Growth Years Ahead For Region

December 17, 2004
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GRAND RAPIDS — With positive economic indicators both nationally and locally, the "perfect storm" that has held much of the greater Grand Rapids area in its grasp may be loosening.

The recession — one of the shortest by historical standards — is now three years past, the GDP is finally catching up with output per hour of labor, there is a turnaround in job growth, and businesses are again investing in new equipment and structures.

Meanwhile, the furniture market is rebounding, automobile sales are stable and service employment is making a comeback, all of which are good signs for West Michigan.

Unfortunately, as the economy continues to recover, a number of factors are likely to slow the pace of growth in West Michigan.

"In short, 2005 and 2006 are going to be growth years," said George A. Erickcek of The W.E. Upjohn Institute for Employment Research. "But ultimately for everyone in this room it is going to be disappointing."

Erickcek made his eighth annual trip to Grand Rapids last week for the 2005 and 2006 Economic Outlook for the Greater Grand Rapids Area at the Amway Grand Plaza Hotel, sponsored by The Right Place Inc. and presented in partnership with The Employers' Association.

"There was a perfect storm that hit the Grand Rapids area in the past few years," he said. "Now this recession, that most of us feel like we're still in, is over, and by historical standards it was actually very, very short."

Nationally, the indicators are mixed, Erickcek said. Innovation and productivity are driving factors, but increases in productivity continue to stall job growth. The trade gap is getting wider and wider, but is made up entirely of goods, as the service sector is experiencing a trade surplus.

The weakness of the dollar is bad news for companies with suppliers overseas, but good news for exporters and domestic suppliers.

Likewise, the office furniture industry, traditionally the staple of the West Michigan economy, is emitting mixed signals.

Business and earning reports are promising, while consolidations are bringing jobs back to West Michigan.

On the flip side, office construction has yet to rebound nationally, with a seasonally adjusted average of less than $32 billion in new office construction in 2004 compared to nearly $60 billion in 2001. The number of office employees in the United States is on the rise again, but only slowly inching toward the over 28 million working in traditional office-occupying sectors in 2001.

"All these people are going to need desks and chairs," Erickcek said. "Unfortunately, there is lot left over (from 2001)."

Even though unused "shadow space" and rising vacancy rates also are working to slow that down, Erickcek said that domestic office furniture production and consumption are expected to steadily increase this year and next.

However, U.S. producers will continue to lose market share, from 84.5 percent in 2003 to 83.9 percent in 2005 — a 12 percent loss since 1996. In addition, the Midwest has accounted for 19,000 of the 25,000 lost jobs in that sector since 1994, with Michigan losing 14.4 percent of its furniture jobs in a one-year period.

"The perfect storm hit in Michigan in terms of personal income for the furniture industry," Erickcek said. "But now forecasts are positive, and what's great is we are seeing more and more manufacturers bringing jobs back to Michigan."

Looking at the automobile industry, sales of cars and light trucks are expected to stay strong at 16.8 million units, compared to 16.6 million in 2004, continuing a streak of robust, yet flat, sales uninterrupted since 2000.

"The good news is this is really boring," Erickcek said. "The bad news is this is really boring. As we know, increases in productivity means automakers can reach that challenge with less and less people. We'll likely continue to see layoffs in 2005 and 2006."

Even worse: Michigan has lost its crown as the automobile production center of the world.

"Luckily, that distinction now belongs to the province of Ottawa and not somewhere like Texas," Erickcek said. "In West Michigan we don't make automobiles; we make automobile parts. That's right next door, so we can still get parts there."

Overall, Erickcek's job outlook sees a changing Grand Rapids labor force.

Unemployment rates are higher than those of the nation, with the bulk of the unemployment absorbed by manufacturing. Meanwhile, high quality of life continues to push the population upward, with the majority of that in the lower classes — there has been a 15 percent increase in households earning less than $35,000, a 12 percent decrease in those earning over $100,000, and little change for those in between.

Income in the Grand Rapids area has declined 9.1 percent since 2000.

Surprisingly, compared to its peers across the country, Grand Rapids has not lost any jobs in the service sector since the end of the recession. The biggest gains within Kent County have been in the service occupations of administrative services, educational services and health.

"I think it's time that the service industry stops taking a backseat role and starts to become a driving force — more like a kid that keeps grabbing onto the wheel," Erickcek said. "This really could be a significant source of growth."

In total, West Michigan should see some job growth in the next two years. There will be slight increases in goods-producing jobs, significant increases in service-producing jobs, and with a continued loss in government jobs, including education.

Erickcek said he was on target for 2004 predictions, correctly calling for stagnant national job growth, losses in goods-producing sectors, gains in the service industry, and losses in government. He said he underestimated the 2004 job losses in the goods-producing sectors.    

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