West Michigan Industrial Economy Continues “Boring” Slow Growth

Nobody wants to look at the growth of the engine running the industrial economy as “boring,” however, that mild characterization by Professor Brian Long at Grand Valley State University in Grand Rapids sort of sums things up. Regarding his latest report on the state of the West Michigan industrial economy, Long, who serves as Director of Supply Management Research for GVSU says, “It depicts pretty much the same boring slow growth we’ve reported for the past seven years, but it is nonetheless good to see that the West Michigan economy is still growing.” He adds, “As noted in the report, the world economy is now in one of the best positions it has been in for many years, and the U.S. economy and the stock market continue to set new records.”

Long also tells us, “By most accounts, the Great Recession is finally over, but for some areas on the east side of the state, the job losses now appear to be permanent. The recovery from any recession is never ‘even,’ and I have made the point for many months that West Michigan recovered MUCH faster than the rest of the state.”

When you get down to the brass tacks of Long’s October report which dispatched surveys to industrial managers over the last two weeks of the month, he notes that, “For the past couple of years, growth in the West Michigan economy has been a little sluggish in the fall.” He reports that his New Orders Index of business improvement, dipped to -1 in November 2015 and dropped much more abruptly to -13 in the October 2016 on the eve of a contentious presidential election. He provides that as an historical backdrop to the current numbers where his New Orders Index remained positive at +11, but declined from the +21 reported in September.

Long notes, in contrast, his Production Index posted a modest gain, “rising from +17 to +20.” He adds, “In a similar move, activity in the purchasing offices, our Purchasing Index, rose to +22 from +14.” Meanwhile, Long’s Finished Goods Inventory Index remained fairly stable at -2, down from +0. However, the his Raw Materials Index dropped to -5 from +5, “probably because the recent hurricanes and stronger business conditions have drained a lot of inventory.” He adds, “Because of shortages, the index of Lead Times for October remained stretched at +28, considerably higher than our 25-year average of +4.”

When Professor Long turns his attention to the individual industries in the West Michigan marketplace, he reports, “There is little change to report for October.” He contends, “Most of the auto parts suppliers are still maintaining their present status, although some have voiced concern about the slower auto sales. However, no one is suggesting the need for any kind of a layoff. A similar mood is noted among the office furniture firms, and the industry still appears to be topping out at the present level.”

Given that expansion is slowing in both automotive and office furniture, so is the pace of business for the capital equipment fabricators and dealers. For the industrial distributors, October was generally a good month.

Turning to business optimism, Long finds conditions little changed. He says his October Short-Term Business Outlook Index, which asks local firms about the perception for the next three to six months, “Eased modestly to +28 from +30.” However, the Long Term Business Outlook Index “Edged slightly higher to +49, up from +45.” He concludes, “Just as last month, the anecdotal comments from our survey participants continue to be cautiously optimistic.”

Long reports that, “Although it is encouraging to see that our local index of Employment is still double-digit positive at +14, the employment shortage ‘scream’ continues to grow louder every month. In fact, about one quarter of the firms in our local survey report being understaffed.” As a result, he suggests, “Although technical training is required for some of vacant jobs, even the $16 per hour unskilled jobs are still not being filled. The problem of personnel shortages has caused some firms to defer expansion. Especially in the case of a few local automotive parts fabricators, business has been profitable and money is available to purchase new equipment.” He then notes, “However, finding enough new people to run the new equipment is a problem.”

Wrapping things up in his report for October, Professor Long says, “Hence, the local economy is good, the national economy is good, and the international economy is good. This may be as good as it gets. However, any kind of a war or act of war, terrorist attack, or collapse of Washington’s promises could change the mood of the economy. Hopefully, wiser minds will prevail.”

As has become customary, Professor Long shares a series of randomly amassed anecdotal comments from the survey participants. Here is a sampling of those:

“Large item orders and inquiries are down, but smaller “maintenance” items are steady.”
“Things have picked up dramatically over the last few weeks. We will be very busy between now and the end of the year.”
“We are treading water when it comes to staffing. One goes out and one comes in, but it takes time to get the new person up to speed.”
“Business levels remain stable through the third quarter. Outlook for fourth quarter is more of the same, allowing for holiday seasonal adjustments.”
“We are keeping our suppliers very busy.”
“The trend is downward. I don’t see this year finishing strong.”
“Business has slowed a little bit, but we are expecting the slowdown to be very short.”
“Capital equipment industry is still doing well and appears that it will continue to do well into 2018.”
“We had a tough month-end, but the year-end is still on track for small growth.”
“We’re seeing a lot of retirements in the hourly ranks, and it is slow to find acceptable replacement hires.”
“Business is good, steady, and strong.”
“Now that things are picking back up, factory workers are hard to find.”
“Sales are picking up, but only time will tell if it is sustainable this time.”
“New orders very strong, and quotes very strong.”