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Forecast predicts favorable economy
Comerica update sees more jobs, less unemployment and higher housing prices.
Comerica’s latest economic update for the Central West Michigan area paints a rosy picture, with a forecast of continued increases in payroll jobs, reduction in unemployment and a rise in housing prices through 2016.
Comerica is forecasting the number of payroll jobs will increase from 1.01 million in 2015 to 1.03 million in 2016 on an annual basis, resulting in an additional 17,000 jobs. The unemployment rate is anticipated to drop from an average of 4.1 percent in 2015 to 3.7 percent in 2016, and total personal income is expected to have a 5.5 percent annual positive change from 2015 to 2016.
Comerica defines Central West Michigan as the Battle Creek, Grand Rapids-Wyoming, Jackson, Kalamazoo-Portage and Lansing-East Lansing metropolitan statistical areas.
Brian Long, director of supply management research at Grand Valley State University, said while there is no doubt there has been some really good successes on the west side of the state, he finds the economic forecast a bit optimistic.
“The problem with the capitalistic system is that it is subject to a business cycle, and generally we haven’t been able to go more than nine to 10 years without some kind of recession,” said Long. “We are seven years into this recovery now. … That by itself doesn’t mean we are about to go into a recession, but the numbers they are projecting assumes identically the same upward path that we have had.”
Comerica’s economic update also indicated job growth in 2015 throughout the region remained “strong despite recent relocations to Mexico” and the Grand Rapids area alone created nearly 20,000 jobs. As a result, the unemployment rate has dropped to around 2.8 percent, which can pose challenges in terms of job creation outpacing the labor force and finding employees, according to the report.
Unemployment also has dropped in Ottawa County, to 2.6 percent, and in Allegan County to 3.2 percent, which reflects how well the region is doing, according to Long.
“We are looking at places where the unemployment rate locally has gotten down to extremely low levels compared to where we were just a few years ago,” said Long. “That really has to be something that we have to take a look at and say that is really doing great.”
The U.S. Bureau of Labor Statistics indicates employment grew nearly 8.6 percent in leisure and hospitality, 15.8 percent in mining, logging and construction, and 6.1 percent in manufacturing for the Grand Rapids-Wyoming area during 2015.
Long suggested the three major cyclical industries of automotive, office furniture and aerospace also are contributing to the low unemployment in the region.
“We had a record year of selling automobiles and that reflects back to our local auto parts producers,” said Long. “We are at an all-time high as far as the office furniture business is concerned, and we are aware Boeing last year built more passenger aircrafts than any time in their history, and all of our local suppliers feed into all three of these respective industries.”
In terms of housing and development, Comerica anticipates housing starts to have an annual rate of 5,237, with nearly 3,112 single-family units and 2,124 multi-family units for 2016 in the region.
Although that housing start total is higher than the 5,175 in 2015, the Grand Rapids Association of Realtors reported the average per-month inventory last year was at “the tightest in at least a decade,” at 2.5 months, according to Comerica. The average sale price for homes in 2015 surpassed the 2006 peak of approximately $163,900 by more than $10,000.
While some housing prices have recovered, Long suggested they have not come back for the entire county, which has resulted in a “patchy” real estate market.
“There are areas where the housing prices are considerably ahead of where we were in 2006 before the recession began, but then you have pockets buried in the older sections of downtown Grand Rapids and other cities (where) the housing prices fell and never recovered again,” said Long. “So that becomes a factor.”
Long-term, through 2018, Comerica projects: The job growth in Central West Michigan will level out at below average; home price growth will slow as more units are developed; housing will start to normalize; and unemployment will approach historical lows by the first quarter 2018.
Since the automotive, aerospace and office furniture industries carry “plenty of momentum going into the new year,” Long indicated the biggest obstacles for the regional economy are actually outside the state.
“The rest of the country is slowing down as far as the economy is concerned — particularly in what I call the ‘extracting’ industries,” said Long. “We have had a huge drop in most of our major commodities.”
He cited declines in the petroleum and steel industries, and closures of copper and iron ore mines in the western United States as potential factors contributing to a slowing economy.
Comerica’s update for the entire country indicated the national economy is “buffeted by global financial market volatility, weak global demand, the negative impact of low commodity prices on key industries and the strong dollar.”
Although real Gross Domestic Product is forecast to drop from a 2.4 percent growth rate in 2015 to 1.8 percent in 2016, the unemployment rate is anticipated to improve from 5.3 percent in 2015 to 4.8 percent in 2016.