Grand Rapids economy following slow, steady pace


    Still good, but less robust. That’s the latest word on the greater Grand Rapids industrial economy, according to data collected in the last two weeks of October. New orders, our closely-watched index of business improvement, remained positive but eased to +15 from +33. The production index eased to +19 from +36. Activity in the purchasing offices backtracked to +9 from +28. The index of employment also moderated, coming in at +21, down from +44. Overall, this month’s report tells us that the greater Grand Rapids economy is still growing, but the pace has slowed and it looks like this trend may continue for a few more months.

    Looking at individual industries, the office furniture business turned in a mixed performance. The industry is blessed with the revival of the industrial market but cursed by the prevailing slow rate of overall economic growth. Automotive parts suppliers are still doing well, getting help from the stabilization of auto sales. Just as last month, capital equipment firms were all over charts, with some very busy but others still stuck in the recession. Industrial distributors were mixed, but depending on the lines of merchandise they are selling, this month’s bias was to the down side. The respondent comments remain cautiously optimistic, although many firms are frustrated about the uncertainties the future still holds.

    At the national level, the results are more positive. The Nov. 1 press release from the Institute for Supply Management, our parent organization, reported that new orders came in at +11, up from +4. In a similar move, ISM’s production index rose to +23 from +16. In a more modest move, the index of employment edged up to +16 from +12. Unlike last month, these statistics indicate that the pace of the recovery in the U.S. industrial economy is picking up. ISM’s overall index rose to 56.9, up from 54.4. All of this bodes well for the future economy and decreases the probability of a double dip to the recession.

    At the international level, the J.P. Morgan Global Manufacturing report released Nov. 1 followed the same pattern reported by ISM. JPM’s worldwide index of new orders bounced to 53.7, up nicely from 51.4. In addition to the U.S., the pace improved in Eurozone, India, China and the U.K. Upticks in production also were noted in Turkey, Denmark and Poland. For some unknown reason, Japan turned in the weakest report since June 2009. The international employment index edged up to 52.9 from 52.3. JPM’s overall index of manufacturing rose to 53.7, up from 52.5. The survey author has turned modestly bullish, and noted that “the inventory correction and the consequent drag on manufacturing output are beginning to lose intensity.”

    This month’s biggest economic news came from the government’s preliminary estimate of 2.0 percent growth of GDP for the third quarter of 2010. This comes after the latest revision of 1.7 percent for the second quarter. The current press release noted, “Less than 2 percent GDP growth is considered too sluggish to prompt businesses to start hiring again.” Although our local statistics do not necessarily agree with this, it is still true that GDP growth of 2.0 percent should be considered sluggish.

    Other economic news included the decline of Michigan’s seasonally adjusted unemployment rate to 13.0 from 13.1. Whereas any decline is good news, this month’s reduction underscores the slow pace of Michigan’s recovery.

    Turning to inflation, local statistics continue to be fairly reasonable. For the Southwestern Michigan survey, this month’s index of prices remained unchanged at +26. For Greater Grand Rapids, the index tapered off to +10, down from +20. However, at the national level, ISM’s index remained fairly high at +44. Respondents to all three surveys are still frustrated by attempts by manufacturers to post price increases.  Concerns have also been raised over key commodities that are edging up in price, such as aluminum, copper, stainless steel, nickel, PVC, salt, corn and paper.

    For the auto industry, October was a good month: Sales were up 10 percent. Sales at Ford grew 15 percent; GM posted a more modest 4 percent gain. Chrysler grew 37 percent; and Honda advanced 16 percent. Of the major firms, only Toyota was down, but only by 4 percent. Jeff Schuster from J.D. Powers noted, “Despite the drag from high unemployment and lower incentive levels, improvement in the automotive market continues in October, suggesting that consumers are discounting the negative sentiment.” 

    Finally, after what seems like months of robocalls, television ads, direct mail fliers and door-to-door solicitations, the November election is over. Many promises have been made, but new legislation is obviously months away and its impact is even more months away. In short, we cannot expect overnight miracles, although we may see some badly needed changes in attitudes and cooperation. Furthermore, the world economy is becoming more and more interdependent. It is not just coincidence that an uptick or downtick in our local report is reflected in the ISM national report and J.P. Morgan international report. As we saw a few months ago, the possibility of Greece defaulting on its sovereign debt sent shock waves through the financial system of the entire world. Hence, the impact that any one congressman or senator may have is clearly limited, although collectively, their impact may be very significant.

    In summary, economic growth continues to be constrained by consumer and business confidence. At the national level, everyone will be waiting to see what comes out of the “lame duck” session of Congress. As yet, it is not even clear what the tax policy will be for 2011. Despite some limited improvement in the sales prices for residential real estate, both residential and commercial construction economic sectors will continue to restrain economic growth at the national and local levels. Economic growth may remain sluggish, but improved automotive sales could help lift Michigan out of the economic doldrums. We also are anxiously awaiting the plans for economic growth that will be proposed from Michigan’s incoming leadership.

    Brian G. Long, CPM, is director, Supply Chain Management Research, Seidman College of Business, Grand Valley State University. 

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