West Michigan’s industrial economy entered the second quarter trending along with the global and national economic recoveries from the effects of the COVID-19 pandemic.
Four key activity indexes from economist Brian Long’s monthly survey of industrial purchasing managers in the Grand Rapids and Kalamazoo areas all improved from February to March, as did short- and long-term business outlooks. The March survey also found spot shortages for some commodities, according to Long, director of supply chain management research at Grand Valley State University’s Seidman College of Business.
“An old adage declares that a rising tide floats all boats. As the world economy continues to recover from the COVID-19 recession, the West Michigan economy has joined the parade,” Long wrote about the survey results. “Much of the industrial market continues to experience spot shortages of a wide range of industrial commodities with no immediate end in sight.”
Among key metrics, the index for sales improved from 33 in February to 51 in March, and the production index improved from 28 to 33. The employment index improved from 33 to 40, and the purchasing index registered at 52, an increase of 28 points.
The short-term, three- to six-month outlook among survey respondents improved from 31 to 41, and the three- to five-year long-term outlook inched up from 38 in February to 40 in March.
“The continued success of the vaccine roll-out has resulted in a new wave of optimism, even though this pandemic by any measure is still far from over,” Long wrote. “Although economic stimulus packages have seldom been very effective in the past, the multi-trillion-dollar spending currently being unleashed is clearly boosting economic activity all over the world and will continue to do so for some time.”
Nationally, an updated outlook from Comerica Inc. upgraded expectations for the U.S. economy in 2021.
Comerica expects U.S. Real GDP to hit 6.0 percent for all of 2021, after a 3.5-percent decline in 2020 as the pandemic shook the economy. Unemployment nationally is expected to decline during 2021 to average 5.7 percent, compared to 8.7 percent in 2020. Comerica expects unemployment to fall farther to 5.0 percent for 2022, according to its updated outlook this week.
“We expect to see a rapid reflation of the U.S. economy over the remainder of this year, with strong momentum heading into 2022. The list of positive impulses is long. It starts with accommodative monetary policy in the form of very low interest rates, asset purchases and liquidity operations,” Comerica economists wrote. “We also now have three rounds of substantial fiscal stimulus in the system. Add in the ramp up in vaccinations, a rapidly improving labor market, huge pent-up demand, improving confidence and ample savings for consumer heaven in the near term.”
Comerica economists do expect inflation to pick up this year, with a consumer price index of 3.0 percent in 2021, followed by 3.2 percent in 2022. The economists noted that “commodity prices are up across the board,” as are component, housing, auto and food prices.
“So far, the Federal Reserve has doubled down on its call that the near-term surge in prices is transient, and will not contribute to sustained high inflation. Of course they did,” Comerica economists wrote. “Jawboning inflation expectations down is an important function for the Fed. To date, inflation expectations have loosened and have just begun to drift up. That is not to say that they have become unmoored. The risk is that unmoored inflation expectations may drive a wage-price spiral that could have very negative consequences.”