Each month MoodyOnTheMarket.com is privileged to receive an exclusive economic analysis from a West Michigan perspective, courtesy of Dr. Brian Long, Director of Supply Chain Management Research at Grand Valley State University.
The U.S. Economy.
Despite the seemingly endless problems of
supply chain disruptions, material shortages, rising prices, and
a new wave of COVID-19 concerns, the national economy
ended 2021 on a modestly positive note. The Institute for
Supply Management’s NEW ORDERS Index came in at +14,
virtually unchanged from November’s +13. However, ISM’s
PRODUCTION (a.k.a., Output) Index remained positive but
eased to +8 from +18. After statistical adjustments, ISM’s
composite index posted at 58.7, down from November’s +61.1.
Although the recent composite indices remain near their 38-
year high of 64.7 set nine months ago, the reports for each
passing month continue a modest retreat.
A similar view of the U.S. economy comes from IHS
Markit.com, the British international consulting firm. Their
seasonally adjusted U.S. Manufacturing Purchasing Managers’
Index posted at 57.7 in December, down from November’s
58.3. The good news from the current report is that the
“expectations” index for the economy going forward
strengthened to the highest level since November 2020. Most
of this new-found optimism stems from hopes of reduced
supply disruption and a greater ability to hire suitable workers.
Automotive.
Primarily because of the on-going chip shortage,
the auto industry finished the year on a sour note.
Some firms like Toyota have instituted a few work-arounds to
mitigate the chip shortage, although the problem is not likely to
be fully resolved until late in 2022. The January 4 edition of
Automotive News reported that year-over-year industry sales
for the 2021 fourth quarter slid 21.5 percent. For the Detroit
Three, the drop of 43.1 percent at GM was the most severe,
followed by Stellantis (Chrysler) shedding 17.5 percent, and
Ford losing 6.4 percent. For the other major brands, American
Honda skidded 21.5 percent, Toyota fell 28.2 percent, Nissan
eased 19.8 percent, and beleaguered Subaru dropped 31.0
percent. Elaine Buckberg, the chief economist for GM, further
commented:
“The key constraint for sales continues to be reduced
inventory levels as a result of the semiconductor shortage.
Those inventory levels are beginning to recover against a
backdrop of strong fundamental demand conditions, with
ample job openings, high household savings and low interest
rates. Consumers want to drive as much as before the
pandemic, based on recent high levels of vehicle usage. High
vehicle usage and deferred sales mean pent up demand for
new vehicles in the millions and building. That pent up
demand will support sales as vehicle supply improves.”
West Michigan Unemployment.
According to the press
release from the Department of Technology, Manufacturing,
and Budget, Michigan’s November (latest month available)
unemployment rate edged down to 5.9 percent. Locally, the
unemployment rates for most West Michigan counties
continue to improve and remain better than the rest of the
state. In ascending order, Ottawa County’s jobless rate fell to
3.5 percent, followed by Barry County at 3.6 percent, Kent
County at 3.7 percent, and Kalamazoo County at 4.9 percent.
With many firms still unable to fill all of their job openings, the
unemployment rate should continue to fall for at least the first
half of 2022. Rising wages will help to convince at least some of
the idle to rejoin the workforce.
Business and Consumer Confidence.
As of December 22, the
Conference Board’s Consumer Confidence Index now rests at
115.8, up from a revised 111.9 posted in November. In a similar
move, the University of Michigan Consumer Sentiment Index
for December 2021 rose to 70.6 from November’s 67.4.
Although many consumers are concerned about the new wave
of COVID-19, the strong Christmas sales season indicates that
consumer confidence should remain positive for the first part
of 2022.
Summary.
Although the new Omicron variant of COVID-19 is
causing numerous problems in the consumer economy, the
impact on the industrial economy has so far been much more
limited. The sanitation and safety measures many companies
instituted as manufacturing operations resumed many months
ago are still in place, and it now appears that the industrial
economy will continue on its present subdued rate of growth
for at least the first few months of 2022. However, the entire
logistic system will probably not return to normal for many
months. Many key industrial commodities will continue to be in
short supply and increasingly expensive. Because industrial
inventories are now higher than they have been since the
conviction of JIT became widespread 35 years ago, a major
“black swan” event, such as a war between Russia and Ukraine
could create another downturn if firms were to quit ordering
and draw down their inventories.
