West Michigan economy shows solid profit margins

August 13, 2012
| By Jim Bishop |
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The West Michigan and lakeshore business region’s economy remains fairly steady compared to the last few years. In July, the Small Business Association of Michigan’s survey of 600 small business owners found entrepreneurs reporting larger sales, higher profits and increased hiring compared to last fall — a very good sign.

Mixed trends, modest gains

One emerging trend is that businesses are producing solid margins. Most manufacturers report strong gross revenue and net earnings. On the downside, they are doing so with less people. One anomaly, even with an available work force ready to clock in, is that we still see a tremendous need for skilled manufacturing workers. One state report cited that Michigan manufacturers have 20,000 job openings for engineers, skilled technicians and computer operators.

That said, the region’s talented work force — especially its engineers and entrepreneurs — and its world-class manufacturers and natural resources bode well for its economic future.

Good growth

The W.E. Upjohn Institute for Employment Research report showed clearly that job gains were widespread across both goods-producing and service-providing industries, although government employment was flat. During the first quarter, total employment rose by 0.7 percent in Grand Rapids and Wyoming; Muskegon County saw a moderate 0.6 percent growth in total employment.

The banking industry hit a surprising high note over the past 12 months, as well. For example, The Bank of Holland’s lending group saw a 75 percent shift in how clients are using SBA loans. In the past, three out of every four SBA loans were for refinancing. Now, that number has reversed. The money being loaned is going for growth and expansion. Falcon Tool & Die, Kilwin’s Fudge, Milestones Child Development Centers, Snap Fitness and Metro Dental Associates are a few of the many area businesses financing expansions with SBA 7(a) loans.

Lakeshore opportunities

Perhaps the lakeshore should be called the “great shore.” Its robust 2.9 percent employment increase significantly outpaced the rest of the state. The emerging technologies sector is making good inroads. And, the medical device companies are having a ripple effect on the lakeshore, as are manufacturers that diversify outside of the automotive market, which represents a solid driving force behind the economic growth in Ottawa County.

Real estate’s mixed bag

In residential and commercial real estate, there is a mixed bag of good, bad and great news. The great news? Real estate purchases increased more in the first six months of this year than in the last three years combined. The good news? Construction projects and lending have increased, much of the spec-home inventory has been absorbed and commercial properties are finally starting to sell. Downtown retail and office space has bounced back a bit, as well. Available industrial space is becoming scarce, especially along the lakeshore.

The bad news? Even with low interest rates, real estate market advancements are not seen as rock solid when compared to the past boom days of the commercial property market. When viewed from that perspective — when you could flip a property or sell out a development before the blueprint got to the buyers — today’s advances seem lukewarm.

In all sectors, the lack of confidence in the current economic recovery remains an obstacle, with many wondering if it is sustainable. Additional obstacles include concerns in the Eurozone, apprehensions about recession and access to investment capital.

What’s rebounding? Auto manufacturing, furniture manufacturing and their suppliers are improving. Plus, many West Michigan auto parts suppliers are diversifying to provide parts to more customers outside of the big three manufacturers.

From farmers to food processors, the agriculture industry is experiencing a very bumpy year due to the late freeze and the current drought. But long-term, agriculture will become a mainstay. Keep in mind, Michigan has many natural resources, including water — more fresh water than any other place in North America.

Jim Bishop is senior vice president market manager for The Bank of Holland.

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