The Right Place made up for lost time toward its strategic plan goals in 2021, and an analyst predicted a solid 2022 at the organization’s 25th annual Economic Outlook presentation.
West Michigan economic development agency The Right Place on Thursday, Dec. 9, hosted its 2022 Economic Outlook webinar.
The event featured a year-in-review and state-of-the-region presentation by The Right Place President and CEO Randy Thelen, as well as an in-depth economic analysis and forecast for 2022-23 by Don Grimes, University of Michigan regional economic specialist.
In general, the regional economy is expected to grow in 2022, slowing a little after the second quarter of the year. 2022 will see a decline in the inflation rate, although at a slow pace. Interest rates will go up. Unemployment rates will decline, reaching 2019 levels. Overall, for the state and region, a solid 2022 is expected, Grimes said.
Right Place accomplishments
Thelen provided an update on progress toward the organization’s three-year strategic plan goals. As it winds down the second year of the plan, which runs from 2020-22, the organization is on track to exceed all its goals after underperforming on its metrics in 2020 due to pandemic challenges. The full strategic plan is at bit.ly/RPstrategicplan.
In 2021, the organization’s work resulted in 1,541 new and retained jobs, $184 million in new and retained payroll, and $286 million in new capital investment.
Since the start of the plan in 2020, the organization’s work resulted in 2,494 new and retained jobs against a three-year goal of 3,400, now 74% completed; $127 million in new and retained payroll against a three-year goal of $184 million, now 69% completed; and $397 million in new capital investment against a three-year goal of $500 million, now 79% completed.
The organization met with 422 businesses in 2021. Overall, business leaders reported strong confidence in the local economy, and 79% reported increasing sales, 63% reported plans to expand, 59% reported recruiting challenges, 52% are planning to increase investment in training, and 94% said the region’s business competitiveness was “very good” or “good.”
“Now, two years into our three-year cycle, we’re ahead of plan because of the great performance of the team and frankly, the great performance of our regional economy over the past year,” Thelen said in an interview with the Business Journal after the presentation.
“We had a lot of pent-up demand, and decisions that were put off in 2020 took place this year, which was great, and then some companies started to recognize that when things are cloudy and the economy is not certain, it actually is an interesting time to invest, because you can then separate, distinguish, differentiate from your competitors and come out of this cloudy economy a bit faster. And we saw a number of businesses do just that.”
Thelen touted The Right Place’s work facilitating West Michigan expansions and investments in 2021, all of which the Business Journal previously reported on, including:
- Cleveland, Ohio, tech company MCPc’s $2.8 million investment in Madison Square, where it will open a new facility in mid-2022 that is expected to bring 75 to 100 jobs to the area
- Autocam Medical breaking ground on a $60 million, three-year expansion of its global headquarters and manufacturing footprint in Kentwood
- Aerospace and defense manufacturer L3Harris spending $2.58 million to expand in Cascade Township in a move expected to create 50 jobs
- BAMF Health building its new radiopharmacy and theranostics clinic headquarters on Medical Mile in Grand Rapids
- Sparta-based Speedrack planning a $65 million expansion in Walker, bringing over 160 jobs to the area
The Right Place also assisted Comstock Park-based electronic and autonomous vehicle solutions provider Gen3 Defense & Aerospace and Grand Rapids-based pump and gas compressor manufacturer Blackmer with expansions totaling $15.5 million that are expected to create 319 jobs.
With all the growth and new jobs coming to the region, historically low labor force participation rates present a big challenge, Thelen said. Three out of five companies in the region reported struggling to fill jobs as the labor force participation rate fell 3.2 percentage points, from 66% in February 2020 to 62.8% in September 2021. The region had nearly 8,000 more unemployed workers in September 2021 than it did in February 2020, Thelen said, with 65,000 people not currently in the workforce.
At the same time, companies in the region posted an average of 51,330 job openings per month in 2021.
“We know there are reasons why people are not running back into work, but as companies make their decisions about where to grow, where to invest … over all of 2022, frankly, we’re going to need to find ways to invite those folks back into the workforce and engage them,” Thelen said. “The workforce is there; we’ve got to find a way to get them back.”
He said when it comes to real estate, office vacancies climbed by 1.26 percentage points from Q2 2020 to Q2 2021 — not the dramatic change many expected as remote work boomed. Industrial vacancies, however, are at a worrisome 1.69%, or about 2 million square feet of vacancy, which “in the grand scheme of things, that’s zero,” Thelen said.
He said The Right Place in 2022 will prioritize helping companies attain site readiness to increase the industrial vacancy rate so the region can become more competitive to companies looking to invest here.
Other focus areas for The Right Place as it continues its strategic plan will be talent and diversity, regional technology strategy, Industry 4.0/5.0 readiness and growth, and placemaking, especially considering Michigan’s aging workforce and declining population of people under age 18.
“We recognize placemaking and enhancing quality of life is critical to our region’s long-term economic success, especially in a remote work or work-from-home environment where people can and are choosing to live anywhere,” Thelen said.
“… Downtown Grand Rapids has done incredible things over the past 20 years and really has become a great urban market. We need to continue to see that throughout the region, so that if somebody wants to come to West Michigan and enjoy an urban lifestyle, they can do so. If they want to come and enjoy a rural or suburban lifestyle, they can do so. We need to be able to show to newcomers that we have everything that they’re looking for. We might not be Chicago, where you have five of everything, but certainly in greater Grand Rapids, we should have one of everything.”
Economic outlook summary
Grimes provided a 2022-23 economic forecast.
“The economic outlook and the current economic conditions are good. That may seem a bit insensitive when we’ve got over 1,000 people a day dying from COVID in the United States, and we’ve got record caseloads in Michigan and hospitals are full of patients. I’m very cognizant of the fact that, for a lot of people, things are not good, but I’m here to talk about the economy, and the economy, in general, is in pretty good shape right now,” Grimes said.
He added for the general population, as well as for The Federal Reserve and policymakers, inflation is one of today’s top concerns. Two of the major drivers are supply chain shortages and the price of oil, the latter of which is easing.
To manage inflation, the Fed is expected to raise short-term interest rates, which had been held near zero during the pandemic to stimulate the economy, gradually up to about 1.3% between now and 2023. In addition, conventional mortgage interest rates are expected to go up from about 3.2% today to about 4% by the end of 2023.
“If you haven’t refinanced, and you’re thinking about it, this would be a great time to do it,” Grimes said.
Housing starts are expected to pick back up to about 1.7 million units in late 2022 as the shortage of construction materials eases, Grimes said, but this number is far below demand, and so housing shortages will continue. U.S. housing price inflation is expected to be at about 10% in 2022 and easing to 4% in 2023, he said.
Total U.S. light vehicle sales are expected to increase from about 15 million this year to about 17.5 million in 2022-23. The Detroit share of those auto sales in 2022-23 is only expected to be about 6.5 million annually.
West Michigan’s share of the state’s payroll employment growth continues to outpace its share of the state’s population, and while the eight-county region’s real personal income growth has matched the state’s since 2007-08, the average real wage of West Michiganders lags behind the statewide average, at $54,000 per year versus about $59,000 per year.
Grimes’ outlook also included the following takeaways:
- U.S. gross domestic product in the third quarter of this year was 1.4% higher than the pre-pandemic peak in the fourth quarter of 2019.
- The unemployment rate in the U.S. (4.2% in November) is less than 1 percentage point higher than the pre-pandemic low. (The unemployment rate measures the share of workers in the labor force who do not currently have a job but are actively looking for work, according to The Economic Policy Institute.)
- In Michigan, the unemployment rate (6.1% in October due to new methodology but actually lower) is a little over 2 percentage points higher than the pre-pandemic low.
- A qualifier is that the pre-pandemic unemployment rate in the U.S. was the lowest since 1969. In fact, the U.S. unemployment rate today is lower than it was in any month between March 1970 and February 1999 and for any month between March 2001 and August 2017. Therefore, the U.S. unemployment rate today is very low by historical standards. The unemployment rate in Michigan also is low by historical standards, but monthly levels below the current value are not as rare.
- The U.S. jobless rate is expected to fall to 3.5% by 2023 and the Michigan rate to about 4.5% by 2023.
- Real disposable personal income per capita in the U.S. in October was 1.7% higher than it was before the pandemic in February 2020.
- The average net worth of American households, adjusted for inflation, increased 17.5% from the fourth quarter of 2019 to the second quarter of 2021. The percentage increase in the net worth of the poorest 50% of households was greater than for the richest 1% of households, although in dollar terms, the increase in net worth was much less for poorer households.
- Where the economy is falling short is in the number of jobs and the number of people in the labor force. In the U.S., there are 2.6% fewer jobs today than there were in February 2020, and in Michigan, there are 5.1% fewer jobs than in February 2020. The unemployment rate would be much higher except for the fact many of the formerly employed workers have dropped out of the labor force, which is down by 1.5% in the U.S. and 3.4% in Michigan since February 2020.
- The imbalance between demand, which is higher than before the pandemic, and supply, especially labor supply, which is lower than it was before the pandemic, is generating price increases. Consumer prices in the U.S. were 6.2% higher in October than a year earlier and 9.8% higher in November, and prices in Michigan, measured by the Detroit Consumer Price Index, are 5.5% higher in October, the latest month for which numbers were available at press time. Price inflation is expected to fall to about 2.5% annually in 2022 and 2023.