Ottawa Allegan Slow Recovery

January 13, 2003
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HOLLAND — A rebound in employment growth for the Holland area will be “painfully slow” during 2003, as manufacturers rely on productivity gains to handle improving business volumes resulting from an economic recovery, according to a new economic outlook.

George Erickcek, senior regional analyst for the Kalamazoo-based Upjohn Institute for Employment Research, sees the recovery coming in similar fashion to that of 1993 following the recession of the early 1990s. The recovery will occur slowly during the first half of the year, then pick up in the latter months, Erickcek said.

“Things are going to get better, but it’s going to be painfully slow,” Erickcek said following an address last week to the Holland Area Chamber of Commerce where he offered his annual economic forecast for Ottawa and Allegan counties. “If it’s a repeat of 1993, it’s going to be a recovery that will disappoint.”

Businesses have already begun to see improved conditions, he said, although they are holding off hiring new employees or calling back laid-off workers in lieu of improved productivity.

“We’re doing more with our plants but we’re not hiring more workers because we’re doing more with the space we have,” Erickcek said.

After two years of declining employment levels in the two counties — including a negative 0.4 percent in 2002 — Erickcek sees employment growth of 0.4 percent during 2003 for Ottawa and Allegan counties and 1.3 percent in 2004.

“We’re on the mend,” he said, although the local employment picture remains “very lackluster.”

The expected growth in local employment won’t occur evenly across all sectors. The service sector in Allegan and Ottawa counties, after experiencing a 0.2 percent decline, will grow at the largest rate, 1.2 percent, in 2003 and by 1.8 percent in 2004, Erickcek forecasts.

He predicts that government employment, after a strong 2.2 percent gain in 2002, will grow 0.5 percent this year and 1.0 percent in 2004.

On the downside, employment in the goods-producing sector in the Holland area, a region with a manufacturing work force that’s twice the national average, is forecast to decline 0.8 percent this year after decreasing 2.2 percent in 2002. Goods-producing employment will then rise 0.8 percent in 2004, Erickcek forecast.

The 2002 decline in manufacturing employment, driven by deep job cuts in the ailing office furniture industry, which trimmed 3,100 jobs in the Grand Rapids-Holland-Muskegon region from October 2001 to October 2002, would have been far deeper had it not been for the area’s “remarkable” manufacturing strength and diversity, Erickcek said.

At the same time, the area’s heavy reliance on manufacturing makes it more difficult to bring in and develop service-sector employment.

“Can a manufacturing powerhouse generate an innovative, professional services environment?” Erickcek said. Studies indicate it is a “difficult but not impossible” task, he said.

Some of the office furniture jobs lost in Ottawa and Allegan counties were made up by employment gains in others segments, most notably automotive suppliers that benefited from automakers’ third best year ever in 2002, with the assembly of 16.8 million light-vehicle units.

Those gains may not necessarily occur in 2003, as industry outlooks see automotive production in North America falling to between 16.1 million and 16.3 million units.

In offering his outlook for the year, Erickcek — as with any economist — tempered his remarks with a reminder that predicting economic performance for a small area is a difficult prospect.

Given that, he believes he wasn’t too far off a year ago when he forecast an overall 0.4 percent increase for the Holland area in 2002, even though the region actually saw a 0.4 percent decline. He correctly predicted a decline in goods-producing employment, although the decrease was larger than forecast — 2.3 percent, compared to the 1.6 percent falloff offered in his outlook a year ago.

A “totally wrong” 1.8 percent growth rate forecast for service-producing employment turned into a 0.2 percent decline, Erickcek said. He blames the error on incorrectly anticipating that the area service industries “had a life of their own.”

Those declines were offset somewhat by the unexpected 2.4 percent growth in government employment, which he had forecast to fall 0.4 percent.

Erickcek will offer his annual outlook for Muskegon County when he addresses the Muskegon Area Chamber of Commerce on Jan. 24.

The local economy also faces the same pros and cons going forward as the national economy.

On the plus side, corporate profits are rising, the dollar is losing strength and interest rates are low. Worries include falling consumer confidence, doubt about international markets and falling consumer confidence, Erickcek said.

Nationally, the University of Michigan is forecasting a GDP of 2.5 percent for 2003, which compares to 2.3 percent in 2002, and 4 percent in 2004.  

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