Manufacturing growth accelerated in December, according to the Institute for Supply Management’s Purchasing Managers Index (PMI), but an economist who monitors West Michigan said the region is not recovering quite as quickly as the rest of the nation.

The ISM PMI rose to 60.7% in December, up from 57.5% in November. A reading of above 50 indicates expansion in the industry. This was the strongest growth in manufacturing since August 2018, the ISM December report said.

Manufacturing was flat in late 2019 and early 2020, and then contracted sharply in March through May as consumers stayed home, states implemented restrictions on economic activity and factories shut down temporarily. But the ISM index has been above 50% since June and was especially strong in December.

All five of the components used to calculate the overall PMI index rose in December, and all were above 50%. New orders were especially strong, rising to 67.9% from 65.1%, pointing to continued expansion in early 2021. Supplier deliveries increased to 67.6% from 61.7% over the month, while production rose to 64.8% from 60.8%. Employment rose to 51.5% from 48.4%, suggesting solid industry job gains in December; this is only the second time in the past 17 months that the employment indicator has been above 50%.

All six of the major manufacturing industries expanded in December: fabricated metals; computers and electronics; transportation equipment; chemicals; petroleum and coal; and food, beverages and tobacco. Sixteen of the 18 manufacturing industries covered reported growth over the months, with the biggest gains in apparel, furniture and wood products. Printing and nonmetallic mineral products reported contraction.

Manufacturing activity expanded in December despite coronavirus cases hitting record highs. Overall economic activity continues to improve, thanks to stimulus spending earlier in 2020, a continued strong housing market, excellent consumer balance sheets and extremely low interest rates. Manufacturing growth should continue in early 2021 with the new stimulus bill, the rollout of vaccines and very low customer inventories that will need to be rebuilt, according to an analysis by The PNC Financial Services Group.

However, Kurt Rankin, vice president and economist for PNC, said Grand Rapids’ manufacturing sector “was hit harder and has been slower to recover” than the industry overall.

“If you look at Grand Rapids’ manufacturing employment, it fell much more dramatically. At its peak, it was down almost 30% year over year as the pandemic hit in early 2020. Grand Rapids has seen recovery in manufacturing, which corresponds to the recovery in the ISM survey nationally, but it’s still more than 10% below (the area’s) manufacturing from this time last year. That number compares nationally with manufacturing being about 5% below the national number compared to last year,” he said.

Rankin said this was part of a natural slowdown in growth that occurred after Grand Rapids quickly outpaced other states in economic growth from 2015 to 2018, with unemployment at the “exceptionally low” rate of 2.8% prior to the pandemic.

But he expressed pessimism that manufacturing jobs will return to pre-COVID levels as automation proliferates and production facilities are able to become leaner than they previously were, similar to what happened during and after the Great Recession.

“Those businesses might survive. Revenues might come back. Profits might come back. But the number of jobs — which is really the only measure (we have) as far as it pertains to how Grand Rapids is doing economically — if jobs aren’t recreated, that’s not going to benefit the local economy in Grand Rapids because it’s not going to recreate incomes and allow those incomes to be spent back into the local economy,” Rankin said.

He said while the U.S. furniture industry saw among the biggest gains in December, its recovery may not as quickly extend to the commercial furniture sector that includes West Michigan’s office furniture giants, Herman Miller and Steelcase, as the commercial market will undergo “significant changes” to account for downsizing of real estate footprints as remote work continues in the near term and possibly the long term.

Rankin said with so many households dependent on manufacturing income, he believes additional stimulus dollars would jumpstart Grand Rapids’ economy, which tends to be supported by West Michigan residents, as opposed to the shopping meccas of other places like New York that draw in a steady stream of tourists and travelers from elsewhere pumping cash into the local economy.

“Grand Rapids is an example of a market that has a great deal of potential, but it’s going to have to depend on local confidence almost exclusively in order to achieve that potential from a consumer-oriented, household-oriented stimulus, as opposed to things like the PPP program keeping businesses open. That’s all well and good, but they’re going to need customers, especially in the services industry, in hospitality and retail,” he said.

The full ISM report for December is available online.