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West Michigan Industrial Economy News “Still Good.”

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July and August used to be months for an automobile production hiatus that the auto industry called the “model changeover,” and while there are concerns over decreasing auto sales, not only is the West Michigan Industrial Economy “still strong,” Professor Brian Long at Grand Valley State University says “hot-selling brands in today’s market have often limited the production pause to a few days.”

Long is Director of Supply Management Research in the Seidman College of Business at Grand Valley State, and his regular monthly survey on the West Michigan Industrial Economy delivered a solid showing again in May.

Long says simply, “Yes, the news is still good.” His latest data is based on survey results and data collected over the last two weeks of May and published this week in Grand Rapids. Long says, “For auto lines that are not selling well, the hiatus has now been used to balance dealer inventories.” He notes that “In a couple of months, some assembly lines may go down for as much as three weeks, potentially resulting in additional shutdowns in the supply chain here in West Michigan.”

Dr. Long notes that new car inventories on dealer lots have now “swollen to a 90-day supply, well above the ideal level of 60-days.” Nevertheless, strength in the industrial economy is still being exhibited.

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He characterizes the news as “fairly positive,” despite the auto sales rate concerns. His New Orders Index, the closely watched index of business improvement, came in at +27, just a little below April’s two-year high water level of +35. However, the Production Index remained positive, while backtracking to +19 from +29.

Long’s Purchasing Index remained virtually unchanged at +24, while the employment index dropped to +13 from +26.

Long said there is no sign of an inventory bulge in the office furniture business, and many local firms expect the second half of 2017 to be nearly as good as the first half.

On a less positive note, May’s Finished Goods Inventories Index rose to +8, up considerably from April’s -4. The fear of more price increases for some commodities helped to drive the Raw Materials Inventories Index up to +19 from +16.

The Institute for Supply Management survey is a monthly survey of business conditions that includes purchasing managers in the region with the respondents largely from the region’s major industrial manufacturers, distributors and industrial service organizations. It is patterned after a nationwide survey conducted by the Institute for Supply Management. Each month, the respondents are asked to rate eight factors as “same,” “up” or “down.”

Looking at individual industries, Long reports that most auto parts suppliers are turning a watchful eye to the summer shutdown schedules of many of their key customers. May is usually a good month for the office furniture business, and the data shows this year is no exception. However, Long suggests, “The office furniture industry continues to show signs of topping out.”

Meanwhile, the capital equipment market remains mixed, but Long contends “the bias for this month is to the down side,” and the performance for the industrial distributors continues to be mixed, even though summer maintenance schedules are now in full swing.

Long notes, “It was good to see that business optimism picked up for May. Our West Michigan index of the Short Term Business Outlook, which asks local firms about the perception for the next three to six months, posted a small uptick from +32 to +33.” Looking out three to five years, the Long Term Business Outlook jumped to +46 from +35.

Regarding the West Michigan employment picture, which Long characterizes as “always a hot button issue,” things continued to show significant improvement in May. Of the 83 counties in Michigan, the latest data from Michigan’s Department of Technology, Management, and Budget awards Ottawa County with the lowest unemployment rate of 2.1 percent, followed closely by 2.4 percent for Kent County. Kalamazoo County came in at a rate of 2.8 percent, a seventeen-year low. “However,” says Professor Long, “The monthly survey sample used by the Census Bureau to extract these numbers is fairly small, and the data are not seasonally adjusted. Furthermore, it is worth remembering that the standard unemployment statistics that are regularly quoted in the news are based on members of the workforce who are actively looking for work. If discouraged and involuntary part-time workers are added, the “real” unemployment rate is almost always much higher.”

For the local survey, the West Michigan Employment Index remained positive but backtracked to +13 from April’s two-year high of +25. Long says, “Many firms are still adding staff, but the pace is slowing.”

As is Long’s tradition, he shares a number of verbatim anecdotal comments from survey participants to help capture the flavor of the report. Here is a sampling of some of those comments in May:

  • “We are cautiously pessimistic about potential summer automotive shutdowns, but we remain extremely busy.“
  • “We are waiting to see the extent of automotive summer shutdowns.”
  • “My customers are back to ‘not responding’ to my inquiries into ‘what is happening.’ So, I guess that I have nothing to report!”
  • “We’re struggling to get to our shipping target for May.”
  • “March was huge. April was a disappointment. May looks more like April than March.”
  • “Sales have slowed or cooled down slightly because of some nervousness in the economy – – – maybe? We expect the remainder of the calendar year to be very good.”
  • “We have seen a slowdown for May, which is the first down month of the year.”
  • “We are still having trouble getting quality employees come in and stay.”
  • “Business is still strong!”
  • “Things have been slowly improving.”
  • “Sourcing for our 2019 and beyond programs continue move forward. We are on track for another record sales year.”
  • “Business is strong, and looking good going forward.”

You can see Professor Long’s full report by clicking this link: gr-2017-5