For this Crystal Ball edition of MiBiz, our team of journalists spoke with dozens of executives across West Michigan about their outlook for 2019. From those conversations, we’ve subjectively boiled down their concerns into this list. The first three issues certainly rank as their major concerns, while the rest of the list were their main worries that rose to the forefront.
1. Talent constraints
Regardless of the industry, companies across West Michigan say they’re struggling to fill open positions in all areas of their businesses. It’s beyond just a training issue, as the worker shortage has started to extend into professional positions, such as engineers. The situation has become so acute that it’s starting to affect firms’ ability to grow because they lack the proper staffing to produce and sell their products.
“Almost consistently, every time we go to a client meeting that’s what we hear: ‘We could grow at a faster rate than we are now if we had more talent, but we’re just tapped out on talent. We can’t. We’re kind of limited based on getting the people.’”
— Krista Flynn, regional president of Chemical Bank
2. Tariffs/trade deals
Tariffs on raw materials like steel and aluminum are driving up costs for a range of West Michigan industries, including automotive suppliers, office furniture makers and construction firms. As well, the new United States Mexico Canada Agreement (USMCA) brings new changes and challenges that manufacturers and agribusinesses will need to consider when they’re planning for 2019.
“I just hope that the administration gets it figured out so that the farmers aren’t the ones that take a bullet for the team.”
— Jim Sheppard, president of Tillerman Seeds LLC
Volatility — whether in the stock market, the geopolitical environment or certain sectors of the economy — has led to heightened uncertainty. And as the old adage goes, business leaders hate uncertainty. The volatile conditions could be one more factor that tips the decision-making process and causes executives to hold off on making major moves until some semblance of normalcy returns.
“Uncertainty leads to people standing still. It’s really important that whatever uncertainty we’re pointing to, whether it’s interest rates or labor markets or the future growth possibilities for our state, that we stop and pause and we understand that uncertainty and we not overweight it.”
— Renee Tabben, market president at Bank of America
4. Auto industry turmoil
U.S. auto sales remain historically strong despite an expected dip this year, but a number of issues are starting to cloud the horizon. Among them are higher raw material costs and trade tensions, thanks to tariffs and the drafting of new international trade agreements. As well, higher interest rates are becoming more of an issue as consumers flock to higher-cost trucks, crossovers and SUVs.
“If I’m an automaker or I’m a supplier, it’s making it hard to commit millions of dollars or hundreds of thousands of dollars, depending on the size of the company, into some sort of investment internationally or in other markets, if we don’t have a real good sense of what the trade landscape’s going to look like.”
— Mike Wall, director of automotive analysis at IHS Markit
5. Interest rates
Most executives expect the Federal Reserve to institute two or three quarter-point rate hikes in 2019. The higher rates are expected to create another barrier for affordable housing and building projects in particular. While rate hikes aren’t expected to kill most business transactions, some executives expect the higher cost of capital to slow growth in an already plateauing economy.
“In the real estate business, interest rates are the number one demand driver, other than supply and demand imbalances. If the rates get too high, you just can’t make any money. And why do it if you can’t make money?”
— John Wheeler, director of business development at Orion Real Estate Services
6. The length of the recovery
All good things must come to an end eventually, the current U.S. economic expansion included. Many experts believe the next economic downturn is getting closer by the day, although the timeline keeps getting pushed back. The silver lining: Any dip is projected to be mild, especially compared to the Great Recession.
“There’s no question that it’s been slowing down, and we see that continuing as we go into 2019 and 2020.”
— Gabriel Ehrlich, director of University of Michigan Research Seminar in Quantitative Economics
7. Political changeover
Democrats captured 40 seats in the U.S. House, as well as swept the races for statewide office in Michigan, scoring victories in the race for Governor, Attorney General and Secretary of State. The divided government in Washington, D.C. and in Lansing and all the fresh faces will lead to some additional uncertainty as lawmakers find their footing and put their own spin on policy that could affect the business community.
“One thing we always talk about is the election happened, but all of this didn’t just get decided. It’s going to take us at the state level a few months to kind of get into the new groove. … You’ve got to get used to the new rhythm. I don’t mean that is to be a bad rhythm, but this could be different.”
— Birgit Klohs, president and CEO of The Right Place Inc.
It’s no secret that Michigan needs to “fix the damn roads,” but actually making and funding the fix has proven to be elusive over the years. However, some strange partnerships — a Democratic governor and the Michigan Chamber of Commerce, for example — could be coalescing and finding common ground in the push for a solution.
“Infrastructure is a very high priority. … The governor-elect has said that she would prefer to take further steps to fix the roads and build and rebuild bridges, and has indicated the preference for user fees. We agree with Gretchen Whitmer on that.”
— Rich Studley, CEO of the Michigan Chamber of Commerce
9. Affordable housing
Companies need workers, and those workers need housing they can afford given the wages they’re paid. Despite all the new apartment units coming online in the last year around the region, people are still struggling to find affordable housing. It’s an issue exacerbated by slow wage growth, chronic disinvestment in a variety of housing types, and archaic zoning regulations that disincentivize housing diversity and density.
“Each time one of our businesses grows, it’s likely that they’re going to have to look outside of the county for employees. The growth is great, but we’ve got to be able to keep up with them in terms of the amount of housing supply we provide.”
— Ryan Kilpatrick, Housing Next
10. Self-inflicted recession?
Economists continue to point to the economy’s strong fundamentals as showing no signs of subsiding, but unease with the length of the recovery and the slowing growth curve seem to be weighing on executives’ minds. If business leaders keep fretting about the economy being headed for a recession and holding back, they could cause those worries to become true or accelerate the inevitable downturn.
“The question I’m starting to ask is will we talk ourselves into a recession. Will a recession become a self-fulfilling prophecy?”
— Jim Robey, director of regional economic planning services at Upjohn Institute