Business confidence up across West Michigan region

January 21, 2012
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Grand Valley State University economics professor Hari Singh opened the 2012 West Michigan Economic and Commercial Real Estate Forecast last week with a slightly sheepish grin.

“I’m smiling because I’m in trouble,” he said to a packed room in DeVos Place.

Singh took the audience back to last year’s event when he reminded them that he said the nation’s Gross Domestic Product would grow by at least 3 percent and possibly as much as 4 percent in 2011. But, of course, that wasn’t the case. While the final number for 2011 likely won’t be in until March, Singh felt it would be somewhere around 1.6 percent.

Singh said the major reason for the low growth rate was that consumer debt continued to be too high in relation to household incomes, although the debt level did recede from its 2007 watermark of 133 percent. He said a sustainable debt-income ratio is less than 100 percent.

“Debt was so much higher than disposable income, and that put a drag on the GDP,” he said.

But consumer debt wasn’t the only factor. Singh said the ongoing regulatory uncertainty, a tsunami that disrupted the supply chain, higher oil prices, continuous concerns over financial problems in Europe, and bickering in Washington, D.C., also slowed the economy. “All that had a tipping point,” he said.

Singh also slightly overestimated last year’s employment gain. He thought there would be a 2 percent increase, and he said it’s more likely the figure is closer to 1.5 percent.

But Singh said there are indicators that show an economic recovery is gaining momentum. One is that initial unemployment claims have averaged 381,000 a week for the past four weeks, and he said any figure below 400,000 signals there is growth in the labor market.

Singh also predicted an average addition of about 200,000 jobs each month this year to the labor market, which would lower the unemployment rate. “By the end of this year, it will be somewhere around 8 percent,” he said.

As for growth in the GDP for 2012, he feels it will be from 2 to 3 percent. He said exports will be challenged due to slower growth in China and India and the recession in Europe. Consumer spending, which accounts for 70 percent of the GDP, will be a bit higher but not significantly so. Investment should also rise a bit, but federal and state fiscal policies will be a drain on the economy. Interest rates will remain low and another stimulus package would have a limited effect.

“The major factor is demand,” he said, adding that federal regulations aren’t a big factor. “When you go down the whole list, nothing is going to push (the GDP) up dramatically.”

Singh said the West Michigan economy is likely to mirror the nation’s and produce modest growth. The health sector, education, high-tech manufacturing and professional services will record gains this year and employment could rise by as much as 2 percent. In addition, he expects local exports to go up by as much as 7 percent.

But the factor that seemed to excite Singh the most was the confidence index, which measures business confidence. It is up in the region. He noted that when the area was robustly growing in the 1990s, the index was at 80 percent. Last November, that figure was 60 percent.

“The confidence index in 2008 and 2009 was below the 50 percent benchmark. Given this historical context, the rise to 60 percent is significant,” he said.

Singh also cited some caveats that could derail growth here and across the country. These include a potential economic meltdown in Europe, more escalation in the Middle East, most notably in Iran, less growth in China, and the actions taken by politicians in the nation’s capital during an election year. “Some shock might happen in a place you’ve never thought about,” said Singh. “But these are the usual suspects.”

The GVSU Seidman College of Business and Colliers International of West Michigan produced the annual forecast, which is in its 10th year.

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