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West Michigan Industrial Economy Resumes Marginal Growth

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While West Michigan manufacturers don’t actually assemble automobiles in the region, the myriad parts they make for the auto industry are crucial to the health and welfare of the West Michigan Industrial economy. Thus, any extended impact such as the UAW strike against General Motors always has the potential to disrupt operations in the region, and Grand Valley State University Professor Brian Long says that began to happen last month according to his latest survey results for October. He cites the month as one in which “marginal growth” continued.

Dr. Long is the Director of Supply Chain Management Research at Grand Valley. He says, “Although the G.M. strike began in mid-September, the initial impact on West Michigan was marginal. We do not assemble automobiles in West Michigan but have many Tier I and Tier II G.M. suppliers. Because few, if any, firms in our area supply only G.M., these firms were initially able to shuffle production schedules around to other work and avoid layoffs. Like most strikes, the suppliers initially stockpiled inventory. Post-strike production schedules try to make up for the lost time and require expanded supplier deliveries. However, as the stoppage approached 40 days, we began seeing some layoffs, and the West Michigan economy started to feel the crunch.”

Long conducts a regular monthly survey of West Michigan manufacturers and says that for October, his most closely followed New Orders Index, a measurement of business improvement, dropped significantly to -21 from +6. The month’s Production Index fared worse and plunged to -34 from +6.

Long says that his Purchasing Index, which measures activity in the purchasing offices, “coped a little better, but dropped to -21 from. -6.” He adds, “The October comments from our survey participants overwhelmingly refer to the negative impact of the G.M. strike. Now that the strike is over, we will hopefully see considerable improvement in our November statistics.”

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After automotive, office furniture is one of the other highly cyclical industries in West Michigan. On November 4th, Mike Dunlap released his quarterly survey of the furniture industry, and Professor Long says, “The statistics for the report are rather pessimistic, although he considers most of the industry’s problems to be the result of the on-going tariff war with China. October’s Gross Shipment Index dropped sharply to 58.3 from 74.0 in July, although the average for all past surveys is 57.8. Order Backlog tumbled to 45.6 from 71.5. Expenditures for tooling and capital expenditures remained relatively stable, but the Personal Outlook Index eased to 57.4 from 64.0, compared to the survey average of 59.2.”  We outlined in detail Dunlap’s report back on Monday here on Moody on the Market, and you can see that full report at this link:

https://www.moodyonthemarket.com/holland-commercial-furniture-analyst-still-feeling-good-despite-3q-dip/

As Dr. Long turns his attention to the Automotive Industry he reminds that, “Although the Detroit Three are now reporting only quarterly sales, Automotive News continues to post the monthly results for the remaining firms. For October, Honda sales gained 7.6-percent, Hyundai-Kia jumped 11.1-percent, and beleaguered VW gained 5.7-percent. Toyota lost 1.6-percent, despite a gain from the Lexus division. The Nissan Group dropped 3.7-percent, largely because of a 14.0-percent drop in sedan sales. Although the total for the non-Detroit firms rose by 2.5-percent, the Automotive News Data Center estimates that overall sales for the industry fell by 1.8-percent. Nevertheless, the year-long decline continues to be very orderly. According to Jeff Schuster, head of global vehicle forecasts at LMC Automotive:

“With the close of 2019 near, auto sales are expected to be above 17 million units for the fifth straight year. Attention is now shifting to 2020 and, while retail sales are expected to decline for the fifth straight year, the outlook has improved somewhat. Trade risk and vehicle affordability remain top concerns for the coming year, but the economy is expected to remain supportive with growth at a sub-2-percent level. A higher probability of a recession has been pushed out to 2021 or later.”

Looking at the issue of inflation, Dr. Long says, “If a rising tide floats all boats, then a falling tide sinks these same boats. Because of the October turmoil, the West Michigan Pricing Index fell to -2 from +5.” He adds, “As the world economy continues to slow, J.P. Morgan’s international Pricing index eased to 50.4 from 51.0. For the ISM survey, the U.S. index of PRICES dropped significantly to -9 from -1.”

Regarding business optimism, Long notes, “For October, West Michigan’s Short Term Business Outlook, which asks local firms about the perception for the next three to six months, fell to -2 from +0, another six-year low. However, the October Long Term Business Outlook, which queries the perception for the next three to five years, edged slightly higher to +25 from +19. It has been encouraging to see some apparent minor progress in the trade talks with China, although numerous other economic problems still abound. The Federal Reserve has recently cut rates for the last time in the current cycle, although the economic impact of the lower rates is questionable.”

Discussing Employment in the West Michigan Industrial Economy, Long says, “Needless to say, G.M.-related layoffs accounted for most of the drop in October’s West Michigan Employment Index from +8 to -14. Although unemployment is an economic laggard, it is good to see that many firms are still looking for people at all levels.”

As is Dr. Long’s monthly practice, he shares a number of anonymous, verbatim, comments from survey participants. Here are some of those from the report:

  • “Schedules have been low due to the GM strike, and we are just starting to ramp production back up now that the strike is over. I’m not sure if the demand from GM will make up for the down time. It appears schedules are strong, but not as strong as before the strike.”
  • “We are seeing competitors drop pricing drastically in the machine tool business.”
  • “Prices for raw materials are up for most suppliers that have their supply base overseas. Example: China.”
  • “Projects have been delayed a few weeks due to various reasons: There is more work than there are contractors, employee shortages, and employee work stoppages. Hopefully they will be able to complete the projects in a timely manner.”
  • “The GM strike is hurting what was beginning to be an upward trend over a flat to prior year sales.”
  • “The GM strike impact has not been too bad thus far.”
  • “The GM Strike is causing layoff problems.”
  • “Business has been slower than normal for this time of the year.”
  • “We are entering the seasonal slowdown a month earlier than normal. Typically, the business cycle slows in November, so this is unplanned. As a result, we are making adjustments to inventory and supply plans.”
  • “It’s been a very slow month, and the end of the quarter. Our customers are shopping everything and switching traditional items for nickels.”
  • “The third quarter was down to our forecast. The fourth quarter will get better, but not as busy as we would like to be.”
  • “We’re flat. No growth.”
  • “We’ve seen a dramatic slowdown in quoting and orders over the last few months. Our fourth quarter will be difficult.”
  • “We are experiencing a negative effect from the GM strike, and also an overall pullback on orders from other customers.”
  • “Business is great and going strong, but we’re not sure how the long-term outlook in the economy will impact sales.”

You can see Dr. Brian Long’s full report by clicking the link below:

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