The West Michigan economy looks good heading into 2020, and few people we’ve interviewed for this Crystal Ball edition fear that a recession is imminent.
While executives should take solace that the region’s economic fundamentals remain sound, as the saying goes, the devil is in the details.
Take, for example, manufacturing output in the Grand Rapids metropolitan statistical area spanning Barry, Kent, Montcalm and Ottawa counties. Projections for 2020 and 2021 say that manufacturers should continue to expand by 1.1 percent each year, according to Jim Robey, an economist at W.E. Upjohn Institute for Employment Research. While that’s down slightly from the 1.3 percent gain this year, their output expansion is forecast to outpace their peers statewide.
The catch: Manufacturing employment, on the other hand, is expected to shrink by more than 700 jobs in 2020 and nearly 1,000 jobs in 2021, based on “productivity enhancements” and companies making investments in more efficient Industry 4.0 technologies.
It’s time to retrain our brains and accept the realities of a job-loss expansion.
To quote Robey: “The economy can grow while employment declines. That’s kind of a new concept in economic development. Economic development has always been about jobs, and the argument is that economic development needs to be about jobs and capital investment. That’s not only in manufacturing, transportation and warehousing, that’s across services as well.”
At the same time, economists also remain quick to point out that we’re in the middle of a consumer-driven U.S. economy. In other words, as long as consumer confidence remains elevated — and it currently is at record highs — consumers will keep shoveling fuel into the economy, which will continue to expand overall.
Right now, consumers have good reason to be giddy. Statistically, any consumer who wants a job is employed, as evidenced by persistently low local and national unemployment figures. With the Dow up around 20 percent year to date, consumers’ 401(k)s are performing well and they’re resting easy.
They’re also possibly a little drunk, given that more than 8,000 breweries operated nationwide at some point this year, reaching a new record, according to the Brewers Association.
In fact, it might be good if they’re a little tipsy. That way, hopefully they’re not paying attention to tariffs and trade wars, international Twitter imbroglios involving the Tweeter in Chief, modeling around the enormous social and economic costs of climate change, the “batshit crazy” inability of Lansing to deliver on infrastructure spending, or even the fact that marijuana remains scarce in Michigan despite being legal.
However, as soon as consumers go one toke over the line, they’re bound to become as paranoid as American corporate executives, who’ve reacted to the intense volatility by losing confidence and backing off on spending.
Another reason to stay up at night, according to economist Paul Isely at GVSU: “[O]ne thing that we know historically is the consumers are the last to find out about a recession.”
But let’s not forget that the fundamentals — the very building blocks of the region’s economy — remain strong, according to economists. It’s just that we’re heading back to normal after a period of strong growth and acceleration. Slow growth curves aren’t as sexy as hockey-stick charts, but the fact is we’re still growing, still moving forward.
One possible analogy comes from the current state of the craft beer industry. The sector continues to grow at a rate of 4 percent, but it’s coming off a period earlier in the decade when it was rocketing ahead at 20 percent annually. Pundits like to cite the slower growth and higher rate of closures as a reason why the beer bubble is about to burst. The reality is likely much less sinister: markets mature.
The headlines may not jump off the page when you’re “only” growing at 4 percent, but as industry veteran Larry Bell pointed out: “We’ve been spoiled.”
Likewise, West Michigan has been spoiled with strong growth as it raced ahead of the pack in recovering from the Great Recession. At some point, you need to transition from recovery to maintenance, and that’s the place in the economic cycle that we’ve reached.
In that context, maybe 1.8 percent growth in output for 2020 doesn’t sound so bad after all.
Brian Edwards, Publisher
Joe Boomgaard, Editor