West Michigan Industrial Economy “Off to a Slow Start”

After analyzing the early return data from the manufacturing community at the beginning of the year, Professor Brian Long at Grand Valley State University sums up the launch of 2019 as being essentially, “A slow start.”

Long, the Director of Supply Chain Management Research at Grand Valley State says, “Much as we expected, the West Michigan industrial economy flattened in January, signaling a slow start to 2019.” Long says that according to the data collected in the last two weeks of January, his New Orders Index, an index of business improvement, edged downward to -4. The Production index, which had been as high as +33 in November, softened to +4. Activity in the purchasing offices, his index of Purchasing Index, flattened to +3.

Long tells us that according to the comments made by survey participants, “The overall outlook is much more cautious than it was just a few months ago.” Long notes, “Several of our survey participants continue to voice concern over the price impact of the still-unresolved tariff war with China. Others are cautious about the potential decline in auto sales. In contrast, firms associated with the office furniture industry remain watchfully optimistic.”

On the bright side, Long contends there is good news for the West Michigan Industrial Economy from Mike Dunlop’s quarterly survey of the office furniture industry. He reports that the Dunlop Quarterly Gross Shipments Index rose to 64.40, up significantly from the October report of 58.24 and close to the survey’s thirteen-year high of 66.86 set last July. The Capital Expenditures Index rose to 61.20 from last quarter’s 55.96. Additionally, The Dunlap Personal Outlook Index rose to an all-time high of 66.54. Aside from the survey, some of the recent uptick in office furniture sales can be related to end-of-year tax considerations. Demand for new furniture is also influenced by the recent surge in new office construction and expanded employment. Dunlap further says: “The industry remains very strong. The overall index has improved to near-record levels (59.31), and is well above the 55.05 survey average. I feel good about where the industry is currently. 2018 will finish strong in spite of the current political uncertainties, the effect of the mid-term elections, and tariff and trade questions.”

Meanwhile, Professor Long argues that, “Despite the weakness in our latest survey, the January Employment Index remains double-digit positive at +14. The unemployment rate for most reporting units is still well below the levels of a year ago.” He adds, “Regrettably, Michigan still has about 80,000 jobs that cannot be filled for lack of available qualified workers. If these qualified workers were available, our unemployment numbers would now be at record low levels. Hence, it is worth repeating that the current low unemployment numbers are as good as we can expect for the near future.”

With a reading of +21, the local Price Index is finally catching up with the world markets. The index was as high as +46 just three months ago. The J.P. Morgan international pricing index eased to 54.2 in January, down from 55.3. At -1, ISM’s national index of Prices flipped negative for the first time in three years. ISM’s index of Prices has dropped 22-percentage points over the past three months.

Long reports that although many local firms remain cautiously optimistic, others are increasingly concerned about the longer-term impact of the Chinese trade war and the gradual easing of auto sales. West Michigan’s Short-Term Business Outlook Index for January, which asks local firms about the perception for the next three to six months, dropped sharply to +5, the lowest level in more than four years. The Long-Term Business Outlook, which queries the perception for the next three to five years, fell to an all-time low of +22. Professor Long concludes, “Although both of the indexes are still positive, West Michigan business confidence has clearly dampened over the past twelve months.”

In wrapping up his analysis, Professor Long says, “Based on the stronger-than-expected start to 2019 national economy, it is possible that the 2017 tax cuts may have a little more room to run than we expected. However, the softening of the world economy will pull us in the opposite direction. Locally, we need to keep a watchful eye on the health of the office furniture industry and auto sales. The economy still has plenty of momentum to carry through the first two quarters of 2019 and quite likely beyond. Although over 58 percent of the Wall Street Journal’s panel of 60 economist expect the next recession to start in 2020, we have yet to see a major event that could catalyze another major downturn. 2019 could turn out to be just another year of slow growth.”

As is Long’s policy, he shares anecdotal comments taken verbatim from his survey respondents without attribution to protect their anonymity. Here are some of those comments as shared in his report:

“We have had slow sales and shipments for the past four months, but January finally brought us back to our normal sales intake target. February shipments will also be slow, but March will be good.”
“With a rough outlook for 2019 in the automotive industry, it will be interesting to see how we can diversify to counter this. “
“Quotes are strong, but our orders up and down from week to week right now.”
“It’s still a ‘wait and see’ attitude by buyers (customers).”
“We’re now in a cash flow crunch between revenue streams, but we should turn the corner in late 2019.”
“We’re off to a sluggish start to the new year.”
“We’re still having a hard time filling manufacturing positions.”
“December sales were slow as customers hold back on year-end inventories. January is starting off hot and heavy, and some new programs should increase our 2019 outlook by at least 10% up over 2018.”
“We’re busy this month again, but there’s still a lot of nervousness about a recession in late 2019.”
“We’re off to an interesting start to the new year.”
“Business seems to be very steady. No major changes”
“December was pretty slow, the worst month of the 4th quarter. However, December is almost always slow, and it was no worse than most Decembers.”
“Things are off to a slower start in January than I would like to see.”
“January has picked up after a slowdown in December.”