Local Economys Outlook Is Better

December 31, 2003
| By Katy Rent |
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GRAND RAPIDS — According to data collected in the third and fourth weeks of November by the National Association of Purchasing Management, the greater Grand Rapids economy is still up, but not by much.

New orders — NAPM’s index of business improvement — remained positive but backed down to 10 from 41. The October index was very high by historical standards, so it was not surprising to see the index come down to a lower level, said NAPM’s Brian Long, CPM.

However, the production index remained virtually unchanged at 30, down from 33, and the index of employment retreated to 4 from 23. Activity in the purchasing offices, as measured by NAPM’s index of purchases, retreated to 16 from 31, numbers Long said were typical for this time of year.

“Unfortunately, all of this proves that the zigzag pattern is still plaguing us,” said Long. “However, given that all of our numbers are still positive, at least we are now zigzagging on the positive side of the ledger.”

Looking at the individual industries, it was the auto parts producers that failed to report very much growth for November. Just as in October, some firms reported significantly better business conditions, while others were still hoping that Santa would bring some new orders before the Grinch arrives with layoff notices, said Long.

Based on recent news, however, it’s obvious the Grinch already has visited many of the steel furniture manufacturers. But some steel furniture firms appear to have turned the corner. Industrial distributors remained widely mixed, just as they have in the past.

At the national level, the Institute for Supply Management, NAPM’s parent organization, depicted a much stronger national economy. ISM reported that new orders advanced to 33 from 22. In a more modest move, production edged up to 29 from 21 and ISM’s overall index came in at 62.8, up from 57. For the non-manufacturing survey, the index edged down to 60.1 from 64.7.

Looking ahead at the new year, Long said that based on the recent data, 2004 will start out on a firm footing.

Long gave his outlook on several economic factors, including automotive, industrial inflation, local industrial inflation, consumer inflation, interest rates, unemployment, retail sales, real estate and the overall local economy. Here are his thoughts on each factor:

  • Automotive: “As the economy gains strength and consumer confidence improves, it is safe to conclude that 2004 will be a good year for automotive. Most will agree that predictions of 18.5 million vehicles being sold may be a bit too optimistic, but it is still fair to conclude that 2004 will be one of the best years ever.”

  • Industrial inflation: “Because of the worldwide economic upturn, many of the major commodities will escalate in price. Copper, nickel, lead, plastic resins and steel are among the commodities that will probably continue to rise in price for most of the year. ISM’s index of prices rose in the Dec. 1 report to 29, the highest the index has been in 18 months. In the past an index above 50 has coincided with tightening measures from the Federal Reserve.”

  • Local industrial inflation: “The index of prices for the greater Grand Rapids survey came in at 1, which is down from the 6 we reported last month. In the southwestern Michigan survey, the index came in at 10, up from 4. Both of these indexes are at or near our historical averages. Overall, local industrial inflation remains tame.”

  • Consumer inflation: “Because of strong competition, consumer inflation for many products will probably be held in check. However, housing, transportation and other key components will probably edge up. There is no end in sight to the escalation in health care costs, which will continue to rise at an alarming rate.”

  • Interest rates: “Based on the most recent information from the Federal Reserve, it appears that the Fed does not want to rock the boat until it is absolutely necessary. The Fed will leave interest rates alone, at least for a while. Mortgage rates will probably edge up in January based on increased demand and the Fed will probably begin intermittent quarter-point escalations beginning about April or May. Refinancing, which has been about half of the home loan business for many months, should drop to a small percentage of all financing by the end of 2004.”

  • Unemployment: “Unemployment will gradually edge down throughout the year, probably ending 2004 at about 5.3 percent. It will take many years before we return to 4 percent. Locally, we should see some significant improvement about March.”

  • Retail sales: “The Christmas season will probably be one of the best in several years, but retailers at the ‘high’ end may see waning activity later in the year as credit card interest rates go up and the windfall from home mortgage refinancing starts to taper off.”

  • Real estate: “Improved consumer confidence should continue to attract new customers for real estate. Interest rates are still low enough to encourage plenty of activity. However, high-priced home sales will probably sell much more slowly.”

  • Overall local economy: “Our local economy will continue to show modest growth throughout the year, although it remains to be seen if we are now out of the zigzag pattern that has driven us crazy for the past three years. In the event of another domestic terrorist attack, all bets are off, and reassessment will be in order.”

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