Economic growth in West Michigan eased to a slower pace in November, according to data collected during the last two weeks of the month. Our index of New Orders remained positive at +16, but the rate of expansion was well below the +26 and +27 for the previous two months.
In a similar move, the Production index came in at +12, a slower rate of increase than the +23 and +29 reported for September and October. Because of labor problems in West Coast ports, the Lead Times index edged up to +16 from +8. The Employment index is still expanding, but this month’s report of +16 is well below the +34 of two months ago. Our index of the Long Term Business Outlook rose to +50 from +43.
Looking at individual industry groups, the office furniture business continues to see stronger sales. Capital equipment firms generally came in strong, but two were hit by a considerable drop in new business for 2015. The same scenario came from industrial distributors, several of which reported brisk business but others blamed seasonal conditions for the slower pace. Any firm related to aerospace is holding its own. Auto parts producers generally remain strong, but several have noted the first downtick in business in several months.
At the national level, the Dec. 1 report from ISM, our parent organization, came in slightly stronger than last month. New Orders edged up to +23 from +20, and Production rose to +23 from +21. ISM’s Employment index eased to +5 from +7. The overall PMI remained strong but eased modestly to 58.7 from 59.0. In confirmation, the U.S. PMI from Markit.com, the international British consulting firm, also eased modestly to 54.8, down from 55.9. However, the survey author notes “the pace of growth has slowed for three successive months, taking it down to the slowest pace since January.”
According to the JP Morgan Global Manufacturing PMI released Dec. 1, the growth of New Orders for the world index slowed to a 16-month low. The rate of expansion for the global PMI slowed to 51.8, a 14-month low. The U.S. economy remains strong, but the stagnation in Europe continues to dominate the international economic news. The Eurozone PMI report released Dec. 1 from Markit.com continues to slide toward recession, although this month’s number is still marginally positive at 50.1.
For this month, plenty of attention has been devoted to the slump in oil prices. Crude oil prices are down, and gasoline is selling for almost a dollar per gallon less than six months ago. Lower gasoline prices raise consumer morale and encourage more purchases. However, other commodities are also falling in price. Iron ore is about half the price of just one year ago. Copper, lead, zinc, nickel and palladium are all 10 to 15 percent lower in price than a few months ago. The fear is that widespread declines in commodity prices have preceded past recessions.
On the brighter side, economic conditions have improved considerably throughout 2014. The official U.S. unemployment rate has declined to a seasonally adjusted rate of 5.8 percent, down from 7.3 percent reported one year ago. What about the real unemployment rate, i.e., the rate that includes all of the underemployed people and the workers who have given up? Here again the news is good. This broader measure now stands at 11.1 percent, down from last month’s 11.3 percent and considerably lower than the 13.2 percent rate a year ago.
Looking at local unemployment numbers, the results are similar. For Kent County, the current unemployment rate (unadjusted) has fallen to 4 percent from 4.5 percent. Of all 83 counties in Michigan, Kent County now has the lowest rate. For Michigan, the unadjusted rate now stands at 6.4 percent, considerably below the 8.2 percent rate for the same time in 2013.
As promised, the Bureau of Labor Statistics posted a GDP update third quarter of 2014. The “advance estimate” of Gross Domestic Product came in at +3.5 percent, and many forecasters expected the numbers reported Nov. 25 to be about the same. However, we were surprised with an upward revision to 3.9 percent.
Assuming the fourth quarter remains strong, we should expect the GDP for 2014 to be one of the best in several years. Because of Black Friday discounting and a reduction in credit requirements, the November auto sales figures were again very positive. Chrysler gained 20 percent, GM 6 percent, Honda 5 percent and Toyota 3 percent. Ford sales slipped 2 percent because the firm is still shifting production to new aluminum truck bodies. Strong auto sales keep local auto parts suppliers operating at full capacity.
In other economic news, existing home sales edged up and are near the level of 2007. The National Home Builders Association reported the index of builder confidence has risen to a nine-year high. Median household income is starting to edge higher for the first time in six years. UDSA reports the number of people enrolled in the Supplemental Nutritional Assistance Program has been declining for the past two years, even though 46.2 million people are still enrolled. However, both the U-M index of Consumer Sentiment and the Conference Board posted minor declines.
In summary, it is again worth noting that a flat or stagnant European economy will not draw the U.S. into another recession unless the drop is substantial. A recent survey of internal economists pegs the chances of a U.S. recession at only 14 percent, although a similar survey conducted today would probably be less favorable. Otherwise, the worldwide slowdown will have a dampening effect on our local and national economy, and probably means that 2015 will be another year of slow growth.
Brian Long, Ph.D., is director of supply chain management research at Seidman College of Business, Grand Valley State University.