Local economic forecast On recovery road

December 11, 2010
| By Pete Daly |
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This year’s annual regional economic and employment forecast hosted by The Right Place with Upjohn Institute Senior Regional Analyst George Erickcek was much more upbeat than the last two, with Erickcek predicting “we are on the road to recovery.”

However, he qualified that recovery as a “long and winding road.”

Erickcek said he believes total employment for the Grand Rapids MSA (Kent, Barry, Newaygo and Ionia counties) will increase by about 0.8 percent through 2011 and by about 1.1 percent through 2012. This year, the change in employment is predicted to end in an overall loss of about 0.6 percent of jobs, compared to 2009.

The services sector is predicted to grow jobs at the rate of 1.1 percent in 2011 and 1.4 percent in 2012, while goods-producing jobs will decrease by 0.2 percent next year and then increase by about 0.3 percent in 2012. Employment in the government sector is expected by Erickcek to fall by about 0.4 percent in 2011 and again in 2012.

This year is expected to end with a drop of jobs in goods-producing by about 3.2 percent. Erickcek noted, however, that while there actually is an increase underway in jobs in manufacturing, the goods-producing sector also includes construction — an industry still hurting. And construction is the reason the overall goods-producing jobs estimate for next year is still showing an expected loss.

Overall, employment in the Grand Rapids MSA has stabilized, with the office furniture industry forecast to have a better year in 2011, and the Grand Rapids Area Purchasing Managers Index now at a higher point than it was before 2007.

Erickcek’s predictions for 2010 employment made one year ago were “too pessimistic,” he said, although declines he predicted for the goods-producing and government sectors were right on the mark. What he was wrong about — hence, “too pessimistic” — was his call of a 1.1 percent decline in the service sector, which appears to be heading toward a year-end with no job loss or gain at all.

On a national scale, Erickcek said it is clear now that there will be no double-dip recession. However, he added, the recovery is going to be “painfully slow.” He expects employment growth will be relatively flat and, if current trends continue in the private sector, it will be mid-2016 before employment returns to the levels it was at before the recession began in December 2007.

Average length of unemployment now is about 34 weeks — “much higher than any other period on record,” said Erickcek.

Single-family housing starts on a national scale have “reached bottom, hopefully,” said Erickcek, but then he added that “sometimes, hope dies.” He explained that the housing market is still flat, with the financial markets “still in crisis,” and that tends to make the unemployment situation worse because people who have lost their jobs but can’t sell their homes decide to stay here and try to hang on. They are unable to move to other parts of the country where there may be employment for them.

The employment situation in Michigan has stabilized, he said — “something we haven’t seen for a long time.”

From the third quarter of 2009 to the third quarter of 2010, employment increased by about 6,000 jobs. Retail indicators are also up, and the University of Michigan is forecasting a positive outlook ahead.

Employment in the Michigan auto industry has finally stabilized, said Erickcek, adding that, in this case, “flat is good.” However, he added that a lot of workers in manufacturing now hold temporary jobs.

While the unemployment rate in Grand Rapids “remains stubbornly high” — averaging 11.4 percent from January through October this year, the employment situation is changing at a more favorable rate than in other Midwest cities to which Grand Rapids is commonly compared.

Erickcek devoted some time in his presentation to what he sees as a challenge to West Michigan: “The younger generation is less educated than earlier generations.” A little more than 25 percent of the age group 25-to-34 have a bachelor’s degree or higher, while that number is about 27 or 28 percent in the 35-to-44 age group.

Erickcek said he sees this trend as “somewhat disturbing,” because the better paying jobs — even jobs in factories — require education. The trend is similar for those holding associate degrees.

The challenge seems to be in completing a post-secondary education, he said, adding that the retention rate in U.S. colleges and universities, outside of the Ivy League, “is very low.”

“Something like this makes us pause,” said Erickcek, because it means the U.S. work force will not be prepared for competition in a global environment. He said research shows that it’s not just a West Michigan weakness, and not just a U.S. problem, either. It’s also a problem in Europe, particularly in Germany.

The percentage of people in the 25-to-34 age group who have completed post-secondary training is much higher in Japan, Korea and Canada than in the U.S., Germany, U.K., Finland and France.

Erickcek also spoke about previous research by the Upjohn Institute that showed a key strength in the West Michigan economy is the high level of expertise in industrial design, a trait born in the furniture industry of the region.

Birgit Klohs, president and CEO of The Right Place Inc., gave a brief report on that economic development organization’s results in 2010. The goal was to create or retain at least 1,000 jobs; the end result was almost 1,600 jobs created or retained. The goal to increase payroll by $35 million was exceeded by $22 million, and the $100 million goal for new capital investment was exceeded by $20 million.

Klohs said the announcement in April that ConAgra had acquired Elan Nutrition in Kentwood was a nerve-wracking event for The Right Place because there is always the possibility a new owner will move its newly acquired business out of state. But with support from The Right Place and the Kentwood community, ConAgra kept the plant here, investing $73 million in it and creating 205 new jobs.

Dematic Corp. was another success story. New owners in Germany already had other manufacturing facilities in Texas, and for the Grand Rapids plant, it “boiled down to here or elsewhere,” said Klohs, adding “We won.” That was a $10.9 million investment that is expected to bring a total of 500 new jobs to Grand Rapids.

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