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Tuesday, 04 September 2012 10:57

Innovation Index rises in first quarter, still no clear trend

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DEARBORN — Although the iLabs Innovation Index from the University of Michigan-Dearborn’s Center for Innovation Research rose by over 5 points in the first quarter of 2012, the post-recession recovery has been volatile at best.

The report, released on Aug. 20, stated that in the first quarter of 2012, the state’s Innovation Index rose from 90.5 to 95.2, almost five points higher than the first quarter of 2011, but still 4.8 points below pre-recession levels.

The index is based on six factors that reflect the health of the innovation economy in Michigan: trademark applications, incorporations, venture capital funding, SBA loans, percentage of “innovation workers” in the workforce and gross job creation numbers.

Of the six factors that drive the index, four rose while two fell in the first quarter. Trademark applications and VC funding both rose sharply, with VC funding having the highest reported activity since the second quarter of 2010. SBA loans also rose slightly. Incorporations and LLC filings followed the traditional pattern and had a strong first quarter. However, gross job creation fell in the fourth quarter and the percentage of innovation workers remained flat.

Lee Redding, project director of the Innovation Index, is guardedly optimistic about the prospects for 2012.

“We had a nice move up there in the first quarter,” said Redding. “But as far as we can tell, it’s looking pretty flat at the moment.”

Redding said between the end of 2010 and the beginning of 2012, the index remained relatively unchanged, staying between 90 and 95 points. According to Redding, this flatness is largely caused by the expiration of many federal stimulus projects at the end of 2010. Still, he is optimistic about the possibilities for the rest of 2012 due to state tax incentives that are taking effect.

“Some of the stimulus effect was wearing off in 2011, so you saw some similar effect in the national economy and that was reflected in the index,” said Redding. “We’re about to find out if the state governor’s tax initiatives have any positive effect on the innovation economy in Michigan.”

According to Redding, two factors may significantly affect the second quarter’s index level: gross job creation and incorporations and LLC filings.

Due to data availability issues, the gross job creation figures are delayed by one quarter, so it is possible that first quarter numbers for 2012 will not have the negative impact that the fourth quarter numbers from 2011 had, he said.

Also, incorporations and LLC filings historically are high for Michigan in the first quarter, so that factor will likely slip in the second quarter. Still, according to the report, more than the typical seasonal factors are likely at work in the first quarter of 2012 since filings are ahead of the first quarter numbers in 2011.

The next innovation index report is due out on Nov. 26 and will likely show a modest decline in the second quarter due to seasonal factors in the number of incorporations, he said.

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