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Economic forecast: Sunny, with a chance of future showers

Matt DeYoung • Jan 31, 2018 at 10:00 AM

Dr. Paul Isley, associate dean for undergraduate programs at the Seidman College of Business at Grand Valley State University, provided a sunny economic forecast for 2018 during a meeting of local business leaders Tuesday morning.

Nearly 150 people came to hear Isley’s message during the 2018 Economic Forecast for Northwest Ottawa County, which was presented by the Chamber of Commerce Grand Haven, Spring Lake Ferrysburg.

“Did you like last year?” Isley asked the large group gathered at the Grand Haven Community Center. “Are you looking for more of the same? Good, because 2018 is looking a lot like 2017.”

Isley offered several indicators that led him to project a favorable economic forecast for the coming year, including confidence in the economy and employment growth.

“In a survey of business leaders across Kent, Muskegon, Allegan and Ottawa counties, right now we’re running about as hot as 1999,” Isley said. “That was a very good year, and people are just as confident now. I’ll use the word ‘giddy’ — they’re so excited, they’re changing how they’re going about making business decisions.”

Lack of talent

Isley added that employment growth is moving along well ahead of the pace set nationally. The only issue? A lack of qualified candidates.

“My expectation for employment is half of what we were at last year,” he said. “What we’re hearing is that they’d like to hire more but they can’t. They’re running out of workers.”

Isley noted that in West Michigan, 1 in 5 jobs is directly related to the automotive industry, which is coming off nearly a decade of growth. That growth is expected to slow this year, but Isley still expects sales to increase 3 percent.

Recession?

While the immediate future looks very bright, there are some dark clouds forming on the horizon. Isley noted that several key economic indicators point toward a recession hitting sometime in 2019 or 2020. 

“We have cross-potential GDP (when the potential gross domestic product surpasses the actual GDP), wages are going up, commodity prices are going up, and we’re looking at an inverted yield curve by the end of this year,” he said. “All those are really good signs that we’re going to have a recession sometime in 2019 or 2020.”

Isley doesn’t fear the coming recession will hit the local economy hard, calling it “short and shallow.”

“Here in West Michigan, I think the recession will be lighter than anywhere else, and you should be able to take advantage of that,” adding that it could be an opportunity for local companies to poach employees from areas harder hit. “You’ll be able to solve your labor problem,” he said.

Commute to work

Every day, nearly 4,000 people drive out of Northwest Ottawa County to jobs elsewhere (primarily Muskegon, Holland and Grand Rapids). On the flip side, more than 7,000 people drive into this area to work.

“For a small town, that’s very unusual that you’re dependent on areas around you to feed your businesses,” Isley said.

That’s also cause for concern.

“People who work here make a little less than people who go somewhere else to work,” he said. “Your ability to convince someone to drive a distance (to work here) is dwindling. West Michigan wages are 10 percent below the rest of the country. If you’re competing for that engineer, you’d better do a great job of selling that beach.”

Tax reform

Isley doesn’t predict the new tax law changes to have much of an influence on the economy.

“Those with low income, making $20,000 to $30,000 a year, there’s not much change,” he said. “Middle income might see a $750 increase, and high income a $1,500 increase. That’s enough for small luxuries, like going out to eat, but that’s not going to change the willingness to buy a house or a car.”

NAFTA

One factor that could have grave consequences on the local economy would be the discussed changes to the North American Free Trade Agreement (NAFTA).

“This has us very, very worried,” Isley said. “What we do know is that all the jobs we have today, particularly in Michigan, are dependent upon that supply chain. As I talk to employers across Michigan, they say they were going to invest in X or Y, but they’re instead going to wait and see what happens with NAFTA.

“Across West Michigan, exports are $5 billion,” he added. “If we look at who’s the most adversely affected by repealing NAFTA all together, at this point in time, it’s Michigan. It doesn’t matter whether you’re a Republican or a Democrat on this issue, when we ask economists, 95 percent say (it’s a) really bad idea. Is it OK to change it? Yes. Is it OK to make it better? Yes. But be very, very careful. You’re tinkering with a very big part of our economy.”

Isley noted that the United States sits only behind China in worldwide exports.

“We may buy their shirts, but they’re buying our airplanes, cars and end loaders,” he said.

Housing

Isley expects the steady increase in house prices to slow this year after seven years of growth. Still, what had cost a homebuyer $100 in 2005 will cost more than $130 this year.

“You should be really happy if you’re in your house,” he said. “You should be really sad if you’re a millennial trying to buy a house.”

Isley was asked about affordable housing, which has become a serious issue in Northwest Ottawa County.

“No one’s got it quite right,” he said. “Right now, in downtown Grand Rapids, you will spend the same on a two-bedroom apartment as in Chicago — about $2,200 (a month). What about people that make $13 to $14 an hour? We need to find places for people to work and places for them to live. ... You have to convince a developer to take a smaller rate of return, and that’s hard to do.”

Local real estate agent Scott Harestad listened to Isley’s message with interest. He agreed that the steady increase in housing prices will eventually slow.

“What goes up must come down,” Harestad said. “... Residential real estate has to flatten out just to make it affordable for people. It’ll be an adjustment, but not as drastic as in 2010.”

The shortage of affordable housing is a real problem facing homebuyers today, Harestad said. 

“There’s a big shortage of houses under $200,000, and you can’t really build a new house for under $200,000,” he said. “Rentals will be great. If you own houses and rent them, the rental market will be good until something happens to create more affordable housing.”

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