Each month, MoodyOnTheMarket.com is privileged to be among just a few publications that receive an in-depth economic analysis, West Michigan based, from Professor Brian G. Long, Ph.D., Director of Supply Chain Management Research at Grand Valley State University. Dr. Long sifts through a huge stack of data and offers up his thoughts on what the industrial economy–which still is a driving force in Michigan–is telling us. Here are excerpts from Professor Long’s review of the October 31 numbers:
By now, almost everyone in the entire nation is aware of the
numerous problems plaguing America’s supply chains. In the
industrial sector, the supply chain problems have resulted in
longer lead times, missed deliveries, higher prices, and
sometimes exorbitant expediting charges. What seems most
worrisome to some of our survey participants is that there is
still no end in sight. Although these supply chain gremlins are
inhibiting the West Michigan economy, modest economic
growth continues. NEW ORDERS, our index of business
improvement, rose to +15 from +8. By contrast, the October
PRODUCTION Index, which is now termed “output” by many
economists, rebounded sharply to +19, up from September’s
reading of -1. Activity in the purchasing offices, our index of
PURCHASES, eased to +8 from +14. However, at +87, the LEAD
TIMES Index is near the historical high of +93 set in April.
West Michigan Unemployment. For Michigan, the
September (latest month available) unemployment rate edged
down to 4.6 from 4.7 percent. It seems like a broken record,
but numerous firms continue to report that they have
vacancies that they cannot fill. The numerous workers that
dropped out of the workforce at the beginning of the pandemic
have still not returned. However, some firms have been able to
offer higher wages and signing bonuses to lure new applicants.
For our West Michigan survey, the October index of
EMPLOYMENT came in at +24, slightly below Septembers
reading to +27.
Business and Consumer Confidence. After declining for
three continuous months, the Conference Board’s October
index of Consumer Confidence reversed course and rose to
113.8, a gain of 4.0 from September’s reading. The University
of Michigan September Consumer Sentiment Index posted at
71.1, a more modest decline of 1.1. Locally, the SHORT-TERM
BUSINESS OUTLOOK Index for October, which asks local firms
about the business perception for the next three to six months,
remained unchanged at +8. For the LONG-TERM BUSINESS
OUTLOOK Index, which queries the perception for the next
three to five years, the index edged higher to +27 from +24.
Here are several additional conclusions from Dr. Long’s review of this month’s numbers:
— The Index of EMPLOYMENT remained positive, and rose to +24 from +27. It sounds like a broken record, but many firms still have opening that they cannot fill.
— As almost everyone is aware, the chip shortage is restricting auto production throughout the world (not just the U.S.). Our local auto parts suppliers are being restrained by cancelled and pushed-out orders. Fortunately, the October SAAR edged up to 13.1 million from 12.4 million. At least the problem is not getting any worse.
— The economy for the rest of the world remains fairly strong. The JPM composite index edged up to 54.3 from 54.1. The survey’s record high was 58.5 set last March. For the Eurozone, supply chain problems were blamed for a sharp drop in production.
— At +79, our index of PRICES is still near the record high of +85 set in March.
— Hording. Like some people who have closets full to toilet paper, and firms are building inventories of materials and components. Our index of PURCHASED MATERIALS INVENTORY is the highest it has been since the religions of JIT inventory became popular 30 years ago. Some hording is driven by rising prices, but lack of availability is a much bigger issue, i.e., the auto firms can’t build all the cars they want for the lack of $15 worth of chips. Historically, recessions have been caused by firms simultaneously stopping new orders and living off their inventories.
— The ships waiting outside the Long Beach to unload are still there. Again, it’s a problem with no end in sight.
— Is the world economy overheating? The Fed leadership still says that the current situation is “transitory.” Reputable economists have said that inflation will get back to normal when the supply chains return to normal. However, they can’t say when that will be.
— Last but not least, here’s a few thoughts about what we’ve been calling an aspect of the people shortage. The biggest problem is that about 1.7% of the pre-pandemic workforce (2.7 million) has not returned to work. Per the recent WSJ article, many of the older workers, especially those 62 and older, simply retired, even thought they had previously planned to work a few more years. Family and daycare disruptions are still lingering, which make showing up for work consistently more difficult. Some people and families currently have higher personal liquidity levels because of high government unemployment payments as well as having spent less money during the pandemic. They plan to go back to work when they need to. In that same context, some people got used to regularly spending less money and no longer need the income from a low wage job. Also, the high “quit” rates being reported among lower paying jobs can also be attributed to the high pressure of working in understaffed work environments. And yes, some people are still justifiably afraid of the working in close environments because the pandemic is still not over.
Summary. Albeit slowly, vaccination rates continue to grow.
In addition, numerous new therapeutic drugs have reduced the
death rate dramatically. Barring a more toxic variant, the
economy should remain open, although many safety measures
will remain in place for years. Three vaccines are currently
being administered in the United States, and another 21 are in
use around the world. About 22 vaccines are in Stage III
development, and another 54 are in Stage II. In short, many
vaccines will be available going forward.
Is the current economy overheating? Many people are
beginning to think that we cannot continue on our current path
for too many more months without something giving. There is
a breaking point out there– somewhere. The Fed is still sticking
with their theory that the current inflation is “transitory” but
fails to say how long before we can expect to “transition” out
of the high inflation we are currently experiencing.
