Economic outlook improves
The regional economy in the Grand Rapids area has been bruised significantly by the recession of 2001, the restructuring in manufacturing and the Great Recession of 2007-09. However, there are signs that the worst is over and the economic situation should improve slowly throughout 2010.
Let us consider a broad range of economic indicators that seem to indicate that this is indeed the case.
Grand Rapids MSA has lost 31,900 jobs in manufacturing in the last nine years. On the other hand, it has gained 3,600 jobs in education and 13,900 jobs in the health sector. Consequently, 55 percent of the job loss in manufacturing has been recouped by education and health sectors. Now, the manufacturing job loss has stabilized and the overall picture is likely to improve.
In our annual survey last year, the projected change in employment for 2009 for the private sector was a decline of almost 1 percent (the average reduction is -0.94 percent). The actual decline in employment in West Michigan for the last year has been quite close to last year’s expectation. Our survey for 2010 had 247 respondents. For 2010, private employment is projected at 0.14 percent without outliers. Outliers are defined as values beyond one standard deviation. However, with outliers, the projected growth in employment is 0.74 percent. The actual employment growth is likely to be approximately half of 1 percent.
In our survey, 36 percent of the respondents indicated they will hire workers in 2010. Almost all of them stated that they would hire permanent workers. Hiring of temporary workers is also going up. The overall employment situation should begin to consolidate in 2010 and improve significantly in 2011.
For overall nominal sales, the picture is similar. Sales projections made by respondents for last year was an average of -0.54 percent. This is not surprising given that the economy was deep in a recession last year. This year, there is some improvement in sales. Sales in the private sector are projected to grow at about three quarters of 1 percent (0.77 percent).
Exports out of West Michigan have always being a bright spot in spite of tough times. Expected growth in exports generally averaged higher than 5 percent in the late 1990s. Last year, exports were expected to grow at 6.14 percent. Our survey indicates that exports continue to show a robust growth; the expected growth for 2010 is higher at an average of 8.68 percent. Some of the export growth will be caused by the low value of the dollar and the resumed high growth rates in Asia. Since the expected growth of exports is based on a much smaller sample of only 45 respondents, it should be viewed with caution.
The overall picture is best captured by the Confidence Index, which we have tracked for the last 15 years. Respondents use a scale from zero percent (no confidence) to 100 percent (complete confidence). In good economic times, this index has been in the mid-80s. Since the 2001 recession, it has been in the 60s and high 50s. However, the confidence index in November 2008 was 48.04 percent. For the first time in 15 years, the index had slipped below the 50 percent benchmark. In November 2009, the index was 48.89 percent, only slightly higher than the last year. But it is projected to be higher, at 50.78 percent, for 2010. For the first time in two years, the confidence index has risen above the 50 percent benchmark.
All these indicators signal that the worst is over and the long consolidation process will begin this year.
Hari Singh is a professor of economics in the Seidman School of Business at Grand Valley State University.