In full economic recovery Not yet says Erickcek

December 19, 2011
| By Pete Daly |
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This year was “surprisingly good” for employment gains in the Grand Rapids/Wyoming metropolitan statistical area, but the gains will be smaller over the next two years, in the opinion of George Erickcek.

The senior regional analyst of the W.E. Upjohn Institute for Employment Research in Kalamazoo, who gave his annual year-end recap and forecast last week at the 2012 Economic Outlook for West Michigan presented by The Right Place Inc., predicts jobs will increase by 1.1 and 1.2 percent, respectively, in 2012 and 2013.

Erickcek said the auto industry is again the key driver of the Michigan economy, but he expressed concern about Michigan manufacturers’ reports that they have jobs they cannot fill because they can’t find candidates with the required technical training and experience.

Job growth in the goods-producing and service sectors are almost the same, in terms of both the year ending and the next two years. However, government employment in the region declined by 3.8 percent in 2011 and is predicted by Erickcek to drop further: by about 2.4 percent in 2012 and 0.1 percent in 2013.

Goods-producing jobs increased in 2011 by 2.9 percent and service jobs by 2.6 percent. Goods-producing is predicted to increase by 1.4 percent and 0.4 percent in 2012 and 2013, while corresponding numbers for service jobs are 1.4 percent and 1.5 percent.

Erickcek prefaced his remarks about the auto industry in Michigan with a joke: “Remember that foolish talk about diversification? Thankfully, we didn’t go down that road.”

The great news, he said, is that the auto industry is coming back from its severe contraction in the recession years. He noted that despite much effort to diversify the state’s economy since the auto industry tanked, today it is “just as concentrated as we were before.”

Compared to the other states, Michigan now has about eight times as many auto industry jobs, on average.

In Kent County, a comparison of food manufacturing, transportation manufacturing, furniture and health care shows that jobs increased the most in furniture manufacturing, comparing the fourth quarter of 2007 to the fourth in 2010. Transportation manufacturing had dropped, food increased very slightly, and health care employment was “surprisingly” flat, he said.

Nationwide, gross domestic product grew by 2 percent in the third quarter, and only 1.3 percent in the second.

“And the forecast is pretty boring,” said Erickcek.

GDP growth that small does nothing for the unemployed, he said. “You can grow 2 percent without hiring a single person,” he added.

The general feeling among consumers in America is “not good at all,” he said. Consumer pessimism about the future is “close to where it was in the recession.”

Consumer confidence, which is carefully monitored, is very important because consumer spending represents two-thirds of the U.S. economy, according to Erickcek.

Nationwide, home values have dropped 32 percent since their peak in early 2007 and are still falling, according to Erickcek. He said that’s demoralizing to consumers because so much of Americans’ wealth is tied up in the value of their homes.

Interest rates are “incredibly low,” said Erickcek, which means “the stage could be set for expansion” of the economy. Banks now hold far more than a trillion dollars in cash reserves, compared to almost nothing before the financial crisis that started the recession, so there is money to lend.

Erickcek said commercial/industrial loan officers were surveyed this year to determine if they were seeing more demand for loans from business. Demand was reported up in the first three quarters, but in the current quarter, the survey recently indicated a major drop.

“I hope it’s only a hiccup,” said Erickcek.

Corporations are making more profits now without hiring more workers, according to Erickcek, which he said is a “clear break from past years.” He believes U.S. corporations are investing “outside the U.S., where growth is occurring,” and he mentioned that a Kellogg executive had told him “You build where you sell.”

Erickcek said manufacturing executives know how to react to growth and decline in business, but “uncertainty is a mystery to business.” When faced with uncertainty, but needing additional workers, Erickcek said he believes many manufacturers only hire temporary workers.

As for job growth numbers, he said, “I do believe a lot of that is temporary employment.”

A change in this recession is the large number of individuals who have been unemployed for much longer than six months. The longer they are unable to find work, the lower their prospects become, he said, because he believes there is a “stigma” to being unable to find work, and many employers won’t consider them.

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