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Street Talk: Two perspectives on the cliff and business in 2013

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December 22, 2012
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Two West Michigan executives in pivotal industries — manufacturing and banking — have offered their views of what lies ahead for business as the year draws to a close and the nation edges closer to the legendary fiscal cliff.

Jim Zawacki is chairman of Grand Rapids Spring & Stamping, a long-time supplier to the auto industry. His concern is about the gridlock in Washington between the administration and Congress and what the net effect is going to be on his business.

If the federal debt ceiling is raised and Uncle Sam increases spending, said Zawacki, “our cost of doing business is going to go up.” That would be a huge problem for auto suppliers in particular, because they are already being hammered by their customers.

A couple of weeks ago, Zawacki met with one of his good customers, and the grilling he underwent was merciless because the auto companies are determined to limit their business to the “least-cost suppliers,” he said.

“We’ve got to give them so much information off our financial statements — they almost want to know what type of home I live in,” he said, adding, “I’m not exaggerating.”

The automotive market might take a nosedive if we fall off the cliff, he said.

“In times of uncertainty, people don’t spend money,” said Zawacki, but he admits that, yes, the U.S. auto industry has improved much over the past two years.

Right now, industry prognosticators are saying 15 million light vehicles will be sold in North America in 2013, “if we don’t have a financial crisis and if Europe doesn’t go down,” he added, emphasizing both “ifs.”

George Erickcek of the W.E. Upjohn Institute for Employment Research displayed a chart in mid-December at his annual jobs forecast for Grand Rapids. It was from the U.S. Bureau of Economic Analysis and indicated that North American car and light-truck sales will total 14.3 million units in 2012. The University of Michigan is forecasting that number will reach 15 million in 2013 and 15.6 million in 2014, added Erickcek. (Remember: It was about 9 million in 2009.)

The financial crisis at the start of the recession ultimately led to a complete reversal of the easy money for borrowers in America. But Zawacki said he wonders if perhaps the low interest rates for home mortgages and auto loans might be “getting right back in the same old problem again.”

“Are we starting all over again? There was some discussion about General Motors — are they on a path to bankruptcy next year? That was in Fortune magazine this summer,” he said.

And on top of that, there’s “Obamacare,” he said. “We don’t even know how much that is going to cost.”

This year was “a very scary year for investors,” according to Mitch Stapley, chief investment officer at Fifth Third Asset Management. Stapley, who lives in West Michigan, has been featured on Bloomberg, CNN and NBC for his insights into the market, and he has just released Fifth Third’s economic predictions for 2013.

The financial crisis in Europe has continued “at a slow boil,” wrote Stapley. “China is slowing — maybe headed for a soft landing, maybe a hard landing — but China today is definitely not the global growth engine that it has been over the past decade.”

Stapley said the U.S. economy is slowing and “totters on the edge of a massive fiscal cliff — the latest manifestation of the political dysfunction currently plaguing this country.”

But despite that, an investor who avoided the stock market this year would have made a “very costly mistake,” said Stapley.

Overall, he holds a “glass half-full” viewpoint of 2013, but here are some of his specific predictions:

  • The confluence of the fiscal cliff, business investment slowdown and effects of Hurricane Sandy will leave GDP growth close to flat early in 2013, with the economy building “slow momentum as the year unfolds.”
  • The S&P 500 companies will work on the stalled top-line growth that appeared in the second half of 2012, with acquisitions and new revenue streams funded with “excess cash on balance sheets.” Fifth Third feels most of the action will be more centered overseas than in the U.S., especially for larger companies.
  • The Federal Reserve will keep the U.S. bond market heavily sedated.
  • Stocks will rollercoaster but finish modestly higher by the end of 2013.
  • Implementation of the Affordable Care Act and its 30 million newly insured people will generate gains in pharmaceuticals, health care providers and equipment companies in 2013, while the other health care segments — biotechnology, health care technology and life sciences — already went higher in 2012.
  • Not much new in Europe and its problems. Same-old, same-old.
  • Commodity prices will remain volatile but under downward pressure.
  • The U.S. housing market made an impressive recovery in 2012, according to Stapley, and the numbers will continue to improve in 2013, but probably will not be as good as 2012.
  • U.S. exports will remain hot.

Stapley wraps up with four key questions in 2013, one of them being: “Will cash come off the sidelines and boost the economy?”

Well, Mr. Banker, will it?

Right and wrong

An NBC Chicago blog written by political journalist Edward McClelland, “How Michigan’s Right-to-Work Law Could be Good for Chicago,” scathingly predicts that RTW will push even more college graduates out of Michigan and into Chicago.

“However, a right-to-work law in our neighbor across the lake may help Chicago — or at least continue a trend that has been to our city’s benefit. For the last 20 years, Chicago has been draining the brains out of the rest of the Midwest. Fifty percent of Michigan college graduates leave the state immediately after graduation and their number one destination is Chicago. The right-to-work law in Michigan was an acknowledgement that the state now has no choice but to become a low-skill, low-wage haven.”

Harsh words, indeed.

The article goes on to point to Gov. Rick Snyder’s use of Indiana as rationale for his changing support for RTW, and further points out that Indiana grads are also escaping their home state for Chicago, saying that, just as money and education are becoming more concentrated among fewer individuals, they are also becoming more concentrated in fewer cities.

RTW will not be a fix-all for Michigan’s economy, he predicts, and, in any case, there is much more work to be done to attract “more and better” jobs to Michigan.

Big 13

So what does Illinois — and Chicago, in particular — do to attract job-seekers and recent college grads? A trip down Rush Street or to any of the city’s alcohol enclaves provides an answer: sports bars.

But not just run-of-the-mill, flat-screen laden, photo-filled sports bars. These places have themes. As in, college themes. As in, bars dedicated to just about every university in the Big Ten, where all the talent draining from Midwestern states into the heart of the Windy City can feel right at home.

Chicagoans — and some ex-pats — laugh about it with their friends throughout the Midwest.

One estimate pegged the number of Michigan State University-themed bars in Chicago as “at least 13.”

We’re not sure there are 13 MSU-themed watering holes in East Lansing!

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