Modest, steady economic growth continues in West Michigan, yet supply and personnel shortages are hindering normal business operations, according to Brian G. Long, director of Supply Management Research in the Seidman College of Business at Grand Valley State University. Long’s monthly analysis offers a closer analysis from a West Michigan perspective vs. the many national economic reports we see.
Long’s report for January showed positive numbers for employment, new orders and production, although Long called pending interest rate hikes and a looming situation in the Ukraine “the elephants in the room.”
“If a serious war breaks out and Russia invades Ukraine, all bets are off,” Long said. “Domestically, the greatest economic threat remains inflation. The next two or three reports may rise to a rate of 8 percent or so, and then begin a gradual decline for the rest of the year.”
Other highlights from Long’s report:
• Sales/new orders rose slightly in January to +18, signifying that new orders of raw materials or services will be made soon
• The index of employment was down in January to +13, from +17 in December; the most significant personnel shortages are in hospitality and service industries
• Production index was down slightly in January to +15, from +16 in December
Drilling down, here is a closer look at several areas of focus in Long’s report:
The West Michigan economy remains stable, although there are signs that the usual pent-up demand similar to most postwar recessions, is beginning to fade. However, this month’s numbers for West Michigan are still positive and relatively stable. Although our index of NEW ORDERS peaked nine months ago at +57, the January survey posted at a respectable reading of +18. The January PRODUCTION Index, which is now termed “output” by many economists, came in at +15, a notch ahead of our 25-year average of +14. At +13, January’s activity in the purchasing offices, reflected in our index of PURCHASES, confirms the reading for the other statistics in this month’s
survey. The survey participants continue to complain about supply shortages, rising prices, logistics bottlenecks, chip shortages, personnel shortages, and other headwind factors that inhibit the normal mode of business operations. At +54, little relief came from our January index of LEAD TIMES, which is well off the all-time high of +87 reported just four months ago. As a result, prices for SOME industrial goods are beginning to moderate.
Business and Consumer Confidence.
After hitting a nearterm high in November, the pessimistic news cycle as well as
the COVID-19 resurgence, the Conference Board said its
Consumer Confidence Index dropped to a reading of 109.3. This
was down significantly from last month’s report of 115.2
(1985=100) and well below the 128.9 reading posted a few
weeks ago. In a similar move, the University of Michigan
consumer sentiment for the U.S. edged lower to 67.2 in
January of 2022, the lowest the index has been since
November 2011. Locally, our survey’s SHORT-TERM BUSINESS
OUTLOOK Index for January, which asks local firms about the
business perception for the next three to six months, came in
at +21, up modestly from the single digit reports from a few
months ago. For the LONG-TERM BUSINESS OUTLOOK Index,
which queries the perception for the next three to five years,
the January report edged up to +35. At least some of the
optimism is coming from the hope that the logistics problems
and material shortages might be starting to resolve.
Summary.
As of this writing, the proverbial elephant in the
room remains the tense situation on the Ukrainian border. If a
serious war breaks out, all bets are off. Domestically, the
greatest economic threat remain inflation. The reports for the
next two or three reports may rise to a rate of eight percent or
so, and then begin a gradual decline for the rest of the year.
Although there is a general consensus among economists that
inflation will soon peak and then begin to fall, it is the RATE at
which this decline will take place that remains controversial.
The “transient” theorists believe (or hope) that inflation will
decline fairly rapidly once the peak is reached, while other
economists are anticipating a much slower decline. If the
decline turns out to be too slow, the Federal Reserve will
almost certainly be forced to raise interest rates. For the past
fifteen years or so, we have become addicted to low interest
rates. Hence, higher rates will obviously have a negative
economic impact.
Behind the Numbers
The Institute for Supply Management survey is a monthly survey of business conditions that includes 45 purchasing managers in the greater Grand Rapids area and 25 in Kalamazoo. The respondents are from the region’s major industrial manufacturers, distributors and industrial service organizations. It is patterned after a nationwide survey conducted by the Institute for Supply Management. Each month, the respondents are asked to rate eight factors as “same,” “up” or “down.”
