Building the Case for Economic Strength

The economic storm clouds from earlier in the year have temporarily dissipated, the latest numbers look good, and perhaps industrial teams in Michigan’s Great Southwest are building a case for resurgent economic strength. Or have we hit the calm before the next storm? The monthly numbers are out on the West Michigan economy from Professor Brian Long at Grand Valley State University’s Institute for Supply Management, and essentially show things to be “a little stronger.”

Long is the Director of Supply Chain Management Research at GVSU in Grand Rapids, and his just-released report for July shows some strengthening along the shores of Lake Michigan. Long says, “Overall the report is good. We are back to double-digit positive, and the anecdotal comments are generally optimistic.”

Long assembles a monthly survey from industrial sectors across West Michigan for his research group and the latest word on the West Michigan economy is “a little stronger.” His survey covers the last two weeks of July 2016 and his closely watched New Orders Index of business improvement “rose modestly to +10, up from +6 in June, but well ahead of the +0 we reported in May.”

Long says that in a similar move, the Production Index advanced to +18, up from +12, and the Purchasing Index, tracking activity in West Michigan purchasing offices, “jumped to +14 up from -7.” He notes that perhaps in anticipation of higher prices, the inventory indexes representing both Finished Goods and Raw Materials continue to show inventory accumulations “well above normal.” He adds that “Except for the industries impacted by lower oil prices, the anecdotal comments from the survey participants are generally optimistic.”

For specific industrial groups, the Office Furniture business remains stable with no significant problems on the horizon. Most firms are approaching capacity, and others are booming. Although West Michigan’s Auto Part Suppliers are still doing well, “there is now considerable evidence that the market is topping out,” according to Long. He points out that, like most summer months, July sales for the industrial distributors came in mixed.

For the capital equipment markets, July sales were also mixed. One respondent, according to Long’s report, “noted that the absence of used equipment coming to market has resulted in a newfound demand for new equipment.” Because, however, some equipment managers did not survive the Great Recession, “some specialty tooling is in short supply.”

When Long looked at business sentiment, he found numbers in the local survey that “are still positive, although the pattern continues to zig-zag.” The Short Term Business Outlook, which asks about the perception of the next three to six months, remained positive but edged lower to +16 from +26, while the Long Term Business Outlook for July, depicting the outlook for the next 3 to 5 years, rose modestly to +39 from +35. He adds, “Several participants noted that sales are at an all-time high.”

In summarizing his report, Long says, “The odds of sliding into a recession in the next few months have lessened considerably.” However, he says, “Worldwide economic growth has slowed to a crawl.” He suggests that “it is possible that both the United States and the rest of the world may be in for a period of very slow growth.”

Here are samples of anecdotal comments collected by Professor Long in his July survey:

“Business is BOOMING here…every month is a new sales record.”
“We are starting to see some life for new orders on the horizon.”
“Business is flat right now.”
“Things are picking up.”
“We are still slow, with no end in sight.”
“We continue to be pretty busy.”
“Business seems to be picking up. We still are not as busy as we would like to be, but all signs are that the rest of the year will be busy.”
“We have now exceeded our sales goals for six quarters in a row!”
“We are starting to see a slight softening in our production schedule.”
“We’re very busy, and have been since the first quarter.”
“It is more and more difficult to secure labor. We are having to increase wage offers to get any interest.”