Business Confidence Falters

October 28, 2002
| By Katy Rent |
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GRAND RAPIDS — The fourth quarter, a time when many predicted the economy would fully emerge from its doldrums, is instead looking flat, according to figures from one local analyst.

Brian Long, a CPM with the National Association of Purchasing Management Greater Grand Rapids Inc., said data collected in the third and fourth weeks of September isn’t looking too positive.

He said the steel furniture business is still the biggest problem.

“The mood seems to be turning more pessimistic. The automotive parts producers, which had been helping the statistics, turned back to a flatter posture,” Long said. “Both the capital equipment manufacturers and the industrial distributors turned flat and some expressed the prevailing wave of pessimism. In short, our statistics are flat, the mood is turning somber and if this continues we will be in for trouble.”

Long added that normally at this point in the business cycle businesses would be in to a solid economic recovery. After a strong first quarter in 2002, however, the recovery flattened. After so many years of economic boom, the shallow growth that is now being experienced makes many people think that the recession never ended.

In fact, Long commented that the present economy is still kept in the black primarily because of the strong housing market and the better-than-expected auto sales.

“If either housing or automotive start to fade, we could be drawn back into another recession,” said Long. “With all of the other problems currently brewing, the odds of sliding into another recession by the end of the year may be as high as one in three.”

To combat that problem, however, Federal Reserve watchers are now beginning to talk of another cut in interest rates. Long said that because of the recent softness in some of the statistics, some economists feel that the Fed will be compelled to cut rates one more time by a quarter of a point.

Meanwhile, Long said there is still a persistent cloud of pessimism that dominates the economic landscape for the local business community. Discretionary spending has been stymied for two years, he said, hurting or halting the recovery in industries such as steel furniture.

“Middle level job seekers are having an especially hard time finding work because of numerous hiring freezes,” said Long. “We know that the post 9-11 world is different, but the business community seems to fear making major commitments because of what they perceive to be an indefinite future.”

Long also noted that a poll of business leaders found they have the same concerns as the population at large.

The top five issues business leaders reported were the fear of an extended war with Iraq, which they felt could turn out to be this generation’s Vietnam; the fear of rising oil prices or even shortages, which could reshape economic priorities; escalating health care costs, with no end in sight; poor corporate profits, which weaken many forms of business spending; and a sagging stock market, which they also felt has resulted in the shrinkage of available capital.

“It now appears that business confidence may not be restored fully until the issue with Iraq is resolved,” Long said. “Unfortunately, this could take us well into 2003 before we see a satisfactory resolution. In the meantime, slow or zigzag growth will probably be the order of the day.”           

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