Michigan Maintains Viability

August 18, 2006
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GRAND RAPIDS — While the greater Grand Rapids area is flat in its economic growth, the southwestern Michigan economy is showing stable and steady growth, according to a study by Brian G. Long of the National Association of Purchasing Management.

With new orders in the greater Grand Rapids area falling in the last two months to even, down from +19, the production index was worse, Long said. It fell to -13 from +14. Purchases were also down, to -6 from +19. Employment stayed unchanged at +11.

New orders for southwestern Michigan were up in the last two months to +15 from +10, while production fell from +15 to +10. Purchases stayed at +10, while employment rose to +25 from +20.

Long said considering the individual industry groups in the Grand Rapids area, it is not surprising to see that they are flat.

“This does not mean that they are declining, but just maintaining the current level of activity,” he said. “Both capital equipment manufacturers and the office furniture firms are doing quite well, but they have plateaued for the time being. The only group that is in the negative territory is the automotive parts producers, many of whom are currently in hiatus because of the annual model change.”

In southwestern Michigan, Long said the month was positive for firms associated with capital equipment while the automotive parts producers also are on hiatus. On the whole, there seemed to be no negative impact in the area.

“Fortunately, we had no industrial groups reporting business conditions as weak,” he said.

The index of prices in southwestern Michigan remained relatively high at +40, while in Grand Rapids the index rose to +53 from +44. The national index of prices was +57, up from +53. Long said that anecdotal information implies there will not be relief in sight from the lofty prices.

The inflation can be attributed to four sources, he said.

“First, the high profitability of many of the basic industries around the world has spawned a huge wave of buy-outs, mergers and takeovers,” he said. “Fewer sellers means less competition, and less competition means higher prices.”

The growth in the Chinese economy is another source, Long said.

“Because of the explosion of the Chinese economy and the unprecedented expansion of contract manufacturing for the entire world, resources of all types are being bought and shipped east,” he said. “China already consumes about a third of the world’s steel and nearly the equivalent among non-ferrous metals.”

The third factor is that for the first time in 50 years, the entire world is showing economic gain, Long said. Countries that were suffering in recent years are showing large gains in GDP.

“To no one’s surprise, China is growing at 11.3 percent. However, India is up 9.3 percent, Singapore is up 7.5 percent, Argentina 8.6 percent, Mexico 5.5 percent, and even Russia boasts a 5.5 percent growth rate,” he said.

Long cites the geo-political situation as the last reason for the continuing inflation.

“Oil is probably the most obvious cause,” he said.

Long notes that despite the “bad news,” it is still not enough to cause a recession, though because the higher costs of basic commodities cannot easily be passed along in higher prices, he said the money has to come from somewhere.

“For the west side of Michigan, it will mean small budgets for new equipment, less hiring and less profitability, all of which confirm the prediction of an economy that will slow for the last half of 2006.”    

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