FDIC's Michigan Profile: Not So Hot

July 1, 2005
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GRAND RAPIDS — The Federal Deposit Insurance Corp.’s quarterly summary of state banking and economic conditions for summer 2005 isn’t exactly full of sunshine.

One of the darkest clouds overhead is the fact that Michigan had the highest unemployment rate in the nation and was the only state to record year-over-year job losses in the first quarter of 2005. However, the pace of job loss here has been slowing steadily since the end of the 2001 recession, the FDIC report notes.

Continued job losses, particularly in auto and auto parts manufacturing, outpaced smaller employment gains in other job sectors.

Grand Rapids-Wyoming, Muskegon-NortonShores, and Battle Creek were the only metro areas in Michigan that posted year-over-year job growth of more than 1 percent in first quarter 2005, the FDIC analysis revealed.

“These western Michigan job gains may be short-lived,” the report warns. It points to such examples as Steelcase’s recently announced plan to cut 600 jobs, Electrolux’s Greenville plant closing and looming layoff of 2,700 employees, and General Motors’ announced shutdown of its Lansing assembly plan that will leave nearly 3,000 workers out of jobs. 

Those moves could likely have a trickle-down effect.

“Weakness in the auto industry, as evidenced by the recent downgrade of GM and Ford debt to below investment grade status, may dampen other areas of the state’s economy as the automakers cut expenses in such things as advertising, health care, supplies and services,” the FDIC stated.

The unemployment problem weighed on Michigan households: Michigan posted the lowest year-over-year personal income growth in the country during every quarter of 2004. FDIC data shows that personal income grew a mere 3 percent from 2003’s fourth quarter to 2004’s fourth quarter, compared with a national growth rate of 6.7 percent for that period.

Though Michigan has the fourth highest home ownership rate of all the states, the FDIC cautions that continued weak employment, coupled with slower income and population growth, plus rising long-term interest rates could mean fewer affordable homes here in the future.

According to the FDIC, the financial stress on Michigan households is further evidenced by the state’s rising per capita bankruptcy rate, compared to that of the nation. And when major provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act go into effect Oct. 21, they’ll make it harder for people to walk away from debt.

The new bankruptcy law, the agency suggests, could trigger an increase in bankruptcy filings before the October deadline.

On the banking scene, things seem a little brighter.

According to the agency’s report, profitability at Michigan’s “community institutions” increased slightly in the first quarter of 2005 from the year before. The FDIC defines a “community institution” as an insured financial institution with less than $1 billion in assets, excluding specialty banks and banks that are less than three years old.

As noted in the report, significant gains in net interest income offset higher expenses and a modest decrease in noninterest income.

Total loans for community institutions in Michigan grew 8.8 percent from a year ago, which the FDIC said has driven growth in commercial real estate, construction and development and home equity portfolios.

The report further notes that over the past year the delinquency rates among community banks in the state decreased by 30 basis points to 2.2 percent, and all major loan categories saw improvement.    

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