Business Outlook Slides Slightly

GRAND RAPIDS — Coming off of a dim outlook from last month’s data and moving straight to slightly negative, the West Michigan business community looks to be facing more trouble while trying to crawl out of the economic downturn.

According to Brian Long, CPM with the National Association of Purchasing Management Greater Grand Rapids Inc. (NAPMGGR), data collected in the third and fourth weeks of October reports a slightly negative look at the Greater Grand Rapids economy.

“In the major sectors, the new orders index of business improvement declined to -4 from a +3, the production index sank to -21 from -4,” said Long.

“The activity in the purchasing offices continued sliding to -12 from -3. It was also no surprise that we had a big drop in the index of employment, which slid to – 23 from -7.

“In short, the economy in the Greater Grand Rapids area has slipped since our last report. And just like our last report, there is still no sign that things are about to get better.”

Looking at individual industries, Long said the news in the steel furniture industry continues to be grim. Although there is still no end in site, the smaller firms seem to be weathering the storm better than the larger ones.

He added that the automotive parts producers, which turned mixed last month, remained just as mixed this month. Just as last month, both the capital equipment manufacturers and the industrial distributors remained widely mixed in performance.

In short, Long noted, within each industrial group, this month’s report shows some firms up and others sharply down. On the average, however, the trend for the month is to the down side.

Nationally, similar patterns have emerged. In a statement released at the beginning of the month from the Institute for Supply Management, the index of new orders flipped back to a -1, down from a +7. Production edged from even to +9. The overall index fell to 48.5 from 49.5

“Overall, these numbers tell us that the national economy is fading. Just how much of this weakness was caused by the dockworkers’ strike is difficult to determine,” said Long. “All of this means that we will have to watch these numbers very closely in the coming months.”

On the international scene, Long said it is an overall feeling of uncertainty that has maintained business pessimism at its highest level in 20 years. When coupled with more terrorist threats, it has caused the business community to curtail or postpone the purchase of new capital equipment, hire new people or take any kind of long-term risk.

Long also is confident that the stock market will recover; however, the route back to the market highs of 2000 will probably take many years, he said.

“First, there is no firm evidence that the market has actually hit bottom. Another terrorist attack could take another 20 percent off stock values in one sweep,” he said.

“Second, the foreign speculators are gone. Since our market was the glamour market of the 1990s, it attracted investment from around the world where other stock markets were fairly stagnant. Third, the market has become increasingly market earnings driven and the earnings for many of the glamour firms as well as other industrial firms continues to look weak.”

On the optimistic side, the stock market is now showing signs that it is oversold. Furthermore, Long noted, with interest rates so low, money managers are increasingly being forced to place long-term pension money into quality stocks that will hopefully go up in value considerably before they are redeemed in 20 years or so.

Overall, he said, this means that a slow recovery in the stock market should probably resume some time after the first of the year, providing that there isn’t another recession.

“The economy is still waiting for some kind of good news. Unfortunately, most of the news has been pessimistic,” Long said. “As a result, the odds of sliding into another recession are increasing significantly, despite the best efforts of the Federal Reserve.”           

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