Economic predictions are inherently nebulous. A hazard here, a caution there. However, with the recent barrage of tariff initiatives, uncertainties have escalated sharply.

Nevertheless, economists from the University of Michigan, who published their U.S. and state economic projections on Friday, maintain that the economy is predominantly robust despite the adverse real GDP growth figure earlier this year.

“Apart from the influx of imports, noticeable early impacts of tariffs are rather challenging to identify in the official economic statistics, but we anticipate the tariffs to begin to affect consumption and investment this summer following the previous months’ rush to evade tariffs,” remarked U-M economic forecaster Daniil Manaenkov.

Fiscal and monetary strategies are projected to alleviate some of the tariff-related burdens by 2026.

“Even though Congress is deliberating over a fiscal initiative that would inject approximately $200 billion back into the private sector, the likelihood of it materializing before next year is low,” stated report co-author Yinuo Zhang. “We foresee the Federal Reserve resuming rate cuts this summer, albeit cautiously to prevent tariff-induced price surges from leading to sustained inflation.”

Overall, they characterize the economic condition as “steady yet vulnerable.” Below are several key points from their expectations:

• Even though real GDP saw a slight decline in the first quarter of this year, the fundamental economic momentum seems to be sound. As import tariffs stabilize at a higher level, a growth of 0.7% is anticipated later this year, followed by a rebound to 2.0% by mid-2026. With the onset of personal income tax reductions, quarterly growth is expected to accelerate to 2.2% in 2027.
• The projected tariffs for 2025 will exert upward pressure on goods prices by over 3% by 2027 as they permeate the economy.
• The unemployment rate is expected to rise from 4.2% in April to 4.6% by year-end, as economic growth decelerates and layoffs among federal employees increase. It is forecasted to peak at 4.9% by mid-2026, eventually decreasing to 4.7% by the close of 2027. Michigan’s unemployment rate is expected to reach 6% next year before slightly declining through the end of 2027.
• Private sector job growth is projected to decelerate through the fourth quarter of this year, with job creation resuming by the end of 2026. The pace of job growth in the government sector is expected to slow significantly, as local government employment surpasses pre-pandemic levels, while the federal civilian workforce remains stagnant.
• Michigan’s payroll job totals experienced a robust start in the initial quarter of 2025, but growth is expected to plateau for the remainder of the year before resuming in 2026-2027. The economists project an average of 18,700 job additions each year in Michigan during 2025-27.
• The trade policy environment remains dynamic. Assuming a persistent 10% across-the-board tariff, along with ongoing tariffs on vehicles and imports from China, they estimate the average tariff rate to exceed 15% throughout the forecast period. The effective tariff rate will likely be lower as consumers and businesses pivot away from goods and inputs whose costs have risen due to tariffs.

Trade policy remains the most unpredictable element in the forecast, presenting various potential outcomes and an unclear timeline for resolution.

For illustration, the economists anticipate a sharp decline in U.S. passenger vehicle sales, dropping from an annual rate of 16.4 million in the first quarter to 14.8 million in the third quarter as tariffs on vehicle imports increase prices. As automakers adjust to tariffs and modify supply chains, they expect vehicle sales to partially rebound to 15.3 million units by 2027.

The figures are fluctuating as tariff negotiations progress, but researchers estimate that tariffs impacting the auto sector—along with steel and aluminum—will lead to a loss of approximately 13,000 jobs in Michigan over the next few years.

In the tariff discussions between the Trump administration and various countries, they note that “the timing for substantial progress toward global de-escalation remains very uncertain.” Nonetheless, the economists predict tariff revenues to reach “an unprecedented level, at the expense of higher inflation and slower economic growth.”

“The capricious nature of recent trade policy announcements likely stoked increasing pessimism regarding the economic outlook and price pressures, as reflected in various surveys,” the economists write. “However, it is yet to be determined how much of that forward-looking anxiety will manifest in the real economy.”

The authors of the forecasts, all from U-M’s Research Seminar in Quantitative Economics, include Jacob Burton, Gabriel Ehrlich, Kyle Henson, Daniil Manaenkov, Michael McWilliams, Niaoniao You, and Yinuo Zhang.