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Several looming factors signal economic caution

March 15, 2013
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Think the heart of the economy in West Michigan and the nation is beating stronger? Economist Brian Long sees signs of a positive growth, but cautions it’s premature to break out the party hats.

On the plus side, Grand Rapids’ gross domestic product is up 2.3 percent, truck shipments are on the rise, U.S. nonfinancial domestic corporate profits rose to more than $9 trillion in 2012, and factory orders for nondefense capital goods, excluding aircraft, reached $60 billion, according to Long, director of supply management research at Seidman College of Business at Grand Valley State University. Long spoke March 12 at an Institute for Supply Management Greater Grand Rapids Affiliate-sponsored forum held at GVSU’s DeVos Center.

What’s more,auto sales are inching upward and consumer confidence is bolstered, said Long.

The regional labor market in West Michigan has seen an uptick in employment, but at a very slow pace since the Great Recession. For 2012, employment was projected to grow at an average of 1.5 to 2 percent. Actual employment growth was much faster.

“It appears the slow growth we’ve hoped for has continued,” Long said. “The smaller companies are holding us back (with employment). So, too, is a skill gap. There were 100,000 jobs in Michigan that didn’t have applicants to fill (them).”

It’s still too early to predict how much of a factor Michigan’s newly minted Right to Work law will play in its economic and employment health, Long added.

“Seventy percent of companies will not consider looking at a state that’s not Right to Work,” he said. “Right now, there’s a flood of inquiries. Unions will have to prove their worth. If they don’t, their members will not stick around.”

Courtroom challenges that will determine if the Right to Work law is constitutional will translate into many corporations adopting a wait-and-see stance before making a final decision to expand or locate in the Mitten State, said Long.

“It’s a three- to five-year process,” he said. “Some of these companies want to make sure it’s a positive for the state of Michigan.”

While Michigan and the nation have shrugged off some of the Great Recession’s economic doldrums, the U.S. is not out of the woods yet.

The financial situation in Europe remains one of the greatest threats to the world economy, as well as to the national, state and local economies, according to Long. Greece continues to be the largest concern. Over the last half of 2012, money streamed out of the Greek banks “at an alarming rate.” Many Greeks continue to believe raising taxes on the rich will solve their economic woes, but the wealthy are moving their money out of the country.

Barring the Eurozone’s complete collapse, however, Long said to expect slow growth to continue in West Michigan for 2013.

“The good thing about the situation is things are starting to stabilize in Europe — that is, money is starting to stay in the country.”

Another major uncertainty remains with the implementation of the Affordable Care Act, which Long termed “the new unfunded entitlement.” Obamacare, as it’s become known, requires new regulations and new taxes on businesses, and reaction to the new legislation is difficult to assess.

Long said some dates to remember are March 27, which is when the continuing resolution to fund the federal government ends and the government is scheduled to shut down, as well as May 18, when the debt ceiling agreement expires.

“With Washington, you just don’t know how it’s going to unfold and how this game of chicken is going to turn out this time,” said Long. “The problem with kicking the can down the road is eventually you run out of road.”

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