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GR Economy Breaks Even
The business improvement index recovered modestly and rose to 2 from -2 and the production index edged up to 2 from -8. The employment index remained negative at -9 but the decline rate eased from the -16, reported last month.
Activity in the purchasing offices, as evidenced by the index of purchases remained stagnant at -10, only slightly better than last month’s -12.
“All in all, the gGreater Grand Rapids economy exhibits the characteristics of not going much of anywhere, up or down, at least as of this report,” said Brian Long, of the NAPM. “Given the events of the last (week), all of this could now be about to change.”
As for individual industries, little has changed since last month, Long said. The non-systems side of the steel furniture business continues to improve modestly, but the office systems are still not selling. For the automotive parts producers, the results are mixed.
Industrial distributors were down slightly and capital equipment firms continue to be widely mixed, with some firms posting increases and others reporting some of the worst business conditions ever, he added.
At the national level, the Industry for Supply Management, NAPM’s parent organization, reports a national economy that is very similar to the local economy.
ISM’s index of new orders dropped to 1 from 8 and in a similar move the production index slid to 0 from 10. Employment remained stagnant at 13, only slightly above the 15 reported last month. ISM’s composite index came in at 46.2, down from 50.5, and overall the national economy has remained flat.
While coalition troops captured Baghdad in a short amount of tiem, Long said most observers believe that there will be many months of military activity until total peace can be achieved, a reasonably stable government established and all of the troops brought back home.
“Without a doubt, there will be ups and downs along the road,” said Long. “However, the mood so far has been decidedly positive. Hence, this moment in time should mark the beginning of the economic improvement we have waited so long to achieve.”
Leading the good news, Long said, is the price of oil. Where the U.S. had flirted with $40 per barrel only a week ago, the current pricing is in the mid-$20s.
Long added that from an industrial buyer’s perspective, this means that the price of oil-related commodities such as chemicals and plastic resins will be falling immediately. In addition, he said that for inbound freight it will soon mean the end of fuel surcharges as the price of diesel fuel comes down.
Other commodities, such as copper and aluminum, that were propped up by the economic uncertainty may also edge lower, Long said.
However, he stated this does not mean the local economy will see a huge bounce in activity.
“Indeed, the initial bounce will be modest, and in no way reflect the excesses of the dot-com boom of the late 1990s,” said Long. “The current economic environment has been characterized by extreme business pessimism and businesses will slowly begin to open the purse strings for these things like new computers and replacement of other old equipment where budgets have been frozen.”
He added that new projects will be slow to receive funding until the evidence is substantial that business conditions are really improving. It will probably be late in the summer before very many new job postings pop up, Long said.
Long also believes that the only thing that could cause the Federal Reserve to consider cutting rates would be if something went wrong.
Regarding higher interest rates, Long said he believes the current drop on the price of oil along with the moderation of the prices of other commodities will probably mean the Fed will not need to take any action for at least the next two to three months and possibly longer.
“Next month’s report will be very important,” said Long. “With half the industrialized world glued to television sets at home and at work, business was not on a normal footing. The upcoming months should give us a clearer picture of where we are going from here.”