West Michigan Industrial Economy Bounce Continues

While the buzz is overwhelming for industrial sectors that could be impacted by the battle over tariffs, there were no signs yet of damage to the West Michigan Industrial Economy at the end of March according to Dr. Brian Long’s latest survey of Current Business Trends. In fact, alongside of his regular monthly report, the Professor says the actual amount of steel and aluminum impacted by President Trump’s tariffs “is fairly small, and very little of it actually makes its way to West Michigan.” He quickly adds, “That’s the good news. For the bad news, anyone familiar with the industrial market knows that suppliers use any excuse they can to raise prices, hence, the ‘price increase psychology’ is going full tilt.”

Professor Long is the Director of Supply Chain Management Research at Grand Valley State University, and he says that for West Michigan, “The first quarter of 2018 has started on a strong footing.” He notes, however, that one respondent to his March survey “noted a demand for a 30-percent price increase,” which he calls, “Ridiculous, but still difficult to beat back given the tight market.”

Long says that the 2018 “Bounce” continues. He tells us that according to the data collected in the last two weeks of March, his New Orders Index — the closely watched index of business improvement — came in at +34, slightly better than last month’s +32 reading. Meanwhile, the Production Index held steady at +31.

Long says activity in the purchasing offices, his Purchasing Index, “Jumped sharply to +37 from +22.” On the jobs from, Professor Long’s Employment Index “Remained double-digit positive and edged up to +19 from +16.” As a result, he argues, “In short, the bounce we reported last month has continued. The general mood remains optimistic, but the pricing pressure brought on by the recently-announced tariffs has added a new dimension of stress to many purchasing offices.” He adds, “We have not seen this level of price pressure in several years.”

When turning his attention to individual industries, Dr. Long tells us, “The capital equipment manufacturers continue on a roll. Although quoting activity had been good for the past year or so, the flood gates of new orders were opened immediately after the corporate tax cuts were signed into law.” He points out, “The recent bounce in auto sales appears to have quelled the fears that our local automotive parts producers may be starting to slow.” In fact, he suggests that despite the shortage of labor, several auto suppliers are still growing.

The affable supply chain guru also reports, “The strength of the economy has resulted in the office furniture industry holding steady,” adding, “Although there are a couple of exceptions, most of our industrial distributors are participating in the uptick of business.” Still there are concerns. Long says, “Upward pricing pressure remains a concern of many firms, and almost all of the manufacturing firms still cannot find enough new workers to fill open positions.”

Looking to the future, Dr. Long prefaces his Business Outlook data with the sentiment, “Much as we feared, the tariff announcement put a damper on the optimistic feeling we reported last month.” He goes on to report that the March West Michigan index for the Short-Term Business Outlook, which asks local firms about the perception for the next three to six months, remained positive but eased to +42 from +51. In a similar move, the Long-Term Business Outlook also retreated to +44 from last month’s lofty +53. Long contends, “Businesses dislike uncertainty, but they also dislike factors which arbitrarily raise the cost of doing business and threaten profitability.”

Wrapping up the narrative portion of his report, Professor Long says, “Almost all of our local industries remain on sound footing as we glide into the spring season, and little stands in the way as we head toward summer. The geopolitical situation appears to be stabilizing, at least for the present. Of course, in the unlikely event that a major trade war breaks out, all bets are off.”

As is his practice, Dr. Long shares a series of verbatim comments taken from his monthly survey to give us a feel for the tenor of people’s feelings and concerns. Here are a few from his March report:

“Steel pricing is very volatile because of the tariff announcement; up 30% increase overnight.”
“We’re still seeing incremental year-end prices increases. Steel and items with lots of steel in them are showing signs of upward price increase.”
“The steel and aluminum tariff situation is causing a lot of consternation in the industries that are impacted.”
“Prices and lead time for raw materials have been consistently increasing for a while now, and with the federal tariffs on raw aluminum and steel, prices and lead times continue to increase.”
“This is typically the time of year that we get busy.”
“We ended 2017 with a slow 4th quarter, and now we are booming! We are up for the first quarter of 2018 at a 6% growth rate.”
“2018 is off to a very solid start with January and February coming in ahead of budget. We are half way through March, and it is looking very solid.”
“Steel prices are up bigtime.”
“It seems like all commodities are going up. Steel pricing is going up daily.”
“Plastic resin price increase letters are out of control!”
“Lack of truck drivers is becoming a big problem!!”
“First quarter sales have been excellent. Cost increases are impacting profits. Labor is in short supply.”
“The market still strong in capital equipment. The tax cuts created lots of buying motivation.”
“We’re still have trouble finding enough people for manufacturing.”
“Several projects that were in limbo for over year have finally cut loose. Quoting for new projects is up.”
“We’ve seen a slight downturn in new business, and had some layoffs to offset. “
“Things have bounced back from a slow tail end of 2017, but I would still like to see it busier.”