Expect slow growth for the foreseeable future
Slow growth. That’s the ongoing word on the West Michigan economy, according to the data collected for November.
As the year winds down, our index of business improvement, which we call New Orders, remained virtually unchanged at +16, up from +15. The Production index remained unchanged at +13. Fortunately, the Employment index resumed its pattern of modest growth and rose to +9 from +0. Industrial inflation, which we report as our index of Prices, remains in check at +10.
For the 34th time since the recovery began, it can be concluded that slow growth for the West Michigan economy continues, and probably will for the foreseeable future.
As we enter the third month of collecting our new “outlook” statistics, the numbers are starting to bounce around a little as attitudes and perceptions shift. For November, the Short Term Business Outlook index rose significantly to +29 from +17. The Long Term Business Outlook index advanced to +53 from +46. The survey respondents have concerns about the short-term economic prospects, but are still positive about the longer term.
Reviewing our local industrial groups, positive auto sales are still driving new quoting opportunities for local auto parts suppliers, and optimism is still growing over the 2014 model year. The office furniture firms posted one of the best months of the year. For industrial distributors, the reports were mixed, but the bias is to the up side. The reports from capital equipment firms could best be described as stable: holding their own in a market that still has snug margins. Overall, we have stability among our various industrial groups, and for most, at least a reasonable level of sustainable profitability.
At the national level, the Dec. 2 report from the Institute for Supply Management, our parent organization, indicated New Orders for ISM’s manufacturing index strengthened to +18, up from +12. In a similar move, the Production index advanced to +19 from +14. ISM’s anemic Employment index remained virtually unchanged at +6, up from +5. Industrial inflation remains very modest at +5, down from +11.
ISM’s overall manufacturing index rose to 57.4, up for 56.4. The survey author described the results as “the best report in 2013.” For ISM, this report constitutes the 54th month of economic expansion.
Another view of the U.S. economy comes from Markit.com, the British economic forecasting firm, which also surveys U.S. purchasing managers to assess business conditions. For November, Markit’s composite manufacturing Purchasing Managers Index came in at 54.7, up substantially from the 51.8 recorded in October. Much of the improvement came from a jump from 50.6 to 57.4 in Markit’s index of Output, similar to our index of Production. The rise in the index of New Orders from 52.7 to 56.2 also helped fuel the advance. The survey author also observed that the U.S. has recently seen a surge in the production of capital goods, which is now growing at the fastest rate since the financial crisis.
At the international level, the JP Morgan global manufacturing report for November was termed the best since February 2011. JPM’s index of New Orders rose to 54.8 from 53.3. The index of Output also posted a substantial gain, rising to 55.3 from 52.9.
In addition to the U.S., countries like Germany, Ireland, Italy, Austria and the Netherlands reported positive economic results for November. Japan reported the best Production numbers since 2009. Some countries like Russia and China are now flat, but France and Spain remain dampened by the ongoing fiscal crunch. At an index of 49.2, Greece is still barely below the breakeven point of 50, but there is now hope some kind of a bottom has been reached and a slow recovery may begin over the next few months. However, more than 20 percent of the economy has been lost, and the road to recovery will be long.
The most recent economic news has been mixed, largely because of the slow growth we have been observing for many months. On Nov. 7, the Bureau of Labor Statistics announced that the preliminary estimate of growth for the third quarter came in at 2.8 percent, up from the 2.5 percent recorded for the second quarter of 2013. According to many analysts, this slow growth is just barely enough to exceed the demographic expansion of the work force and can only chip away at our still-too-high unemployment. Furthermore, the BLS cautions that at least part of the gain came from rebuilding inventories, not from new forms of sustainable demand.
Historically, it can be observed that it takes a GDP growth rate of about 4 percent to put a significant dent in unemployment. In addition to the “official” U.S. unemployment rate of 7.3 percent, BLS reported a U-6 unemployment rate of 13.4 percent, which is marginally lower than the 16.7 percent rate reported in the peak of the recession. The U-6 statistic, which has been collected but not reported for years, includes discouraged workers who are no longer actively seeking employment, as well as underutilized workers such as engineers bagging groceries for minimum wage.
Other economic news this month came in the form of an MSU Extension study on municipal fiscal responsibility in Michigan. Some of our West Michigan municipalities came out very good in the analysis of unfunded pension liabilities. For instance, the average unfunded liability per resident in the city of Kentwood is currently a scant $64. In Portage, the funding actually exceeds the liability by an average of $23 per resident. At a deficit of $812 per resident, Wyoming did not fare quite as well. For the cities of Grand Rapids and Kalamazoo, the numbers were much less favorable at $1,729 and $1,805, respectively.
From a longer term economic perspective, the problem is simple: The higher the liabilities, the more taxes will have to be raised, pensions will have to be cut and services will have to be reduced. At this time, even a level of $1,805 is fixable if the economy of the city is growing and fiscal restraint is implemented. However, Flint’s shortfall of $10,857 and Saginaw’s $6,050 per person liabilities are not easily fixable because their economies are clearly declining.
An interesting study was released this month from NerdWallet, an Internet-based personal finance consumer advocacy group. The study of employment labor markets, which they call the “The Ten Best Places in Michigan for Job Seekers,” names three West Michigan cities. Kentwood came in at No. 5, followed by No. 8 Wyoming and No. 9 Portage. Although the study is based on statistical analysis of things like the local GDP estimates, help wanted listings and current unemployment rates, it still offers an optimistic view of these three local economies.
As we wrap up 2013, our slow growth continues and will probably continue into the New Year. Brisk auto sales continue to fuel Michigan’s recovery, and prospects for sustained sales for the 2014 model year are good. Our analysis continues to recognize there is a limit to what further expansion we can expect from traditional industries like office furniture and automotive, and that now is the time to begin cultivating other industries for expansion.
Brian G. Long, Ph.D., is director of supply chain management research at Seidman College of Business, Grand Valley State University.