Local Economy Is Lagging Slightly

December 19, 2003
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GRAND RAPIDS — The 2004 and 2005 economic outlook for the nation is positive, but the outlook for greater Grand Rapids isn’t quite as optimistic.

The good news is that the recovery is gaining momentum nationwide.

The local economy is headed in the right direction, too, but at a slower, less certain pace.

So said George Erickcek, senior analyst for the W.E. Upjohn Institute for Employment Research, at an employment forecast presentation Tuesday sponsored by The Right Place Inc. and The Employers’ Association.

As Erickcek pointed out, sustained GDP growth of 3 percent to 4 percent fueled the job boom of the 1990s.

During the first quarter of this year, real GDP growth was a weak 1.4 percent. In the second quarter GDP growth accelerated to 3.3 percent. It’s now slightly above 8 percent, and it’s expected to be around 4 percent in 2004.

Business spending, which had been falling since the 2001 recession, is showing signs of resurgence and is expected to accelerate in 2004.

Business investment in equipment and facilities will boost productivity, but will it be enough to generate new jobs? Erickcek asked.

Although GDP is “way up” and business is finally starting to invest again, the labor market still has not responded, Erickcek said, adding that sustained GDP growth above 3 percent or 4 percent will eventually drive up the need for new hires.

The manufacturing sector has been especially hard hit by job losses, having experienced 40 consecutive months of decline.

Nationwide, manufacturers have cut 1.3 million jobs since the official end of the recession in November 2002, Erickcek observed.

On a more positive note, the University of Michigan’s national forecast suggests U.S. auto and light truck sales are robust and will remain strong into 2005. The forecast is for 16.9 million unit sales in 2004 and 17 million in 2005.

Labor productivity growth has been stellar in recent quarters, but huge productivity gains have dampened job growth, he noted. So while productivity has increased 8 percent, the demand for labor remains low.

Temp hiring serves as an economic indicator that the economy is improving, and temp hiring is on the rise, he said. Job gains in the private sector typically follow increases in temp hiring.

The U-M national forecast predicts the national unemployment rate will drop from its present 6 percent level to 5.4 percent in 2004 and to 4.8 percent in 2005.

The U-M forecast for Michigan is for a total of 1 percent employment growth in 2004 and 2 percent employment growth in 2005.

Regionally, in the Grand Rapids metropolitan statistical area that includes Kent, Ottawa, Muskegon and Allegan counties, the unemployment rate is still higher than the national unemployment rate.

Erickcek said layoffs at Bosch, Steelcase, Meijer and others are having a major effect.

In October, the unemployment rate in the Grand Rapids MSA was 7.2 percent, compared to 5.6 percent nationally.

The unemployment rate in Grand Rapids was even higher, at 10.5 percent.

It’s been nearly two years since the end of the 2001 recession but employment has not returned to its pre-recession level, Erickcek pointed out.

With slightly more than 23 percent of business in manufacturing, Michigan particularly has suffered.

It’s been a job-loss recovery for manufacturing, as opposed to a jobless recovery, Erickcek said.

According to his data, as of October Grand Rapids MSA employment in the manufacturing sector was down 4.8 percent from a year ago.

And since October 2000, manufacturing employment in the Grand Rapids area has decreased by 22 percent.

Employment in the financial sector and food service sector were down about 4.2 percent and 5 percent, respectively, from a year ago.

Meanwhile, year-over-year employment was up about 3.5 percent in the education and health sector and up 2 percent in the government sector.

Regional employment in the furniture industry has stabilized, but at levels far below the pre-recession high, Erickcek said.

“We’re not expecting any job growth in the furniture industry in 2004. Maybe in 2005,” Erickcek said.

U.S. office construction is fairly lackluster and the demand for furniture is closely tied to new office construction, he added. There has been some up-tick in office employment, but not much.

“The story doesn’t look good,” Erickcek said. “I don’t know if we’ll ever see a time like the 1990s again. It’s shocking — the competition that’s coming from China.”

He said even the highly competitive firms in Grand Rapids can’t buck the trend of moving manufacturing south and overseas.

For the Grand Rapids MSA, the U-M forecast is for total employment growth of 0.5 percent in 2004 and 1.6 percent in 2005.

For Kent County, the forecast is 0.1 percent employment growth in 2004 and 1.6 percent in 2005.

Historically, companies lay off employees when the economy turns down and call them back when the economy rebounds.

As Erickcek sees it, the state’s economy is changing structurally.

“What we’re seeing is a different direction — a negative structural change. The jobs being created in the expansion are not the jobs that were lost in the recession. People can’t just wait around. Retraining is in order, but our work force training monies are not around.”

On the upside, trending data indicate that businesses launched at the start of an economic growth cycle tend to be more successful.

“The cycle is right for small business development,” he said.

Wages and salaries in West Michigan have held steady, according to co-presenter Maggie McPhee, director of information at The Employers’ Association. She predicts they’ll remain steady.

“It’s just a slow and steady climb, but we’ll take it.”

Local wages and salaries, she noted, are on a par with national compensation averages.    

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