Published in Economic Development

Economist: West Michigan industrial activity off to strong start in 2021

BY Friday, February 05, 2021 09:32am

West Michigan’s industrial economy began 2021 “on a very positive note” as key activity indexes all improved.

The results are “typical of most recession recoveries” and reflect pent-up demand, Grand Valley State University Economist Brian Long wrote in his monthly survey with purchasing managers covering last month.

Grand Valley State University Economist Brian Long COURTESY PHOTO

“Because of the resurgence of COVID-19, bars, restaurants, churches and other gathering places have largely experienced a poor start to 2021. However, most industrial firms remained open and were able to take advantage of the demand that built up over many months of lock-down,” he wrote.

Long noted that several respondents to his January survey in Grand Rapids and Kalamazoo report they “are again struggling to find enough workers to fill their openings, and those recruiting professionals continue to complain that the education systems are not turning out enough people with the right complement of skills to meet current hiring demands.”

Additionally, some workers who lost their jobs during the pandemic are no longer looking for regular employment, he said. The full effect of the permanent job losses will become more evident later this year.

“As soon as we hit mid-summer or so we will start to see what the permanent damage is that has been accrued from as far as this pandemic is concerned,” he said.

In the January report, the index for sales improved 26 points to a record 57, and the productivity index rose 19 points to 51. The employment index moved to 20, a nine-point improvement, and the index for purchases gained six points to 32.

Each of the key activity indexes are well above their 25-year averages.

The short-term outlook index for the next three to six months registered 27 for January, compared to 19 in December and 3 in November.

The results from the latest survey indicate the recovery of the region’s industrial economy has now peaked, Long said.

“This doesn’t necessarily indicate this trend is going to continue,” he said of the January results.
“I call it a ‘peak’ and what it means is from here we’re probably going to back off a little bit and continue on the path that we’re on right now as far as the recovery.”

Nationally, an updated economic outlook PNC Bank issued a week ago said the U.S. in early 2021 is experiencing a “soft patch” that began in late 2020 as COVID-19 cases hit record highs, deaths and hospitalizations increased, and “consumers have turned more cautious’ while some states re-imposed restrictions. That led some economic data to weaken and to further job losses nationally that “were confined to those industries most exposed to the pandemic,” primarily leisure and hospitality, according to PNC economists.

PNC forecasts “weak but positive GDP” of 0.3 percent for the first quarter with a chance of a decline.

“The good news, however, is that economic growth will accelerate through the spring and summer of this year. The primary driver will be the rollout of vaccines against COVID-19,” PNC economists wrote in their Jan. 29 outlook. “Although distribution has been uneven so far, the kinks should be worked out soon. With additional vaccines likely to be approved over the next couple of months, the pace will pick up rapidly. The combination of better weather in the spring, allowing for safer outdoor activities, and increasing vaccinations will result in big gains in consumer spending, starting in the second quarter.”

The stimulus bill Congress enacted at the end of 2020 also will help consumer spending later this year, according to the outlook.

PNC forecasts 3.5 percent Real GDP for the U.S. in the second quarter, followed by a stronger 5.5 percent in the third. Real GDP should ease back to 3.5 percent for the final three months of 2021.

Unemployment nationally should start the year at 7.5 percent for the first quarter, then steadily move downward to 6.4 percent for the fourth, according to PNC economists.

Auto sales should rebound to 17.2 million units in 2021 from 2020’s 14.4 million units.

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