Principal, Front Street
Investment Management LLC
While most economists and Wall Street strategists have given the “all clear” signal for the national economy in 2012, I believe West Michigan companies and investors will have to contend with the challenging seas of a global recession in the first half of 2012. The current recession in Europe and the slowdown in Asia are already being felt by certain industries in the U.S, including in Western Michigan.
The good news is that the Michigan companies are in a much better position to weather the economic storm this time around without severe layoffs and downsizing. The bad news for investors is that the financial markets will be at least as volatile as they were in 2011 and the downside risks will be greater.
Western Michigan companies have made great strides since the 2008-2009 recession to get their cost structures better aligned for the new normal, lower-growth economy. The distressing effects of a shrinking automobile industry are now water under the Mackinac Bridge.
The Big Three are back baby as evident from the improving sales in 2011. The business trends are very encouraging for future growth even in a general recessionary environment. The average age of cars and trucks on the road is now up to over 10 years, a trend which will provide at least some replacement demand in 2012. That will actually provide a cushion for Western Michigan’s economy as the suppliers to the industry see very little reduction, if any, from current auto production rates.
The office furniture industry is in much better financial condition heading into this global slowdown. They survived what was closer to a depression than recession in 2009. Their current stock prices already reflect a slowdown, so the downside risks in their stocks is somewhat limited, in my opinion.
The community banking industry will continue to recover slowly, but growth prospects are limited in a de-leveraging economy. I am not an investor yet.
Most Western Michigan businesses should successfully navigate through the coming economic storm without too much of a hit to the top and bottom lines. That will set them up for a more rapid recovery after the storm passes in late 2012 and into the following year.