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Recovery of the West Michigan Industrial Economy Stabilizes

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Saying that February statistics show that the West Michigan Industrial Economy “Remains on a positive footing,” the keeper of the data also suggests that “Time will probably show that January was the peak of the COVID-19 recession recovery.” That’s the Cliff’s Notes version of the latest data provided by Dr. Brian Long, Director of Supply Chain Management Research at Grand Valley State University’s Seidman College of Business today.

Long says that most industrial firms have returned to near-full operations, although a number of challenges remain. His February New Orders Index, which he refers to as “our best indicator of business improvement,” remained strong but retreated to +33 from January’s peak of +57. His Production Index, which is termed “output” by many economists, remained positive but backtracked to +28 from January’s lofty +52.

Meanwhile, Long says activity in the purchasing offices, his Purchasing Index, also moderated to +23 from +32. He adds, “Convoluted supply chain glitches continue to cause spot shortages of a wide range of industrial commodities.” February’s Lead Times Index came in at +80, which broke the 33-year record of +68 set just last month.

Professor Long also reports that worker shortages, which restrained production expansion long before the COVID-19 recession, have reappeared for many firms, but notes, “That said, most in our survey panel are still managing to keep operations going. Many more people than expected are now beginning to receive the vaccine, which is good news for everyone. However, even with many industrial workers soon to be vaccinated, the entire supply chain is still far from returning to normal.”

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Long notes, “Although the automotive parts suppliers represent many of the recovered jobs, parts shortages are inhibiting auto assembly schedules.” Additionally, he says, “Several factors are currently weighing on automobile sales. First, fleet sales are down, largely because business travel as a whole is down. Second, serious parts shortages continue to inhibit production, especially for some top-selling models. Shortages of some computer chips are resulting in reduced production schedules for some firms. Third, although February is usually a slow month for auto sales because of winter weather, this month turned out to be slower than expected. Severe weather disruption, especially in Texas and parts of the Northeast, have kept sales down.”

Looking at the numbers, Long says the Seasonally Adjusted Annual Rate for February fell to a range of about 15.5 to 16.3 million units, about 3.8-percent lower than last February. However, the industry seems to be taking the slightly weaker sales in stride, and expectations are high for coming months. Of the firms still reporting monthly numbers, Volvo was the only winner, with sales up 23.7-percent. Losers included Ford, down 14.6-percent, Hyundai-Kia, down 0.7-percent, Mazda down 1.4-percent, Toyota, down 3.0-percent, and Subaru, edging down 3.3-percent.

On a more optimistic note, Thomas King, president of the data and analytics division at J.D. Power, suggests, “While the ongoing strength of the sales rate is impressive, the transaction prices and profitability of those sales is nothing short of remarkable. The combination of strong retail sales, higher transaction prices and smaller discounts means that February 2021 likely will be one of the most profitable Februarys ever for both retailers and manufacturers.”

Dr. Long says that most other industries are beginning to show signs of stabilizing, adding, “Shipping schedules, especially from overseas suppliers, are still disrupted. Prices are rising and recovering these higher costs from customers is difficult.”

Because of unemployment benefits, Long said some firms are reporting difficulty getting previous employees back to work, even by offering higher wages.

For February, the West Michigan Employment Index came in at +31, up nicely from last month’s +20. Long reports, “Most manufacturing facilities have now fully reopened, although sanitation and social distancing measures are still in place. As vaccine shots become more widely available, some controversy is emerging about the ability of employers to mandate vaccinations as a condition for continued employment in certain job classifications. Many industrial employers continue to report problems filling job openings. Even for entry-level jobs at $19 per hour, at least one employer reported that openings can’t be filled. Furthermore, some survey respondents note that their suppliers are facing similar hiring problems.”

Professor Long says that as the Industrial Lead Times Index continues to expand, “the time-honored laws of supply and demand have pushed our Pricing Index to a record level of +78, up sharply from +59.” He adds, “With few exceptions, almost all industrial commodities are higher in price, especially the big-ticket items like plastic resins, steel, copper, aluminum, and corrugated containers. The U.S, customs backlog at most major ports also continues to limit supply.”

Turning to business optimism, Long indicates that his Short Term Business Outlook Index for February, which asks local firms about business perceptions for the next three to six months, edged slightly higher to +31 from +27. The Long Term Business Outlook Index, which queries the perception for the next three to five years, also inched higher to +38 from +36.

Wrapping up his February report, Dr. Long says, “Because of domestic disruptions brought on by the pandemic, at least some workers are starting to return to the labor force as schools begin to slowly reopen. It is worth repeating that the markets are still buoyed by pent-up demand, which should keep our statistics positive for most of 2021. Like many recessions, many jobs were lost. Unlike other recessions, at least some new jobs were also created. It will take some time to sort out exactly where we stand.”

As is Dr. Long’s standard practice, he shares a number of verbatim, anecdotal comments in an anonymous fashion from survey participants. Here are some of those from his report:

  • “With labor in short supply, we have resorted to wage increases to match the competition. We have major concerns about extending benefits by the federal government to workers impacted by COVID. Many can work but are choosing not to.”
  • “January was a pretty good month, the best of the previous three. February is horrible. “
  • “Many suppliers are implementing price increases due to rising raw material prices and cost of shipping as well.”
  • “Local manufacturing labor is extremely tight. We cannot attract people to do manufacturing, warehouse or customer service work.”
  • “We are really being hit hard with supply disruptions. Between suppliers not being able to find labor, and the ports on the west coast stacking up, things have been very interesting. Hopefully the government will stop making staying home so lucrative.”
  • “These next few months are going to be trying with what is going on in the industry right now.”
  • “We continue to struggle with labor shortage.”
  • “The Covid crisis combined with the weather are creating a bizarre supply chain situation that we are dealing with. We have many raw material shortages and increased pricing.”
  • “We continue to see costs rising on almost all elements of purchasing, shipping, receiving, and building of products.”
  • “Sales are softening some, but we are still doing fairly well.”
  • “Quoting activity is strong, and PO’s are starting to shake loose.”
  • “Business still very slow. To make matters worse, prices and lead times up.”
  • “We’re steady so far in 2021.”
  • “Business is robust.”

You can see Professor Long’s complete report by clicking this link: FebruaryLongReport