Michigan drivers can expect gasoline to be about $4 a gallon heading into the summer tourism season, but pump prices will not continue their recent rise and may start coming down a bit after the Fourth of July.
That was one of the messages delivered today by economist Stuart Hoffman at an annual economic forecast luncheon at the Detroit Athletic Club.
“When you pack up your kids and head north, $4 a gallon is likely what you are going to see,” said Hoffman, the chief economist for PNC Financial Services Group, the Pittsburgh-based holding company for PNC Bank.
“But it’s not $4 on the way to $5, which would be onerous for the economy. It’s transitory,” he said. “It may start coming down after the Fourth of July, and it will almost certainly come down in the latter half of the year.”
Hoffman said that barring further developments, neither the tsunami and its aftermath in Japan nor high oil prices because of turmoil in the Middle East will derail the economic recovery under way in Michigan and the U.S.
“I think they are small setbacks,” Hoffman said.
The recent run-up in the price of crude oil to more than $100 a barrel has caused Hoffman to shave back predictions for growth of the gross domestic product by a modest 0.1 to 0.2 percentage points. Previous quarterly growth projections over the next two years had ranged from 3.1 percent to 3.7 percent.
Hoffman said he expects manufacturing to continue fueling Michigan’s recovery, despite higher oil prices and possible short-term supply problems in the auto industry with parts from Japan. He predicted new-car sales of 13.5 million this year, up from 11.6 million in 2010, and foresees at least a modest increase next year.
Unemployment in Michigan will continue to come down, and the state will continue to add jobs, he said.
Detroit and the state will continue to see a struggling housing market, with modest price declines of 2 percent to 4 percent over the next year.
“We haven’t yet hit bottom, but the sales numbers are starting to turn,” Hoffman said. “In a year, I’ll move housing and commercial real estate from a negative to a neutral or maybe a small positive.”
He said home prices should rise 2 percent in 2013.
Hoffman said he expects the Federal Reserve Bank to keep interest rates low for the next year. “But by next spring, the Fed will probably start to raise interest rates to fight off a round of inflation,” he said.
Hoffman said that despite much posturing in Washington “and a lot of hand-wringing,” by the end of May, the House and Senate will pass a budget and raise the federal debt ceiling.
“The hard work of dealing with entitlements and tax reform will probably wait until after the presidential election,” he said.
Hoffman also predicted steady growth for U.S. stocks — of 7 percent to 8 percent both this year and next.
Source: Crain’s Detroit