Economy Blah To Depressing

December 19, 2005
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GRAND RAPIDS — Michigan has suffered greater employment losses than any other Great Lakes state, with the loss of more than 300,000 jobs between 2000 and 2005. Some 50,000 jobs disappeared just in the first 10 months of this year.

Although the state’s unemployment rate declined slightly in 2005 to its current 6.6 percent, it’s still relatively high compared with the national average of 5 percent.

If the University of Michigan’s recent forecast of a 0.1 percent decline in employment in 2006 holds true, next year will mark the sixth consecutive year of employment decline for Michigan

“We’ve never been here before. We never had six straight years like that before,” George Erickcek, senior regional analyst with the W. E. Upjohn Institute of Employment Research, told attendees of the 2006-2007 Economic Outlook for Michigan presentation at the Amway Grand Plaza Hotel Wednesday. “We are looking at some serious difficulties here.”

The state’s population is still growing, but the growth “is timid at best and weak at worst” — at a rate of about 0.4 percent annually. In addition,

Michigan’s average household income also has declined since 2000 and is basically flat now, he said.

One of the trends Erickcek finds troubling is that nonfarm employment conditions in Michigan have not recovered since the beginning of the recession in June 2000. It has taken the country about 54 months to return to where it was prior to the recession, but Michigan’s employment level has continued to decline over that period.

The first “suspect” in the decline is the manufacturing sector, but in actuality the downward trend in manufacturing employment has been accompanied by a similar downward trend in the nation as a whole, he said, so manufacturing doesn’t appear to be the culprit.

Employment in selected service sectors such as occupational services, financial services, and business and professional services have helped drive the national economic recovery — but Michigan lags behind the nation in that regard, Erickcek said. He said Upjohn Institute analysts picked those service sectors because they think those sectors might be key to the start of some type of service export base.

“Maybe there are firms out there  — and there are firms out there — that will actually bring new dollars into the state; new dollars that can help support state activities and new dollars that could replace the dollars we’ve been losing from manufacturing as it continues its downward trend. We might have to look long and hard for that driver to help pull the state out of its doldrums.”

Other cities in the nation have seen positive employment growth in the service-providing sector over the past three years, but the two biggest cities in MichiganGrand Rapids and Detroit — have not.

“It’s clear that something’s amiss when we see everyone picking up the service-providing opportunities except for those two areas of the state,” Erickcek said.

What’s the problem? Erickcek pointed to a 2004 demographic sketch of the region’s work force as the answer.

“We know that we’re moving to a knowledge-based economy; we know that indicates that a knowledge base is really, really important,” he said.

A strong indicator of a work force’s knowledge base is the percentage of the region’s population that has a bachelor’s degree. West Michigan now comprises three metropolitan statistical areas that include Kent, Ottawa, Muskegon, Allegan, Ionia, Barry and Newaygo counties. In the West Michigan region, about 26 percent of the population had a bachelor’s degree or higher in 2004, compared to an average of 27.1 percent of people in metropolitan statistical areas in other states.

Furthermore, 65 percent of bachelor’s degree holders in the West

Michigan area were born in Michigan, while an average of 58.6 percent in other communities were born in the same state.

“What that says to me is that we haven’t been very successful in attracting new people to the area,” Erickcek said. “Clearly, we’re not doing a good job selling ourselves to the outside area.”

Among 16- to 19-year-olds, 8.8 percent are “just hanging out,” meaning they’re neither working nor in school. The average among other regions is 7.9 percent of that age group. Erickcek said that group makes him a little nervous about the future knowledge base of the region.

As far as the economic outlook for West Michigan, he expects the office furniture industry will continue to turn the corner because profits are up and forecasts look promising. Still, he expects employment in the industry will remain fairly flat. According to a recent forecast from the Business and Institutional Furniture Manufacturers Association, both domestic office furniture production and consumption are expected to steadily increase this year and next.

The region’s unemployment rate is still higher than it was in 2000, but the trend is downward, Erickcek said. He said that if West Michigan were growing at the same pace as the national average, the region would have about 27,600 more jobs today.

Although manufacturing represents a smaller portion of the region’s economy, its importance here is double that of the nation. In 2001, 25 percent of people in West Michigan worked in manufacturing, compared to 13 percent nationwide. In 2005, roughly 22 percent of West Michigan residents were engaged in manufacturing vs. 11 percent nationwide.

“It’s our concentration in manufacturing that has caused that gap to increase. As that concentration goes down, our economy is going to fall further and further behind because of our mix of industries, Erickcek said.”

He predicts that in 2006 and 2007 manufacturing in the region will be up slightly, private service producing will be up, and that construction will be down.

The outlook for the Grand Rapids-Wyoming metropolitan statistical area looks very similar. Manufacturing employment in the area has followed a pattern of decline similar to the nation’s, particularly in the automotive and furniture sectors, Erickcek said. Real incomes are not growing, though up slightly from 2003. However, the unemployment rate is now going down, he noted.    

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