Order Reprints

By Dr. George Mokrzan, Senior Economist
Huntington Bank

For most consumers — especially in the Michigan markets — it has been a long road to recovery. Each step forward seemed to be greeted with a step back, sometimes two steps back. But as we begin the New Year, the fears and concerns around a “double-dip” recession have waned. We appear to be on firmer ground and the Midwest economy seems to be well positioned to benefit from the return of prosperity.

For many businesses, particularly larger companies, the economy has performed well in recent quarters. Many companies are reporting record profits and exports have returned close to pre-recession highs in many states. As long as manufacturing leads the national recovery, the region should exhibit solid growth compared to recent years, and perhaps outperform the nation.

Obviously, the downside of the recovery to this point has been jobs. While you will often hear references to the “jobless recovery,” the reality is jobs simply follow later in the recovery process. It’s not what anyone wants, but companies that had to lay off workers are reluctant to add employees until they know there is a steady stream of business to warrant the investment. So, the cycle builds in demand, companies press for productivity and lastly, reach a comfort level to add to payrolls.

The good news is that as we enter 2011, we seem to be near that point. Private sector payrolls have increased every month this year through November for a total of 1,171,000 jobs. In the next 12 months, we should see 2 million net new jobs entering the economy.

In addition to the rebound in exports, other bright spots in the economic recovery include steady increases in retail spending by consumers and increasing equipment purchases by business.

So, while I expect the next quarter or two to remain in the “steady, but unremarkable” category, I also think things will begin to pick up more notably in the second half of 2011.

There are some things that could help this along. For example, an agreement to maintain the Bush-era tax cuts would further spark consumer spending. The close of Quantitative Easing, or QE2, would help as well. While it is intended to lower interest rates and reduce deflation risk, I suspect it will have minimum impact and already appears to be contributing to inflation and could lead to protectionist responses from our trading partners.

Risks to the economy beyond a poor outcome for QE2 include ongoing sovereign debt issues in Europe, political instability as we saw with North and South Korea recently, and how the government begins to wrestle with the significant federal deficit. Inflation — particularly in energy and food prices —could be a concern affecting consumer buying-power.

Clearly Michigan has the longest road. But it does have some positives.

Manufacturing employment was up 1.9 percent since October last year. Aggregate payrolls have declined 0.5 percent in the last year, but the unemployment rate declined significantly from 14.5 percent in December to 12.8 percent in October, and the stabilizing trend in payrolls is expected to continue. In line with strong export performance in the industrial Midwest, Michigan’s exports rose 28 percent between September 2009 and September 2010.

Ohio and many of the surrounding states are digging out of a recession that compares to the double-dip recession of the early 1980s. The region regained jobs more quickly than many other parts of the United States during the strong second quarter, when firms finally stepped up hiring at significant levels. Over the 12 months ending October 2010, Indiana employment grew 1.1 percent, reflecting some of the strongest employment growth anywhere in the nation. Ohio manufacturing employment grew 1.4 percent in that span — above the 0.8-percent growth for the nation during the same period.

Housing continues to slowly stabilize. Because many parts of the Midwest states avoided the boom/bust in housing, they are seeing homes regain their value more quickly. The primary headwinds are fairly large inventories and some price stickiness in higher market tiers. But relatively low prices, improving labor markets and low interest rates should provide a boost to demand in 2011 as the economy picks up.

Are we out of the woods? No. But the economy is on the mend.

The year should see a further stabilization in housing, continued economic recovery in business and a modest, but welcome, acceleration in employment, to make 2011 a brighter year than the past few.

  Order Reprints

TAGS:

• crystal ball
• dr. george mokrzan
• finance
• huntington bank