual Economic Forecasting Award twice for accuracy, timeliness and professionalism. Looking back over your career, what have you learned about what separates a good forecast from a really great one?

We also just won the 2025 Consensus Economics Forecast Accuracy Award for having the most accurate U.S. forecast, so I have to put in that plug for my team.

One reason I think we were able to win that award is that we were pretty disciplined about interpreting the effects of tariffs. We were very quantitative about it. We ran those assumptions through our model, and we came down on the side that the tariffs wouldn’t have as big a macroeconomic impact as a lot of people expected.

Economists are generally skeptical of tariffs. But we stuck to our guns. We were disciplined about modeling their impact on the economy, and at the end of the day we estimated that the macroeconomic effect wouldn’t be overwhelming.

Something I’ve learned about what separates a good forecast from a really great one is that sometimes you’ve got to have the courage of your convictions. You have to be willing to be uncomfortable and out on a little bit of an island.

It’s always uncomfortable to be away from the consensus. But sometimes that’s where the greatest value comes from, seeing something differently than the broader profession or the crowd sees it, and sticking to your judgment.

Of course, you can be totally wrong, too.

When you think about the economic questions and trends that lie ahead, what are you watching most closely over the next few years? And how do you expect RSQE’s work to evolve to help answer those questions?

Here in Michigan, we’re really watching what happens with the U.S.-Mexico-Canada Agreement, or USMCA. We have a nuanced view of tariffs. We have estimated they would provide a small net boost to domestic auto production. If Michigan captures its share of that, it could lead to a modest increase in auto employment here.

That said, we also estimated that tariffs would add more than $3,000 to the average cost of a vehicle. So we tried to call it the way we saw it. Of course, the tariff mix continues to evolve, and it is tough to know where things will settle.

The North American auto industry really relies on having a continent-wide integrated industry. It’s a major wild card to see what happens with USMCA because significant disruptions could have major consequences for Michigan.

More broadly, we’re watching what happens with inflation. Will it continue heading back toward target? Will that give the Federal Reserve room to lower interest rates, or will rates have to rise again? And what does that mean for long-term interest rates and mortgage rates? The housing market is in a tough spot right now because mortgage rates are so high.

We’re also watching whether we’ll get more certainty around trade policy and economic policy more generally.

I’m also paying close attention to the AI boom. Is it sustainable? It’s fair to say AI has already had a significant economic impact, but how much room does it have to run? That’s something we’ll be watching closely.