April 2 Michigan's economic upswing won the
state a higher credit rating from Fitch Ratings and a positive
outlook from Standard & Poor's Ratings Services on Tuesday at
the same time as the state's biggest city, Detroit, is trying to
"The upgrade is based on the state's rebounding economic
performance, including the improved competitive posture of the
state's auto industry after its restructuring," Fitch said in
raising the state's general obligation rating to AA from
S&P, which revised the outlook on Michigan's AA-minus rating
to positive from stable, said the state could be upgraded within
two years if trends continue.
"An improvement in the rating could occur if the state
continues its structural alignment of ongoing revenues and
expenditures, excluding one-time budget items, while at the same
time recent economic, demographic, and budgetary trends continue
to be positive," S&P said in a statement.
Last week, Moody's Investors Service revised its outlook on
Michigan's Aa2 rating to positive from stable.
While the state's economic outlook has brightened, Detroit
is mired in deficits and running out of operating cash. A
state-appointed emergency manager, who could recommend Detroit
file for bankruptcy, has been running the city since last week.
In its ratings report, Fitch did not mention Detroit or other
Michigan cities and school districts that have emergency
managers due to their fiscal problems.
Douglas Offerman, a Fitch analyst, said that while the
rating agency discussed the emergency manager situation as part
of its assessment of Michigan, the state does not have a
financial obligation to the distressed governments.
Fitch also lauded the state's "considerable progress" in
improving its finances through structurally balanced budgeting,
bigger reserves and an improved cash balance.
Michigan was hit by the last recession before other states
as its dependence on a then-struggling automotive industry
eroded its revenue, depressed personal income growth and boosted
But the state has bounced back along with the auto industry,
which is in its fourth year of recovery from economic woes that
pushed General Motors and Chrysler into bankruptcy in 2009.
According to the U.S. Bureau of Economic Analysis,
Michigan's $337 billion economy has outperformed the broader
U.S. economy in the recovery from the recession. The state's
gross state product expanded by 4.9 percent in 2010 and 2.3
percent in 2011, the most recent year for which data is
available. That compares with U.S. real GDP growth for those
same two years of 1.8 percent and 2.2 percent, respectively.
Michigan's unemployment rate was down to 8.8 percent in
February 2013 from a recession high of 14.2 percent in August
In the fourth quarter of 2012, U.S. domestic new-car output
reached an annual rate of $119 billion in constant terms, up
nearly three fold from $41 billion in the first quarter of 2009
and the highest rate since 1995.
U.S. car sales continued to run at a healthy clip in March,
the fifth straight month that industry sales reached an annual
rate of 15 million vehicles or more, data reported on Tuesday
showed. The three Detroit-based manufacturers showed healthy
yearly sales increases: General Motors Co and Ford Motor
Co were up respectively 6.4 percent and 5.7 and Chrysler
Group LLC, a unit of Italian automaker Fiat SpA, was up
Michigan Governor Rick Snyder said the recent action by
credit rating agencies "sends a clear message that Michigan is
on the right track and moving forward."
About $2 billion of outstanding Michigan general obligation
bonds are affected by the upgrade. Fitch revised the rating
outlook to stable from positive.
The credit rating agency also upgraded the rating on various
revenue bonds issued by the Michigan State Building Authority
and school district bonds sold through the Municipal Bond
Authority to AA-minus from A-plus.