Auto sales will drive WM’s economy


Stronger. That’s the latest word on the West Michigan economy, according to data collected in the last two weeks of April. The upturn in February carried through into March, and April has turned out even better.

New Orders rose to +31 from +23, the highest the index has been since March 2011. The Production index also posted a nice gain to +34, up from +22. However, the Employment index backtracked to +22 from +26, probably because of the effect of softer sales and production numbers in late 2012. Unemployment is always a laggard, so we should see improvement in this index over the next few months.

Reviewing individual industrial groups, auto parts suppliers are still underwriting the strength of the Michigan and West Michigan economy. Auto sales remain strong, resulting in production schedules continuing to be revised upward. Local firms are selling to the transplant firms, which speaks well of the price and quality being offered by our local firms. Most of our local capital equipment firms say they are busy, but getting potential buyers to buy continues to be difficult. Most of the industrial distributors flattened out this month. Office furniture firms are stable at the current level, but some are hoping the improving economy will result in stronger sales as the year goes along. Some of the smaller office furniture firms are already seeing an uptick.

The national industrial economy is still exhibiting slow growth, according to the May 1 report from the Institute for Supply Management, our parent organization. ISM’s index of New Orders remained steady at +14, but the Production index rose modestly to +19 from +17. Another modest uptick came from the Employment index, which rose to +9, up from +8. When all of the statistics are added together and put into a seasonal adjustment formula, ISM’s overall index eased to 50.7 from 51.3. Since 50 is the break-even point for an up versus down industrial economy, some economists are starting to worry about a slowdown, especially since the index was as high as 54.2 just two months ago. Confirming the caution of a potential slowdown,, the British economic firm, posted a U.S. industrial survey index of 52.1, down significantly from last month’s 54.6, the sharpest decline since June 2010. Markit’s U.S. index of New Orders remained positive but fell sharply to 51.5 from 55.4. The survey author blamed weakness in the domestic market, even though the U.S. export index rose modestly. 

At the international level, the JP Morgan international manufacturing report is still positive, but far from robust because of ongoing problems of key European countries. JPM’s Global Manufacturing PMI edged slightly lower to 50.5 from 50.9. New Orders tapered modestly to 50.9 from 52.0. Japan, South Korea, Indonesia and Vietnam were the only nations to report a faster rate of improvement in operating conditions. Many of the Olive Belt countries in Europe continue to pull the statistics lower, and lower levels of employment were noted throughout Europe as well as China, Japan and Russia.

Some of this month’s good news came from the first quarter GDP report estimate. This number will be revised at least twice before it goes in the permanent file, but at 2.5 percent growth, 2013 clearly started the year better than the 0.4 percent growth for fourth quarter 2012. Stronger consumer spending and recovery of the housing industry are credited. However, the most recent IMF report still expects less than 2 percent growth for the U.S. for all of 2013.

Other good news for the month came from the auto industry. The year-over-year increase for April came in at 9 percent, considerably higher than expected. Most of the increase came from new models and large pickup trucks sold by Ford, Nissan, General Motors and Chrysler. After single-digit increases last month, Ford sales rose 18 percent, GM and Chrysler 11 percent, Nissan 23 percent and Honda 7 percent. Toyota lost 1 percent and Volkswagen fell 3 percent. The annualized sales rate, the SAAR, came in at 14.9 million, actually a bit of a disappointment to some analysts. However, for West Michigan, where many local auto parts suppliers are supporting pickup production, the news can only be regarded as positive.

As little as five years ago, most business reports paid little attention to the Case-Shiller report on housing prices that comes from Standard and Poor’s. In the report released April 30 for the month of February, home prices rose by 9.3 percent in February from a year ago, the largest gain in the 20-city index in nearly seven years. This report constitutes the latest sign that the U.S. housing market has rebounded All of this is good for improving the psychology of the housing market throughout the nation, but is not much of a statistical indicator for West Michigan. In fact, most of the increase came from markets that experienced some of the most severe declines over the past seven years, including Phoenix, Las Vegas and Atlanta. A better picture for the local markets can be seen at, which posts a home value index for various ZIP codes and neighborhoods. It is gratifying to see that values in ZIP codes such as 49504, 49009 and 49546 are now within 10 percent of their all-time highs. It is equally disconcerting to see that ZIP code areas like 49007 and 49507 are 35 percent below their highs of less than 10 years ago. 

The unemployment numbers for some regions in West Michigan are improving, as well. The state unemployment rate has fallen since its recent high of 14.8 percent in July 2009 to 8.8 percent in March. However, this is a long way from the 3.1 percent in August 1999. Almost without exception, our local statistics improved. Leading the way, the jobless rate in the Holland-Zeeland “High Productivity Corridor” fell to 2.8 percent, down from 3.1 percent. Good, but not as good as the 0.9 percent rate reported in October 2000. Of the 83 counties in Michigan, the lowest unemployment is often in Washtenaw County, which came in first at 5.1 percent. However, close behind are most of the counties in West Michigan, including Barry and Kent (5.9 percent; tied at No. 2), Ottawa (6.2 percent; No. 5) and Kalamazoo (6.3 percent; No. 7). It is worth repeating that all of the unemployment rates are still excessively high, but, for West Michigan, it is apparent that we are doing better than many of the other areas of the state and nation.

Finally, what does all of this mean? For West Michigan, our economy should remain positive as long as auto sales stay at present levels. However, auto sales that are too good can result in an industry bubble that could result in a correction at some future time. Because of the sovereign debt crisis, much of Europe will remain in a modest recession for most of 2013, limiting our exports to those markets. Although the crisis is far from over, there are at least some positive signs that progress in the sovereign debt crisis is being made. Because of all of the marginal statistics that are now unfolding for the U.S. economy, growth in the second quarter of 2013 will probably be less than 1 percent. Some forecasts call for the second quarter to be slightly negative. The slow growth pattern will resume in the second half of the year, unless there are some new surprises from North Korea, the Middle East or Washington.

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

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