Forecast tough 09 better in 10

December 16, 2008
| By Pete Daly |
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A noted expert on the West Michigan economy told a large turnout in Grand Rapids last week that he was "tempted to put my thumb on the scale" to make his West Michigan Economic Outlook 2009-2010 a little bit more positive.

But George Erickcek did not end up doing that, and his forecast was grim.

Erickcek, senior regional analyst of the Upjohn Institute, said his study of various statistical indicators leads him to believe the Grand Rapids/Wyoming metropolitan statistical area will see employment decrease by about 2.4 percent in 2009.

The Grand Rapids/Wyoming MSA includes Kent, Newaygo, Ionia and Barry counties. Erickcek gave his predictions at the West Michigan 2009-2010 Economic Outlook presented at the Amway Grand Plaza by The Right Place Inc.

Despite the bad news for 2009, Erickcek said he does believe overall employment in the Grand Rapids/Wyoming MSA will pick up again during 2010, increasing by an estimated 0.4 percent.

In 2009, employment in "goods production," which is manufacturing and construction, will probably decrease by 8 percent, and drop again in 2010 by 1.2 percent, said Erickcek. It dropped by 2.7 percent in 2008.

In the service industries, employment was up in 2008 by 0.8 percent but will decline by about 1 percent in 2009, then pick up again by 0.9 percent in 2010.

Government employment here was up by about 0.4 percent this year but is predicted to drop by 0.4 percent in 2009 and by the same amount again in 2010.

Erickcek said he believes the current recession is more serious than those of 2001 and 1991. For one thing, he said, this one is worldwide. Another factor that is different is the financial industry crisis, while at the same time there is a drop in consumer confidence that makes people who do have money less willing to spend it.

Although America's banks have $600 billion in excess reserves, they do not feel conditions are right for lending and have tightened their standards on loans.

"We have never seen this before," said Erickcek, a phrase he repeated several times during his presentation. Another such case was his comment on new home sales in the U.S., which were about as low in the 1991 recession as they are now. But after 1991, there was an unprecedented run-up in new home sales that almost went off the chart, peaking around 2005 — and then plummeting like a stone at a rate never seen before.

However, Erickcek had an interesting and encouraging fact to share regarding home values in the Grand Rapids/Wyoming MSA: Values here have only declined 4.2 percent from their peak in the fourth quarter of 2005.

Michigan has experienced 10 straight years of decline in employment, said Erickcek. The state lost 104,000 jobs this year; he predicts job losses will be 148,600 in 2009. But the West Michigan area is actually suffering less than southeast Michigan, where the turmoil in the auto industry and drop in home values is wreaking havoc.

Still, automotive-related businesses in West Michigan are suffering, and office furniture is being affected, too, he said. Part of that is that credit problem again: Companies that would be inclined to invest in office furniture can't get the financing to do it. And part of that is in the financial industry itself; a major consumer of office furniture.

Erickcek said "there are a lot of empty desks and chairs in the financial sector," where employment nationwide has declined 246,000 since the end of 2006. Each of those job losses implies an empty desk, he said.

The current crisis in the auto industry makes consumers fearful to buy a car, said Erickcek. In 2001, the Big Three in Detroit controlled 74 percent of the market; in November, that share fell to about 48 percent. The serious decline in overall auto sales in the U.S. is another factor that is very different from previous recessions. Erickcek noted that in the last recession in 2001, auto sales were not impacted.

"We expect consumer spending to be down for at least half of 2009. That will mean that consumers will postpone what they can. … Unfortunately, one thing they can postpone will be (purchase of) automobiles," he told the Business Journal.

He said the only segment within the manufacturing employment statistics that is expected to show a gain in employment in 2009 is in food processing.

Overall, manufacturing employment throughout the U.S. has never recovered from the last economic downturn in 2001, said Erickcek, a reflection of outsourcing manufacturing to foreign countries.

On a national basis, if the recovery from this recession is similar to the 1991 and 2001 recoveries, it may take two to three years before employment regains its 2007 levels — but Michigan's employment is expected to be postponed even longer because of the malaise in the auto industry.

Erickcek noted the University of Michigan statewide employment forecast, which he said was "more pessimistic" than his. The U-M forecast predicts a 3.3 percent overall drop in employment in 2009 and 9.9 percent drop in manufacturing/construction employment, in particular. But that state level is worse than what West Michigan is expected to experience — again, due to the greater economic problems in the Detroit region.

Erickcek showed a slide that illustrated how much Michigan has been hurt. It compares unemployment in the Grand Rapids/Wyoming MSA to Detroit, Des Moines, Fort Wayne, St. Louis, Omaha, Milwaukee, Kansas City, Minneapolis, Indianapolis, Pittsburgh and Louisville. The Bureau of Labor Statistics reported the average unemployment rate in the Grand Rapids MSA from January through October this year to be 6.9 percent. Detroit came in at 8.5 percent. The third highest rate was in St. Louis, at 6.5 percent, and all together the 12 cities averaged 5.4 percent unemployment.

Erickcek said he does not believe a stimulus check from the federal government or tax cuts will help boost the economy as long as consumers are too fearful to spend.

Nevertheless, he said, Grand Rapids maintains the best environment for job creation. In that comparison with the other Midwestern cities, Grand Rapids has the highest percentage of new jobs in its total employment: 6.2 percent.

"That shows we are innovative," said Erickcek.

But his concluding advice was: "Keep your day job” — and your night job, too.

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