Service Sector Poised To Pounce Recovery Or Not

May 17, 2002
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Grand Rapids area business leaders are receiving an incredible amount of economic information and projections with which to plan, but the real caution may be the as yet unseen fees and hikes from service industry professionals, most specifically health care providers, insurers and banks. The service sector already is poised to initiate such increases, which may well create larger economic recovery problems in the greater Grand Rapids area.

The Grand Rapids Business Journal economic survey cosponsored by Plante & Moran and reported last month indicates mid-sized businesses are more optimistic than expected, generally preparing for an end to the recession one year after its official start — second quarter of 2002. Such planning is in agreement with national forecasters, including Victory Capital Management Chief Strategist Richard Nash, who provided insight to local leaders last week (see the story on page X). Nash cautioned that “just in time” inventories perhaps should give way to “just in case” inventory, given the as yet unmeasured ups and downs related to Sept. 11, and possible continued interruptions in the supply chain.

While, as Nash suggests, there is new stimulus in the chute to push recovery, West Michigan also is about to be threaded with additional business costs.

  • Area businesses already are warned to expect the fifth consecutive year of health care cost increases, even more likely this year to be split with employees. Even as Grand Rapids Business Journal has reported on the scope of those increases, a new national trend is emerging, basically shifting more health care cost to the sickest of those employees.

  •  The corporate earnings outlook is not a vast improvement over 2001. Using like national statistics and metro area focus groups, The Right Place expects to announce this week an outlook projecting the recession will continue through the beginning of 2003.

  • Insurance costs, particularly for commercial properties, are universally going up. National economists also note consumer spending was unchanged until the events of Sept. 11, and while the retail season may not be as brutal as feared, there is no “pent up demand” that usually accompanies the end of a recession.

  • Grand Rapids no longer has a large “hometown” bank, and the aftershocks of Fifth Third’s takeover are only beginning to emerge. Fees have been attached to most every type of consumer service, and businesses are now charged for what used to be common debit card transactions as consumers are encouraged to make charge, rather than debit, transactions.

  •  Across the country, financial institutions are tightening business credit, downgrading certain business types and in some cases, “changing focus” and no longer lending to certain industry sectors, like automotive-related industry, tech firms and airlines. The story on page 1 indicates no acknowledged plan to make such changes, although bank representatives indicate the tool and die industry has been so hit, and the Michigan Small Business Development Center in Grand Rapids reports numerous calls from especially small business owners forced to go to nearly a dozen banks before they are served.

Just as predictable as “pent-up demand,” service sector businesses should begin to predict a “pent-up” backlash, should these increases continue even through what could be a long recovery period in West Michigan.      

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