As gas prices in some parts of Michigan approached the $5-per-gallon threshold this week, experts pointed to a handful of ways the state could be especially vulnerable.
“Gas prices affect Michigan more than other states for two big reasons,” said Patrick Anderson, CEO of Lansing-based Anderson Economic Group. “One: Our main export product, automobiles, is sensitive to gas prices.” He added that heating homes and trucking heavy equipment or other manufacturing-related products out of state require natural gas, gasoline and diesel, “all of which are associated with gas prices.”
Anderson and others also noted the crucial role of the shipping and energy-intensive automotive industry in the state economy, though the day-to-day burden of higher gas prices will impact Michiganians in several sectors, such as agriculture, tourism and local government operations with sizable vehicle fleets.
Statewide, the price of gas has risen from an average of $3.01 per gallon on Feb. 26 — two days before the United States and Israel went to war with Iran, which resulted in the closure of a key oil and gas shipping route — to $4.58 on Thursday.
Ryan Hyde, who owns a tree maintenance business, filled his pickup at a Mackinaw City gas station Thursday morning for $4.79. “I’m a business owner, and the cost of fuel has definitely increased everything,” he said. “It’s crazy. I do tree work, and I’ve got to add more money on bids. All my tools run on fuel.”
Premier Pet Supply owner Mike Palmer said he now pays more than $1,000 in fuel surcharges each week for inventory deliveries to 14 locations in Metro Detroit. For now, he is eating the cost. But he said he’ll have to find ways to offset the expense if fuel prices remain elevated for another month.
“There’s so much uncertainty with the war and its impact and effect on fuel charges,” Palmer told The Detroit News. “We’ve elected at this point to sit it out and absorb that cost in hopes that things will change.”
The small business owner said he is also under pressure to keep prices low to compete with larger chains: “We’re going to hold steady and absorb it for as long as we can. But it’s tough being small. We can use all the support that we can get right now.”
Why gas prices play outsized role in perception of economy
Retail gas prices are just one factor in household and business decision-making, though they tend to play an outsized role in perceptions of the economy.
University of Michigan economist Ari Shwayder authored a study in 2016 establishing that fact and exploring the reasons why.
“Every time gasoline prices rise, the media and the public get whipped into a frenzy about rising costs and about the financial hardship these costs bring to households and to the economy as a whole,” Shwayder wrote. “From a purely rational point of view, this hysteria is misplaced given that gasoline purchases over the past 20 years have made up, usually, between 3% and 5% of the average household’s annual budget.”
He explained the psychology of that frenzy, writing: “Not only are gasoline prices volatile, but their prices are highly visible and thus are reinforced every few blocks.” The combination of frequent gas purchasing by drivers, often-changing rates, and prominent roadside advertising drives the outcry over price hikes.
That feeling of hardship has emerged again in Michigan, even as the national economy hummed along at a healthy growth rate of about 2% in the first quarter of 2026, and the full effects of the Iran war have not yet fully materialized.
Consumer, industry impacts from fuel price hikes
Shwayder, acknowledging his past research, pointed to a few areas where Michiganians and Michigan’s economy could feel the most pain.
“One is just Michigan being such a car-heavy and car-reliant state,” he said. “We don’t have a lot of public transit outside of some very small pockets, and so a lot of people in Michigan drive to work.”
He added that there could be summer travel impacts, too.
“A lot of us obviously spend a lot of weekends driving up north in Michigan,” Shwayder said. “And you can imagine when gas goes from $3 a gallon to $5 a gallon, the cost of driving up to Traverse City, or wherever it is that folks are going, suddenly becomes a lot more expensive.”
“And so if you’re in the tourism business up there, you might be worried a bit about that also,” he added.
Anderson, meanwhile, suggested that the impact of fuel price hikes on Michigan’s nearly $55 billion tourism industry could be a “wild card” if Michiganians opt to vacation in-state rather than pony up for airfare to other destinations.
“Higher airline costs sometimes have a disguised benefit in that it encourages some people to vacation here in beautiful Michigan rather than get on a plane and vacation somewhere that isn’t nearly as pretty,” he said.
Michigan’s diverse agricultural sector and local food prices also experience fallout from the war, thanks to the state’s northern geography and later-starting growing season. Michigan State University agricultural economist David Ortega explained that those factors can amplify rising transportation and fuel costs.
“We’re really great at producing a lot of crops — a lot of specialty crops, fruit, vegetables — but we are not so great at doing this in the dead of winter,” Ortega said. “Now we’re sort of coming out of the winter months into spring, but we saw the price of crude oil went over $100 a barrel pretty soon after the conflict started at the end of February. That’s a period where we really rely on agricultural and food products from other parts of the country or the world,”
“So transportation at this time in the year becomes pretty critical,” he added.
Trevor Layton, a spokesperson for Southeast Michigan Council of Governments, said the impact of the war and higher fuel costs on the region’s relatively dense concentration of municipalities is not yet known. Cities and towns tend to operate sizable fleets for police, fire and maintenance activities.
“When you have something unanticipated like a war that can impact those things, it can be disruptive,” Layton said. He added that sudden spikes in gas prices can mean higher costs for long-term projects.
The state’s two main energy providers — DTE Energy and Consumers Energy — tried to reassure customers on Thursday as fuel prices climbed higher.
“We know that any increase in bills matters for our customers and we’re committed to delivering clear value to them in return — through improved reliability, cleaner energy and continued efforts to keep bills as low as possible. As part of our strategy, we buy fuel in bulk and have strong contracts in place with suppliers,” DTE spokesperson Dan Miner said in a statement.
He continued: “We’re also working to transition our fleet to more electric and hybrid vehicles. As a result of our buying strategy and reduction in gasoline-powered vehicles, a temporary increase in gasoline prices won’t have a material impact on our costs.
“Thousands of DTE Energy employees are in the field every day maintaining and upgrading our energy infrastructure across Michigan. In total, DTE employees drive company vehicles more than 40 million miles per year.”
Consumers spokesperson Katie Carey said in a statement: “We know the price of everything is increasing from groceries to gas prices and working to reduce our customers’ costs. We are actively managing fuel costs through long‑term fuel contracts that include discounts and rebates, strategic placement of equipment to reduce travel, and continued investment in technologies that lower fuel use, such as idle‑mitigation tools and electric fleet solutions.
“Increased fuel costs are not currently reflected in customer rates, and we are doing everything possible to minimize any future rate impacts.”
Detroit Economic Club shares broader economic outlook
The Detroit Economic Club hosted a roundtable on Thursday to break down the outlook for Michigan’s economy and the impact of rising gas prices.
“We see gas prices up by about $1 a gallon. That acts as a tax on consumers,” Gus Faucher, the chief economist for PNC Financial Services Group, said during the event. “We’re paying more to fill our tanks; that means that we have less money available to spend on other things.”
“Now, there are some factors that are offsetting that,” he said of high gas prices. “Right now, people are getting bigger tax refunds because of the tax cuts that were included in the One Big Beautiful Bill. We continue to see job growth. We continue to see wage growth.
“But what we’re expecting is slower economic growth in 2026. We’re not going to see GDP growth as strong as we saw in 2023, 2024 (and the) first half of 2025, but we should see continued growth in the economy, albeit at a somewhat slower pace.”
Faucher gave a grave assessment of what could happen in the economy if the Iran war continues and fuel prices climb higher.
“If we see oil getting to $150 a barrel (and) if we see gas prices getting to $6 or $7 a gallon, then I think we’re more likely to see a recession than not,” he said. “Just because the drag on consumers (and) the drag on businesses is going to be so great.”
gschwab@detroitnews.com
sballentine@detroitnews.com
Staff Writer Breana Noble contributed.
This article originally appeared on The Detroit News: How the Michigan economy is vulnerable as gas reaches $5 per gallon
Reporting by Grant Schwab and Summer Ballentine, The Detroit News / The Detroit News
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