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Sunday, 21 December 2014 22:00

GVSU economist: Recovery getting ‘long in the tooth,’ but signs of downturn have yet to emerge

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Paul Isely, GVSU's Seidman School of Business Paul Isely, GVSU's Seidman School of Business COURTESY PHOTO

Heightened construction and manufacturing activity amid falling commodity prices have Paul Isely optimistic about the overall economy’s performance next year. However, the chair of the economics department at Grand Valley State University’s Seidman College of Business says the ever-present talent shortage, international events and the long recovery have left him wondering when the next downturn will occur. He spoke with MiBiz about those opportunities and some headwinds the state and national economies face in 2015.

Overall, what does the state of the economy look like for 2015?

I think next year will be slightly better than this year. We’ll see slightly faster growth with unemployment coming down a little more, and unless that’s washed out by commodity deflation, it should start to show some pick up in inflation particularly in the second half of next year. We’re looking at another six months for some of the decreases in fuel and commodity prices that we’ve seen (recently) to work their way through the rest of the system.

How will the reduction in fuel costs play out?

We’ll probably have those six months of decent fuel prices and that’s going to really help the U.S. economy and Michigan. The fact that we have these lower prices means people have more cash because they’re not spending it on gasoline. Those things will increase demand-side inflation.

What regulatory constraints could hamper growth?

Surprisingly, health care continues to be an issue with small businesses that aren’t even affected by the mandate. They are the ones making the most changes. That’s a little scary because a lot of our job creation happens with those new and small businesses. They have a lot of uncertainties built around this and when you’re uncertain, you don’t invest, so you’re not expanding your business and hiring new people.

What can companies do to attract the talent they need to meet production?

From a talent needs and a total amount of workers perspective, we are starting to run out (of people). To date, companies have resisted raising wages that much, but they’re probably going to have to re-evaluate this in the coming year. Your bottom-end manufacturing is pulling in $11 an hour. That was $4 an hour above minimum wage. (For the) employers that we’ve heard complain about a talent gap, the next part of that conversation is compensation.

How does West Michigan stack up?

What people in West Michigan don’t understand is that for a comparable skilled job, we tend to pay less. We’re making what we think are good increases, but we aren’t keeping up.

Other than talent, what are some headwinds the economy may face next year?

Even though it doesn’t feel like it, this expansion is getting a little long in the tooth. It’s been slow and plodding, but you have to start wondering if we’re getting close to when we’re going to see another downturn. We’re not seeing it yet, but some of those really early markers are starting to smell a little bit.

What are you seeing that’s giving you pause?

In Michigan, I worry that we’ve played out our job and income growth based on automotive. A lot of our job growth over the last year has been leisure and entertainment, which doesn’t pay very well. I’m a little worried that we’re going to slow down a little more than what people expect here in Michigan.

Do you think Michigan will see any tangible benefits from becoming a Right to Work state now that the policy is two years old?

I’m not sure Right to Work is going to show something. It’s a secondary effect and secondary effects are hard to prove. People who believe it will be a big benefit will see a big benefit and those who don’t, won’t.

Interview conducted and condensed by John Wiegand.

Read 2842 times Last modified on Sunday, 21 December 2014 22:14

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