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Sunday, 20 December 2015 23:43

Q&A: Paul Isely, Associate Dean, Grand Valley State University Seidman College of Business

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Paul Isely Paul Isely

While the economy will continue to grow into the new year, it will be at a more tempered rate than in 2015, primarily because of less job growth in the manufacturing sector than in the past, says Paul Isely, the associate dean of the Seidman College of Business at Grand Valley State University. At the same time, Isely expects the economy to be affected by rising wages and uncertainty due to the upcoming presidential election.

What will the economy look like in 2016?

Certainly what we’re starting to see is the growth in manufacturing is slipping each cycle. Every time we take that yearly turn since 2013, each cycle it’s slowed down a little bit. Because manufacturing was the push for us, that slow cycling down of growth there is going to start to impact our ability to see the big job growth we’ve seen over the last few years. This coming year will be weaker than this year was.

Given how linked the economic recovery has been to manufacturing, is West Michigan still too tied to the automotive industry?

In Michigan as a whole, and to a lesser extent here in West Michigan, automotive is really the cycle. We had breakneck growth in annualized units sold from 2009 to 2014, then it’s really flattened out. What we had for the last year has been catch-up. (Automotive) really has been very flat for the last 18 months. It gives us a nice base, but there is nothing that tells us that automotive is going to grow substantially from where it is right now.

Does that call for increased emphasis on diversifying the Michigan economy?

We’ve seen a lot of growth in the leisure side of the game. (But) if I look at that hospitality and leisure world, they earn less than half of what people earn in manufacturing, construction or professional services per hour. I think we’re going to see construction continue to be strong. I would expect to see a turnaround in manufacturing wages this year. We certainly see really strong growth in the I.T. sector.

How are wages tracking during this talent crunch that manufacturers are facing?

I’m slightly more worried about wage inflation than the average economist. I’m worried not because it’s there, but because we are only just marginally competitive with the rest of the world. So small changes in wages could really affect the ability of a firm to continue doing what they’re doing here in the U.S. I don’t think that’s a one-year issue, but certainly over the next five years, it’s going to be an issue.

Do you think the pending interest rate hike from the Federal Reserve will impact business in 2016?

I think the small movement we’re going to see by the Fed in short-term rates is already built into the market. Everybody already assumes that it’s there. There will be a little pop right away, but it’s not going to change the world much.

Do you have any expectations regarding the commodity market next year?

There is very little in the cards for commodity inflation right now. … Commodity prices in the past held back inflation, but now they’re not going to recede a lot more. Therefore, the big change has already happened, and it won’t be able to hide that for us next year.

What’s keeping you up at night?

I always worry about things during an election year, and we’ve seen some very incendiary language coming out of the candidates. That can really affect consumer confidence. Certainly some of the protectionist binges I’m seeing on both sides of the aisle worry me a lot because that’s bad for business.

Is there anything else going on in the West Michigan economy that will impact business in 2016?

For the first time since 2000, my housing price index in Grand Rapids, whether I include distressed or nondistressed houses, is showing the same increase over the last 15 years. So essentially it’s showing that the effect of distressed houses has completely gone away. Those distressed houses are what caused the bubble before 2006 and caused the crash after 2007 and now they’re back to where all the other houses are. That’s telling me now that housing is back and healthy in West Michigan. That’s exciting and it shows us that it took 15 years for all of that to happen, and now we’re really almost getting back to the prices we saw for nondistressed houses back in 2004. It makes me happy.

Interview conducted and condensed by John Wiegand.

Read 1537 times Last modified on Monday, 28 December 2015 10:28

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