Detroit's economy a work in progress with encouraging signs, according to U-M forecast

Detroit's economy may be best described as a 'work in progress'—solid performance made on several fronts but more effort ahead for shared success. That's the underlying theme of the September 2026 Detroit Economic Outlook. The forecast, which runs through 2031, was produced by University of Michigan economists as part of the City of Detroit-University Economic Analysis Partnership between U-M, the city of Detroit, Michigan State University and Wayne State University. The report notes the city's labor market has shown resilience over the past year, compared to the state. While Detroit's unemployment rate increased to 11% this past May, it largely reflected a strong labor force rather than weakening labor demand. Between May 2025 and May 2026, Detroit's labor force expanded 2.9% as Michigan's declined 2.2%. The report notes, however, that local labor market data has been quite 'noisy' in recent months, with a notable divergence in trends of job counts and numbers of employed residents. Payroll employment also held relatively stable in the city during most of 2025, running near its 2019 average after a temporary decline early in the year. The economists expect employment growth to resume amid automotive sector adjustments as a more supporting policy environment boosts the Detroit Three automakers. Payroll employment is projected to grow an average of 0.4% annually from 2027 through 2031, while resident employment edges up by 0.1% per year. Meanwhile, the annual average unemployment rate is forecast to peak at 10.7% next year before declining to 9.9% by 2031. The report also forecasts average annual wage growth of 3.3% for Detroit payroll jobs and 4.2% annually for employed Detroit residents during the outlook period. Local inflation has accelerated in recent months, driven largely by higher energy prices stemming from the war in Iran. The economists project inflation to ease as energy markets stabilize, with local headline inflation slowing from 3.2% in 2026 to 2.2% in 2028, before settling around 2.5% during 2029-31. Adjusting for inflation, real wages in 2031 are projected to stand 6.7% above 2019 levels for Detroit payroll jobs and 13% higher for residents. Despite an encouraging outlook overall, the report suggests significant work remaining for the city's economy to produce widely shared success. The economists estimate 34.4% of Detroit's primary earners attained a living wage in 2024, compared with more than 44% of Cleveland's working residents and nearly 60% of those in Chicago. While observable worker and labor market outcomes such as educational attainment, occupation and hours worked together account for roughly half of the gap between Detroit and other Midwestern cities, the economists say additional research is needed to delve more deeply into explaining the rest of the gap. 'Despite the many risks to our forecast, we expect Detroit's economy to continue expanding over the next several years,' said Gabriel Ehrlich, director of the Research Seminar in Quantitative Economics, the U-M unit in the partnership. Ehrlich's co-authors are Jacob Burton, Don Grimes, Daniil Manaenkov, Michael McWilliams and Yinuo Zhang. Back to News + Stories