Strategist: region’s economy still ‘healthy and growing’
Presenter at Huntington Bank forecast event says stock market’s recent volatility not a good predictor of recession.
According to Huntington Bank analysts, West Michigan will continue benefiting this year from a synchronized global expansion that doesn’t appear to be slowing down.
On Feb. 7, the Columbus, Ohio-based bank held its 2018 Economic Outlook and Market Overview breakfast at the JW Marriott in downtown Grand Rapids to discuss its global, national and regional forecast for this year.
John Augustine, chief investment officer for Huntington’s private banking business, presented at the event and took audience questions.
Augustine began his remarks by acknowledging the recent stock market volatility, including the largest single-day Dow Jones Industrial Average point drop in U.S. history (-1,175) on Feb. 5.
Many experts are saying the stock sell-off was triggered by a combination of concern over the strong economy and rising inflation — which could cause the Fed to raise interest rates sooner than expected — and electronic trading algorithm glitches.
Typically, investors turn to bonds when stocks look too risky, but Augustine said the stock sell-off was met by a “yawn” from bond traders.
The market leveled off fairly soon after the swing and bonds didn’t heat up, Augustine said.
“That tells us this is not a permanent shift in the market,” he said.
Augustine expects the Dow Jones to hover above 25,000 points this year.
He said investors should understand what these types of swings indicate.
“Now we’re in a scenario where good economic news will make markets react negatively as they worry about inflation and interest rates,” he said, noting that doesn’t mean the economy in bad shape, but rather the opposite.
Augustine forecasts the global GDP will soar more than 3.5 percent in 2018 as growth accelerates in Europe, Japan, China and the U.S.
In the U.S., the projected GDP growth rate has been revised upward to 2.8 percent from Huntington’s initial 2018 projection of 2.6 percent.
Among his predictions specific to West Michigan, Augustine referred to 2018 as “the year of the Midwest economy.”
“We see a good year for the Great Lakes region, which is closely aligned with the auto industry, agriculture, exports and transportation,” he said in his presentation. “These areas could see relief after several challenging years, buoyed by tax reform incentives.”
He told the Business Journal in an interview following the presentation that this state’s export market looks especially healthy.
“We would say West Michigan did a wonderful job turning itself from auto dependency into export business. What we’re hearing from export companies is their business is up from the last six to eight months, and they continue to grow,” he said. “They’re healthy and growing.”
John Irwin, West Michigan region president at Huntington, said after the event that food deflation should be ending soon, which will help drive farmers’ income up.
“For our agricultural community, it’s so important for commodity prices to go up,” he said. “We like to see lower prices in groceries, but on the other end, it has a negative impact on the farmers.”
Augustine added the region’s restaurant industry has benefited from low commodity costs and increased traffic.
In all sectors, but particularly in manufacturing, low unemployment and the skilled labor shortage continues to put pressure on employers, Irwin and Augustine said.
“Opportunity is off the charts now, but the single biggest problem is labor quality,” Augustine said. “This is a nationwide issue. We as managers have to spend 20 to 25 percent of our time recruiting employees.”
Because of the low unemployment rate (3.4 percent in the Grand Rapids-Wyoming Metropolitan Statistical Area as of the December jobs report) and competition for workers, average hourly earnings in Grand Rapids rose to $24.40 per hour in 2017, compared to $20.97 in 2016, according to data from the U.S. Bureau of Labor Statistics and FactSet.
While the Grand Rapids wage rate is 8.75 percent below the national average hourly wage of $26.74, Michigan still ranks among the top 10 states in the U.S. for cost of living and housing affordability.
Augustine noted Grand Rapids also has a more diversified economy compared to places like Austin, Texas, which is heavily skewed toward technology professions, and Orlando, Florida, which relies on tourism.
“In the Grand Rapids region, it’s a consistency of growth,” he said. “One area is not dominating. To get a successful economy like we have now, it takes some coordination and consistency, and we’re seeing that. We don’t see a lot of weakness in this market.”
Irwin said employers looking to draw and retain talent in this region will need to communicate West Michigan’s advantages, especially to the younger demographic.
“People who grew up in West Michigan, they don’t leave, or they leave and come back,” he said. “We have folks who want to be here, and we need to attract them. The 20-somethings leave and come back in their 30s, but we need the 20-somethings now.”
Augustine and Irwin also said they believe the bull market can be strengthened by the recent Republican tax overhaul, given how much money it puts back into corporate budgets.
“How we use those advantages determines how long this growth will last,” Augustine said.