West Michigan Industrial Economy “Marginally Soft” in January

The West Michigan industrial economy continues to be marginally soft, with evidence that some elements may be slowing, but short of the Coronavirus getting decidedly out of hand or a terrorist act of some sort, there is still no evidence whatsoever on the immediate horizon pointing to a recession.

That’s the thumbnail assessment from the keeper of the keys to the critical data measuring the health of the industrial economy, Dr. Brian Long, Director of Supply Chain Management Research at Grand Valley State University.

Professor Long compiles a routine monthly survey of manufacturers, suppliers, vendors and others connected to the West Michigan industrial economy, and he says that according to the statistics collected in the last part of January, that economy “remains marginally soft.”

Long’s New Orders Index edged down to -9 from December’s -7, but continues to be well ahead of October’s much weaker -21 reading. The January Production Index fared a little better and recovered to -2 from December’s -7. The January Purchasing Index, which measures activity in the purchasing offices, remained negative but narrowed the gap to a reading of -6 from -17. Long says, “Much as they have been for the last four months, the participant comments remain mixed, although more respondents are fretting about softening overall business conditions.”

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Turning to the automotive sector, Long reports that after several adjustments, the Automotive News Data Center now reports that U.S. light-vehicle sales finished 2019 down 1.2-percent at 17.1 million units. The shift to the sales of light trucks and crossovers from the sale of traditional sedans was about 20-percent, and higher fleet shipments offsetting weaker retail volume. Most automotive analysts see 2020 volume dropping modestly to a range of 16.4 to 16.9 million units. He adds, “Standard and Poor’s analyst noted that affordability and heightened consumer interest in purchasing used vehicles will likely undermine U.S. light-vehicle demand for 2020.” Some additional firms in the auto industry are following the path of the Detroit Three and no longer report monthly sales results. Of those still posting monthly data, the January year-over-year sales for Toyota gained 5.5-percent, Hyundai-Kia added 6.4-percent, Subaru improved a scant 0.5-percent, and Mazda “zoom-zoomed” by 17.8-percent. On the down side, Honda lost 4.3-percent, largely because of an insufficient number of offerings in the light truck market. Professor Long concludes, “Overall, most forecasters remain modestly positive about the prospects for the auto industry in 2020.”

Looking at the jobs front for January, Professor Long says the West Michigan Employment Index edged lower to -7 from -2. He notes, “Although the January 30th unemployment report released from Lansing’s DTMB remains optimistic, it is again worth noting that employment and unemployment statistics are economic laggards. If history repeats itself, the negative growth rate exhibited by our New Orders Index will translate to marginally higher unemployment rates in a few months.”

Turning to the subject of business confidence, Dr. Long notes that the West Michigan Short-Term Business Outlook for January, which asks local firms about the perception for the next three to six months, recovered to +13 from +0. The index for the Long-Term Business Outlook, which queries the perception for the next three to five years, edged lower to +25 from +33. Long says, “Because of the recent Chinese trade agreement and the signing of the ‘new’ NAFTA, now known as the USMCA, the current news cycle has added a modest degree of economic optimism as we go forward into 2020.”

As he continues his monthly report, Professor Long asks the rhetorical question, “Are the tariff wars over?” He then proceeds to answer, “No, but there has been some obvious recent progress. First, the new USMCA with Canada and Mexico will correct some inequities that have popped up over the past 26 years. For West Michigan, the biggest beneficiaries will be our local auto parts producers who will have their tariffs to Canada reduced or eliminated.”

Continuing his look at foreign trade, Long suggests, “West Michigan farmers may benefit from the Phase I trade agreement with China. However, many of the tariffs that have disrupted Chinese pricing for many commodities and sub-assemblies for at least some of our survey participants are not included in the agreement. Furthermore, the agreement may contain a lot of loopholes that could allow the Chinese to fudge compliance numbers. In fact, it may be a year before we know if the agreement has actually done us any good.”

Long concludes his narrative report saying, “Although the national and international economies appear to be edging slightly higher, the West Michigan economy is poised for a period of slower growth as we enter 2020.”

As Dr. Long has grown accustomed to doing, he shares a decent amount of anecdotal comments taken verbatim from the survey results and provides them in a totally anonymous fashion to give the reader a feel for the nature of the responses. Here are some of those responses from his report in January:

  • “Very strong month.”
  • “Our business is seasonal, and we are building finished goods inventory to support peak season levels. We are leveling our manufacturing capacity and improving product flow of raw and work in process inventory.”
  • “We had a really good 2019.”
  • “New orders are little slower this time this year vs. last year.”
  • “Business is very slow.”
  • “We are still holding our own in the ETO capital equipment industry.”
  • “Incoming orders are really slowing this month, and we are eating away our backlog. Budgets are being reduced, but we are still hoping for some project work to keep us busy.”
  • “Quoting activity still remains very active.”
  • “Business is soft but steady. Steady sales are expected for 2020, and our forecasts remain even with 2019. However, 2021/2022 are forecasted to be more than 25% higher than 2020. New business kicking in at the right time in the right volumes.”
  • “We had a slight softening a couple months ago, but are holding steady. Business is good. Not great, but moving forward positively overall.”
  • “We had a real slow down since the middle of November. December was the worst bookings month of the year, and January is starting slow.”
  • “We’ve had some typical New Year incremental price increases, but industrial inflation seems to be in check.”
  • “Sales continue to soften.”

To see the full January report, you can click the link below: