West Michigan Industrial Economy Hits Bottom, “Worst is Over”

One of the most oft-repeated phrases of the year so far has been, “Can we just reboot 2020 and start all over?” As things got progressively worse through the coronavirus pandemic, relegating much of the world to a stay-at-home regimen, the picture grew progressively darker, but now, from the depths of what he has termed “a terrible recession upon us,” Professor Brian Long’s latest survey results suggest that, “In all probability, we have already hit the bottom and are slowly beginning to dig ourselves out of the abyss.”

Dr. Long, the Director of Supply Chain Management Research at Grand Valley State University, has published his latest survey results of current business trends impacting the West Michigan Industrial Economy, and finds, “Although our West Michigan statistics for May are still negative, it now appears that the worst is over and the recovery has begun.”

Pointing to the data, which he collected in the third and fourth weeks of May, Long says that his closely followed New Orders Index of business improvement edged up to -32 from the previous reading of -45. In a similar move, his Production Index recovered to -35 from -48.

The Purchasing Index for May, which measures activity in the purchasing offices, reduced its loss rate to -32 from -44. Long tells us, “Just as last month, many of our survey participants are still working from home or working on a reduced office-sharing schedule. It seems obvious that many of our supply chains have been shaken, and restarting production will not always be easy. As business around West Michigan continue to reopen, we can expect next month’s statistics to continue to slowly improve.”

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Turning his attention to the auto industry, Long says, “Many analysts are thanking Internet sales for saving the auto industry from total ruin. Furthermore, although the May sales are significantly lower than in May 2019, the drop was not nearly as steep as some had expected.”

Of the firms still reporting monthly sales figures, year-over-year deliveries fell 26-percent at Toyota, 17-percent at Honda, 13-percent at Hyundai, 19-percent at Subaru, 24-percent at Kia, 2.5-percent at Volvo, and just 1-percent at Mazda. According to Morgan Stanley, volume for the entire industry, including the Detroit Three, fell approximately 30-percent in May, which is considerably better than the 50-percent drop expected by some analysts. Dr. Long says, “At least some of our local auto parts suppliers are optimistic that production may return to normal over the next few months.” Edmunds analyst Jessica Caldwell also struck a positive note, saying, “There’s still a long road to recovery ahead, but May auto sales are a really encouraging sign for the industry. The unprecedented deals broadcast by automakers and dealers really did the trick in getting more consumers to reenter the market, social distancing and all.”

For May, the West Michigan Employment Index recovered modestly to -38 from -41. Anecdotally, Long says, “Needless to say, the May 29th unemployment report released from Lansing’s DTMB was probably one of the worst reports ever issued. Of the 83 counties in Michigan, the estimated unemployment rate ranged from 14.5-percent to 41.2-percent.”

Looking at prices, Long says that purchasing managers have long noted that sharply declining prices only occur when the economy is very weak. The West Michigan Price Index for May came in negative at -7, an improvement from April’s reading of -24.

When it comes to business confidence, Professor Long says, “After two disastrous months, the Short-Term Business Outlook Index has partially recovered. The May survey, which asked local firms about the business perception for the next three to six months, came in at -15. Although still negative, this index of short-term confidence is considerably improved from April’s -47 and the March reading of -46.” The Long-Term Business Outlook index, which queries the perception for the next three to five years, bounced upward to +33 from +15.

In his single paragraph summary, Professor Long holds out hope going forward for the recovery, saying, “Yes, some stores are starting to reopen, some factories are resuming production, and some Covid-19 statistics are improving. Barring a relapse in the fall, it now appears that history will record either March or April as the bottom of the 2020 Recession. Assuming that the current civil unrest does not get out of hand, we can expect some additional improvement in next month’s report. However, the prediction circulating in the press of a full recovery by the third or fourth quarter seems highly unlikely at this time. It is worth repeating that we do not consider a recession to be over until we return to full employment, which took about seven years for the complete recovery from the Great Recession. Hopefully, it will not take seven years this time.”

In a sidebar white paper this month he calls an Economic Primer, Long says, “Going forward in 2020, we will begin to dig our way out of another very deep hole. Yes, many of this month’s numbers show some definite improvement over last month. However, I do not expect to see a quick bounce like the one we saw ten years ago. With as many firms still shut down or operating on reduced schedules, this is going to take several months. Also, we still have the latent threat of a resurgence of the virus in the fall. It is worth repeating that we will not begin to fully recover from this recession until we have a vaccine and/or viable anti-virus medication available and widely disseminated. And then we will need to assess the structural damage that this recession has caused.”

As is Dr. Long’s custom, he shares a series of verbatim, fully anonymous, anecdotal comments from survey participants to give a feel for what the industrial community is thinking. Here are some of those from the May report:

  • “Business is up 2x from last year at this time due to the supply of COVID related sales.”
  •  “It is a very interesting time right now that we are navigating through, with the ups and downs in big swings. Hopefully, we can get some normalcy back relatively soon.”
  •  “We are still doing surprisingly well in the capital equipment arena. We’ll see if we can maintain our sales as time goes by.”
  •  “By pivoting to online sales and encouraging sales people to sell online, we have grown 100% over last year.”
  •  “Business Sucks. Who knew the world could be stopped by a bad cold?”
  •  “We are expecting the second quarter to be down 35% – 40%, and the third quarter down 20%.”
  •  “We’re trying to just survive.”
  • “We are starting operations back to about 50% up from a small skeleton crew that has been working for the last 8 weeks. We are seeing light at the end of the tunnel as we ramp back up.”
  •  “April and May were horrible. down 40% from year ago for the first quarter.”
  •  “We are holding up, but it is rough. The next year is going to be a wild business ride.”
  •  “We’ve seen a significant drop in business activity since the first quarter.”
  •  “Let’s get on with life. This Covid-19 is getting ridiculous. Just live normal, keep your hands clean., and then use your manners and don’t cough and sneeze on people. Call it good, and get rid of the mask and gloves.”
  •  “We are now seeing our customers slowing down. Our forecast is down 25% for June.”
  •  “Current automotive OEM orders are very low because they are just restarting after the late March shut down due to COVID-19. The forecasts were strong while on shut down, but now they have been reduced.”
  • “We are preparing for orders to start to increase in the next 4-6 weeks.”
  •  “Our business continues strong because as we were considered ‘essential.’ Demand has even increased by a few points.”
  • “COVID-19 is like nothing we have seen before. We’re not sure how all of this will play out and what our business and industry will look like once things are back to ‘normal.’”

To see Dr. Long’s full report, click this link: gr-2020-6