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Wednesday, 17 December 2014 23:47

Experts predict diverse economy to drive economic growth in 2015

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Diversity in the West Michigan economy will be the driving force behind growth in 2015.

That’s according to George Erickcek, senior regional analyst at the W.E. Upjohn Institute for Employment Research. The message was delivered to a crowd of business leaders at the annual West Michigan Economic Outlook hosted by The Right Place Inc.

“We truly see Grand Rapids excelling for the next two years with a well-balanced economy,” said Erickcek.

“Yes, manufacturing is important and it always will be,” Erickcek said. “But Grand Rapids is becoming a star on its own in terms of a diversified, service-based (economy) as well.”

Total employment in the Grand Rapids-Wyoming metropolitan statistical area (MSA) – which includes Barry, Ionia, Kent and Newaygo counties – is projected to grow 3.2 percent, just below the pace of 3.8 percent growth projected for 2014, according to the Upjohn Institute.

A combination of strong manufacturing activity and a resurgence of new residential and commercial construction will be the primary drivers of that growth, Erickcek said. However, it’s not only those two areas that are growing, he said. Nonfarm employment has increased for all sectors outside of government positions, adding close to 15,000 jobs throughout the construction, manufacturing, retail and other industries.

“This is becoming a wonderfully diverse economy that can take the next business cycle much better than ever before,” Erickcek said.

But concerns over the accessibility of talent, particularly when it comes to employee wages, may temper that growth going forward, said Birgit Klohs, CEO of The Right Place. In 2014, The Right Place assisted in creating approximately $75.7 million in new payroll and 2,183 new and retained jobs. That averages out to approximately $35,000 in payroll per new position – a figure that doesn’t attract the most talent, Klohs said.

“West Michigan happens to be on the very low end (of pay),” Klohs said at the event. “If we want world-class talent, then we have to figure out how to pay for it. … The entire country, by the way, is going through the same thing."

From 2010 to 2013, Grand Rapids’ overall jobs increased 14 percent at the same time wages dropped 4 percent, according to the Right Place. While companies may be hesitant to increase employee wages, the competitive market often causes substantial turnover in the ranks, something that ultimately will cost businesses more to rehire and retrain, Klohs said.

“As the economy continues to get better, if we don’t pay, people will go to the next company for the better-paying job,” Klohs said. “There has to be a balance between labor costs and continuously hiring people, which costs you more.”

But for the moment, the economic outlook for the area looks bright, especially when taken against the rest of the state, Erickcek said. Total unemployment in the Grand Rapids-Wyoming MSA has fallen to a current 4.6 percent – a rate the area hasn’t seen since 2001, according to data from the Upjohn Institute.

By comparison, Michigan’s unemployment rate has reached pre-recession levels. The unemployment rank dipped to 7.1 percent as the state added 36,000 jobs between the third quarter of 2013 and third quarter 2014, according to the Upjohn Institute. Even with that growth, the state is still short approximately 120,000 jobs from pre-recession employment. Michigan has yet to fully recover from the pains of the downturn, Erickcek said.

Out of the nation’s 349 MSAs, as defined by the Bureau of Labor and Statistics, Grand Rapids ranks 22nd in absolute increase and 35th in percentage increase for employment growth when comparing growth from Dec. 2007 to Oct. 2014, according to the Upjohn Institute.

Beyond concerns over uncertainty in the global economy, Erickcek worries that a lack of improvement in income equality could dog the economy into the next generation. Research suggests that households are more pessimistic for their economic future — and their children’s.

“There seems to be a lack of improvement in income inequality,” Erickcek said. “We just know that it is a drag on the economy, and when it starts to be a drag on people’s attitudes about their future. And worse yet, a drag on their attitudes about their kid’s futures. It’s something we really do have to work on. If only we knew what the solution was.”

MiBiz Staff Writer Nick Manes contributed to this report. 

Read 2611 times Last modified on Wednesday, 17 December 2014 23:52

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