West Michigan economy enjoys unexpected surge
The growth rate improves! That’s the latest word on the West Michigan economy, according to data collected in the last two weeks of March.
Our closely watched index of business improvement, which we call New Orders, bounced to +29, up from +13. The Production index posted a respectable gain, rising from +18 to +35. The Employment index rose to +25 from +19. Activity in the purchasing offices came in at +35, up from +16. Overall, this report is the best we have filed in about a year.
It was not surprising to find most of our industrial groups are seeing improvement. Despite auto sales showing signs of topping out, local auto parts producers continue to attract additional business. The office furniture business is starting to come out of its seasonally slow period, and the improvement in rental of new office space has helped to boost demand. As a group, the industrial distributors had a very good month. The only significant drag came from the capital equipment firms, several of which appear to have encountered a soft spot in the marketplace.
The April 1 report from the Institute for Supply Management, our parent organization, indicated stable business activity for March. ISM’s index of New Orders remained virtually unchanged at +12, up from +11. The Production index edged up to +14 from +11. Because of the newfound strength of the American dollar, New Export Orders declined to -5 from -3. ISM’s Employment slowed to +2, the lowest in over a year. ISM’s Backlog of Orders index flipped back to negative at -1, down from +3 in February.
Markit.com, the international consulting firm, reported a respectable upturn in the U.S. economy for March. Markit’s PMI rose to 55.7, up from 55.1.
At the international level, the JP Morgan report on global manufacturing remains flat. JPM’s index of New Orders declined a very modest 0.1 to 52.2. The Production index rose to 53.4 from 53.2. The overall index eased to 51.8 from 51.9. For individual countries, Canada continues to suffer from falling commodity prices, especially oil. The China PMI flipped back to negative, repeating the pattern of flat manufacturing conditions that have typified the Chinese reports for the past two years. However, China still shows no signs of sliding into a recession. Other laggard countries include Greece, France and Austria. By contrast, the PMI for key economies like Germany picked up to 52.8, Spain jumped to 54.3, and Ireland remained stable at 56.8. Mexico posted a PMI of 53.8, down slightly from February’s 54.4, but still well ahead of the 50.0 breakeven point for the diffusion index.
Even though the West Coast dock strike ended Feb. 23, several survey participants are still recovering from the massive disruption in the supply chain. If nothing else, the crisis called attention to the necessity for comprehensive management of the supply chain.
Auto sales continue to drive the Michigan economy, so the positive reports from Automotive News posted April 1 confirmed what our local parts suppliers have been saying. Although monthly sales for cars and light trucks were only up 0.5 percent this year over last, the annualized rate climbed to 17.1 million units. Given that sales for the Detroit nameplates retreated, it is good to hear some of our local firms are successfully developing new business with the Korean and Japanese transplant companies. By the numbers, sales at GM were down by 2.4 percent, and Ford lost 3.5 percent. Chrysler eked out a 1.7 percent gain, primarily driven by a 23.5 percent uptick at Jeep. Toyota gained 4.9 percent and Hyundai added 9.9 percent. Nissan slipped 2.7 percent, however, and Honda lost 5.3 percent, partially because of management’s refusal to participate in sharp discounting. Despite new promotion efforts, troubled Volkswagen still lost 18.2 percent.
Industrial deflation continues to be a concern. Our local index of Prices for March slipped a little further to -24, down from -22. The ISM index of Prices remained historically negative, but the rate of decline eased to -22 from -30. An orderly decline in the prices for key commodities is usually good for the buyers and can translate to higher profits, but when prices drop too far too fast, the long-term supply chain can be severely damaged.
In the case of the steel industry, prices are falling dramatically, and some mills are starting to shut down. The larger firms can weather the storm, but smaller firms will have a more difficult time.
For March, we recorded a considerable uptick in business optimism. Our Short Term Business Outlook index bounced to +32, up from February’s +18. The Long Term Business Outlook index posted a more modest gain, rising to +46 from +41. More importantly, comments from our participants were considerably more upbeat for March.
Our Employment index for March continues to show promise, rising to +25, up from +19. By contrast, the March national survey from ISM came in at +2, down from +4. As we have noted previously, West Michigan is faring much better than the rest of the state. In fact, of the 281,000 people on Michigan’s official February unemployment rolls, 11 percent reside in Detroit alone.
February’s unemployment statistics from the Michigan Department of Technology, Management and Budget, have all been modified by the Department of Commerce. Every 10 years, all of the boundary lines for the reporting units are re-evaluated and adjusted to reflect population shifts, name changes and new demographic factors, although most changes are minor. Among the unemployment rates in the 83 Michigan counties, Ottawa County has the second-lowest rate of 3.7 percent, followed by Kent County at 3.8 percent. Kalamazoo County took fourth place at 4.3 percent, and both Allegan and Barry counties posted a jobless rate of 4.7 percent. Because these data are not seasonally adjusted, all of these rates are higher than those reported for December, when seasonal employment is always higher than the rest of the year.
As we head through the spring season, the geopolitical problems in Libya, Yemen, the Ukraine and other places around the world are generally being pushed further back by the financial markets. Although the world economy remains stagnant, the recent numbers indicate there is still no sign of a world recession. A few key economies like Germany have returned to a slow growth mode and some countries like Spain are showing signs of improvement. Although most of the BRICS countries have flattened, the positive numbers from countries like the United States, Britain and Ireland are able to offset the weakness in other parts of the world — so far. As we head toward the summer months, the future looks fairly secure.
In West Michigan, we have shaken the winter blues. We can hope that the Greeks, Russians, Iranians, or ISIS don’t upset the current fragile order.
Brian G. Long, Ph.D., is director of supply chain management research at Seidman College of Business, Grand Valley State University.