Michigan’s Economy in 2009: What’s Next

Read some expert predictions for Michigan’s economy for 2009 -“ then let us know in the “Comments” section below what you’re doing to improve your own piece of Michigan’s economy. If you have ideas for the whole state, pass them along too. We’ll publish the best ideas in the December 4th on-line issue of Corp!

As this is being written, the Dow Jones Average has dipped below 9,800 for the first time in years, European and Asian markets are declining at an alarming rate and banks worldwide are being bailed out by a variety of governmental institutions.

Not a comfortable environment in which to ask some very smart people to think about Michigan and the world tomorrow, much less for them to think about Michigan in the next year.

But the answers we’ve received are surprisingly positive, albeit not unanimously.

Dr. Paul Isely of the Seidman College of Business at Grand Valley State University

Economists like to keep track of leading economic indicators and in Michigan’s case, we are one. According to Dr. Paul Isely, assistant professor of economics at the Seidman College of Business at Grand Valley State University, we actually never even got out of the last recession, much less recovered from it. So the fact that we’ve had a great deal of experience in being near the bottom of most economic indices makes it all the more promising that we’ve managed to climb to the third or even the second quartile in some areas.

Take this August, for example. “The Grand Rapids area lost only 900 jobs,” says Isely. “That’s .2 percent, exactly, on par with the rest of the United States. Southeastern Michigan, on the other hand, is still transitioning and their job loss was 4.3 percent below the national average. That’s largely because we’re more diversified on this side of the state. We actually lost 2,200 manufacturing jobs, but gained 1,900 jobs in health care and education.”

Translation: When the rest of the state is able to catch up with the western side in diversification, there’s room for hope.

Beth DeWilde of Paragon Recruiting

Beth DeWilde, principal and chief recruiting officer of Paragon Recruiting in Holland, agrees that diversification has made a difference. “We have so many successful smaller firms that are under most people’s radar. They’re the ones who are hiring -“ but because they’re only hiring one or two or a few people, instead of hundreds, they don’t make the news-¦but they do keep me busy.”

David Sowerby, portfolio manager for Loomis, Sayles and Company in Bloomfield Hills, agrees strongly about the smaller companies. “They’ll grow up, get bigger, maybe go public and the more we can do to promote them, the better off we’ll be as a state -“ and I’d like to see you write more about that in Corp!”

Twenty years ago Sowerby established his Michigan Stock Index, which is based on the publicly-traded stocks of 100 companies headquartered in Michigan. Initially there were more than 140 companies from which to choose.

David Sowerby of Loomis, Saylesa and Company

“Today there are fewer than 90 companies with their headquarters here in the state,” adds Sowerby. “This has been going on for more than 10 years so it’s not something that is new, or attributable to anyone’s term in Lansing. Through natural market forces we’ve seen these companies go away -“ in retail or banking, or big companies like Gerber, Upjohn and Unisys -“ they’ve closed or merged or moved out of state and not enough have come in through the front door. We need to reverse that. We need the big headquarters of companies, the ones with the high-paying jobs at many levels, the ones who can, and do, hire 40 college graduates at a time,” he continues.

“Any initiatives that can foster a more competitive tax environment, or things like the Invest Michigan! program, anything that can foster more business start-ups gives us a greater chance to succeed long term,” Sowerby adds.

The Invest Michigan! initiative, proposed by Governor Jennifer Granholm in her 2008 State of the State address, became a reality on July 31. Designed to grow the state’s pension fund by investing in Michigan-based companies, Invest Michigan! is intended to help diversify Michigan’s economy by retaining, attracting and building successful small and medium-sized businesses, with the expected outcome of creating jobs in the state.

While this program gives some local economic relief, some wonder whether Michigan will benefit from the Emergency Economic Stimulus Act of 2008, recently passed at the federal level. Terry Stanton, public information officer at the Michigan Department of Treasury, thinks so. “It is difficult to gauge at this early stage. Certainly, the credit crisis has put Main Street Michigan families and businesses at risk,” says Stanton. “Congress’ action in late September was a step in the right direction to help Michigan families and businesses that may be struggling in this downturn.”

Not all agree, however. David Littmann, senior economist at the Mackinac Center for Public Policy, a free-market think tank in Midland, says the bailout “means nothing but delay in removing the causes of the crisis.” Indeed, Littmann foresees Michigan’s recession deepening with double-digit unemployment rates and a ninth year with personal income levels below the U.S. average.

Another “bailout” that should have a more direct impact on Michigan’s economy in 2009 and beyond is a $25 billion loan guarantee package for GM, Ford and Chrysler.

Ford spokesman Bill Collins says the loans will give automakers the chance to rebound. “They will allow us access to capital at a lower interest rate than available now, helping us to transform our U.S. manufacturing plants more quickly and bring affordable, fuel-efficient vehicles to millions of customers.”

Seeing the direct loans as a critical piece of Ford’s plan to pursue advanced technologies and deliver leading fuel economy, Collins says they are “an important step . . . at a time when the capital markets are distressed.”

Professor Isely of Grand Valley State concurs, albeit for different reasons. “The automotives have a product mix that looks promising two to three years from now. The key is to make sure that they can maintain business through that timeframe without having to make major readjustments-¦any package that comes out of Congress that makes sure they get that opportunity is something that helps Michigan.”

What role will “new technology” play in Michigan in 2009? David Sowerby sees it this way: “The greater issue is separating the cyclicality of the state from its longer-term secular prospects. I look at Michigan’s IPOs in the last decade as one measure and it’s awfully light in comparison to states like North Carolina and Illinois. We have to develop a competitive advantage to get new companies to move or start up here. We also need a great deal more liquidity in the credit markets. You can lead a horse to water but you can’t make it lend -“ unless the fear that’s so prevalent in those markets is eased.”

David Littmann agrees, cautiously. “The marketplace demands certainty of a superior business climate. Technology is fungible and globally competitive,” he says, but noted that without a change in Michigan’s policies “non-subsidized firms will not voluntarily move and/or stay here.”

Stanton, from the Treasury Department, who points to the governor’s signing of a comprehensive energy package, says the new law “will create thousands of new jobs in Michigan, diversify our economy by attracting job-creating companies and save customers money on their electric bills by ensuring that the bulk of Michigan’s future energy needs are produced from renewable energy resources and energy efficiency savings.”

DeWilde, the recruiter from Holland, certainly sees growth in the technology sector. “That economy here is still very strong. They’re adding staff -“ often small to medium-sized businesses just not on the media radar. The growth companies aren’t spoken about, they don’t try to put their name out there. They’re too busy growing their businesses -“ which often have been started because people were downsized from more traditional businesses.”

Is there a “bottom line” on the economic outlook for Michigan in 2009? That’s more difficult to answer, because too many things that either can’t be quantified or controlled by the state or its leaders. Is there what might be called a positive potential? If we can accept that Michigan has had such enormous experience being in a recession, then the only next step is to slowly get out of it. That may be the best way to look at what appears to be a very rough 12 months ahead for the rest of the country.