Guest Column

Economy marks a decade of slow and steady recovery

April 26, 2019
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West Michigan’s recovery from the Great Recession officially began exactly 10 years ago this month, and recovery still is proceeding at the same slow pace we have been observing since 2009.

According to the data collected in mid-March, New Orders, our index of business improvement, remained virtually unchanged at a modest 17, up from 16. The Production index remained positive but retreated to 5 from 16. The Purchases index also waned, from 16 to 4.

According to the April 1 report from the Institute for Supply Management, the national industrial economy posted another modest gain for March. New Orders, ISM’s index of business improvement, came in at 24, up nicely from last month’s 14. The Production index posted a more modest gain, rising to 16 from 12. ISM’s index of New Export Orders edged down to 3 from 6, and the ISM index of Imports backtracked to 2 from 11.

The British international consulting firm of IHS Markit offers a more pessimistic view of the U.S. economy. Market.com’s seasonally adjusted PMI for March dipped to 52.4, down from 53.0. The statistics were drawn down by a slower-than-expected factory output index, which contradicts the gain in the Production index collected by ISM. Markit.com’s measure of new orders remained modestly positive and the index of business confidence remained below the series trend but picked up from last month’s report.

Each month, JPMorgan compiles a Global Manufacturing index and economic report summarizing the purchasing managers’ reports from 43 nations. Because the February Caixin PMI for China index was slightly negative at 49.9, forecasters began speculating that China could be sliding into its first recession in over 30 years. When the March Caixin PMI posted a positive number of 50.8, the financial markets went wild.

New orders and production for March came in marginally higher, and the overall employment expanded for the first time in five years. If accurate, this is good news for both the Chinese and world economies. But on a cautionary note, Caixin is a government-controlled news service, and it is difficult to tell if the March report is real or tainted. The steady erosion that began 15 months ago has taken JPM’s overall international index down to 50.6. JPM’s index of New Orders remained flat at 50, and the output (or production) index eased modestly to 50.5 from 50.6. Employment remained steady at 51.1. The survey index of 43 nations is weighted by the size of each country’s GDP, so readings above the break-even point for the largest countries like the U.S., China, Brazil and the U.K. helped raise the average.

On the downside, the March IHS Markit PMI manufacturing index for the eurozone came in at 47.5, well below the break-even point of 50. The PMI for Germany, the largest country in the eurozone, fell to a seven-year low of 44.1. Germany does a lot of business with China, so the slowing Chinese economy has dampened exports. The 47.4 PMI for Italy and the 49.7 reading from France also helped to pull the overall eurozone average lower. For a surprise, the strongest PMI from the eurozone came from Greece at 54.7. The Netherlands and Ireland still are positive but not nearly as strong as they were a few months ago.

The March PMI data indicates the eurozone’s manufacturing sector is in its steepest downturn since the height of the region’s debt crisis in 2012. The survey is indicative of output falling at a quarterly rate of approximately 1% in March, suggesting the January rebound from one-off factors late last year seen in the latest official data is likely to prove short lived. Looking at the forward-looking indicators, downside risks have intensified, and the trend could clearly deteriorate further in the second quarter. New orders are falling at a rate not seen since 2012, and disappointing sales mean warehouses are filling with unsold stock. Expectations of output for the coming year also are the gloomiest since 2012.

According to the latest report from Michigan’s Department of Technology, Management and Budget, Michigan’s “headline” unemployment rate for February (the latest month available) remained unchanged at 4%, but well below the 4.4% reported for February a year earlier. Total statewide employment in February grew by over 24,000 workers compared to February 2018, and the number of people unemployed decreased by 23,000. By any measure, this growth is significant.

For the past three years, employers have complained about not being able to find enough qualified workers to hire — with no end in sight. If these jobs could be filled, Michigan’s unemployment would be even lower. Because of the proliferation of internet job sites, employers continue to have at least some luck drawing applicants from across the entire country. As a result, our March Employment index continues to remain double-digit positive at 15.

As predicted, auto sales are continuing to fall. According to the monthly report from Automotive News, sales for the industry dropped 3.3 percent in March. However, the industry’s Seasonally Adjusted Annualized Rate (SAAR) rose to 16.8 million units, up from 16.61 million.

West Michigan’s auto parts producers still are not feeling pinched because the decline in auto sales has been very orderly — so far. The March downtick for the Detroit Three was a little more significant. Sales for GM declined 8.3%, Fiat Chrysler eased by 7.3% and Ford lost 5.5%. Among the other major nameplates on the downside, Nissan/Mitsubishi declined 3.7%, Toyota shed 3.5% and Mazda plunged 19.1%. For a change, beleaguered VW jumped by 14%, American Honda gained 4.3% and Subaru added to last month’s winning streak with a 6% advance.

Our local index of Prices remains almost unchanged at 21, down from February’s 22. The March JPMorgan international pricing index eased to 53.5 from 53.6. However, ISM’s national index of Prices, which was slightly negative at minus-1 last month, bounced up to 9.

Business confidence rebounded in February after posting near-record lows in January. But March saw the optimism fade. The West Michigan index for the Short-Term Business Outlook for March, which asks local firms about the perception for the next three to six months, slipped to 8 from 22. The respondents offer the same responses for the waning short-term confidence, namely lack of resolution to the Chinese trade war, Brexit, softening world economy and retreating monthly auto sales.

Fortunately, the Long-Term Business Outlook, which queries the perception for the next three to five years, remained steady at 28, up marginally from February’s 27. Many firms appear to be settling in for a period of slower growth.

Of the major economies in the world, the U.S. economy remains the strongest, although there are some significant signs that growth is slowing. Right now, we know the world economy is slowing and that this slowdown ultimately will have at least some impact on our domestic economy. However, only about 13% of the U.S. GDP comes from goods and services sold to the rest of the world. By contrast, 41 percent of the German economy is based on exports. The 2017 tax cuts still may be having a positive impact on growth, but the question remains if these tax cuts will be enough wind at our back going forward to keep the U.S. economy positive beyond 2019.

Brian G. Long, Ph.D., is director of supply management research at Seidman College of Business, Grand Valley State University.

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