Economic Signals Up, Still Mixed
GRAND RAPIDS — A healthy sign in the economy appears to favor West Michigan.
According to the September economic overview for West Michigan from The Right Place Inc. the sign is that capital spending has broadened from short-lived high tech gear into increased demand for heavy machinery and business construction.
The demand for capital, according to the overview, has become apparent in two ways.
First, American industry is upgrading equipment, with spending for equipment and transportation gear growing nearly 9 percent from a year ago.
Second — and of particular interest to West Michigan office furniture manufacturers and their tributary suppliers — private sector business construction has risen almost 6 percent from a year ago.
According the overview’s narrative, business outlays for equipment and buildings rose in the second quarter at an annualized rate of 12.5 percent, a pace that is expected to continue through the third quarter.
Galvanizing the surge in capital spending, The Right Place reports, are:
- A surprise pick-up in demand that came while inventories still were low.
- Financial conditions remain favorable, with corporate balance sheets “in the best shape in years.” And while profits and cash flow are growing more slowly, Business Week indicates “the pace has fallen from spectacular to merely very good.”
- Interest rates still are low and banks are starting to relax lending restrictions.
The overview reports, however, that purchasers in West Michigan aren’t exactly setting records. In fact, according to the most recent a survey of the National Association of Purchasing Managers, purchases and new orders — while still positive — have declined.
The new order index in the survey had dropped from an unusually strong +14 to +7, while the purchasing index declined from +25 to +15.
In two other components, the index for production rose from +7 to +10 while the employment index edged up from +19 to +20.
Buttressing the overall positive outlook is that gross domestic product rose an at annualized 3.3 percent in the second quarter. The second quarter of 2004 was the 10th consecutive quarter in which GDP has grown, averaging 3.4 percent over that period.
The Right Place outlook noted, however, that real consumer spending continued to look weak, growing at only 1.6 percent in the second quarter, the lowest gain in nine quarters.
In the automotive industry, the report noted that sales have grown, and are running at an annualize rate of 17.5 million units, up from 16.6 million in August.
“Much of the boost,” the report said, “can be attributed to General Motors and another generous incentive program.”
Nissan, Daimler-Chrysler and Toyota also enjoyed considerably higher sales over the same time last year, though Daimler-Chrysler and Toyota’s sales have slipped since August.