Order Reprints

By Elijah Brumback | MiBiz
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

GRAND RAPIDS — Simple logic says when the economy is down, people and businesses aren’t as likely to spend. This means reduced production, layoffs and all kinds of belt-tightening.

Between the automotive and furniture sectors, West Michigan is highly dependent on the manufacturing industry for economic stability. With the hits manufacturers have taken from the recession, many companies are looking to market diversification to hedge against economic downturns. But despite companies’ best efforts, the region’s reliance on the office furniture and automotive sectors still hasn’t changed much since the recession took effect in 2007, said George Erickcek, senior regional analyst for the Upjohn Institute for Employment Research.

However, in his presentation at The Right Place Inc.’s economic forecast in December, he showed that it is those grandfathered industries that are eking out meaningful gains in employment numbers for places such as Grand Rapids. Erickcek’s presentation noted that Grand Rapids had the third highest gains in manufacturing sector employment, which increased 3.8 percent, compared to peer regions across the country.

Erickcek said while some regional firms have been successful in shuffling up their products lines to find footholds in new markets, most businesses keep doing what they know best.

“The key for the region is to house the leaders in these industries,” he said. “This means that the region must maintain an innovative environment, its firms (must) be able to attract talent and that there is an element of luck in the air.”

The Manufacturing Purchasing Managers Index, a gauge of the nation’s factory activity, hit its highest point since June at 53.9. The source for the index, the Institute for Supply Management, maintains that readings above 50 indicate expansion. The local ISM index for Grand Rapids also held above 50 in 2011.

For West Michigan, part of the solution for coming out the recession has been internal product diversification (e.g. auto suppliers making medical instruments) and appealing to companies in new and emerging industries. Advanced energy storage and life sciences markets have had billions invested in them in recent years.

“We’ve had great success in attracting companies like Johnson Controls, LG Chem, and fortu Power,” said Randy Thelen, president of Lakeshore Advantage. “Fifteen companies — up from zero — are now serving this area industry.”

In Holland, more than $1 billion has been invested in lithium-ion battery plants for electric and hybrid vehicles. In Grand Rapids over the last decade, the Van Andel Institute has grown from nothing and expanded its reach, as well as attracted federal and private foundation research funds. Growth in the health care sector, which grew by 23,000 jobs in December and 315,000 for the year, was also strong for the the nation, according to the U.S. Bureau of Labor Statistics. Thelen said there have also been increases in the number of new companies growing off the region’s evolving food and agriculture bases.

Still, he echoed Erickcek in noting the importance of maintaining strongholds in auto and furniture manufacturing and manufacturing overall.

“Every other region in world would love to have and continues to court the auto industry,” he said. “Right now, it’s humming, and we’re starting to feel the benefits of that.”

Workforce issues remain a sore spot for the region. In part, the lack of 25-34 year olds with bachelor’s degrees or higher could be holding the region back, Erickcek said. When benchmarked to peer regions, West Michigan scored the lowest with just 28.3 percent of that age group with bachelor’s degrees. While the region has many post-secondary educational institutions churning out thousands of degree holders, it cannot seem to retain those graduates — nor is it alone in the state in that regard.

Erickcek’s presentation shows that businesses are making money even as they continue to run with lean staffs. While employment rates have dropped, profitability as a percentage of GDP has spiked in recent years. Part of this is because businesses have become more efficient, he said.

U.S. manufacturing labor costs per unit of output were down 13 percent in 2010 from a decade ago, according to the BLS. As a result, manufacturers are bringing part of their production back to the U.S. because of its cheap energy costs and companies’ ability to produce the same amount of goods here with fewer workers.

The Michigan Manufacturing Technology Center has been encouraging manufacturers to assess their strengths and leverage capabilities to break into new markets.

“The main strategy has been helping companies stabilize themselves,” said Bill Small, VP of technical services at The Right Place and west regional director of MMTC. “Our programs are meant to continuously improve operations.”

Part of the path to an well-rounded manufacturing business is to assess the capabilities of equipment and the value in current customers.

For companies looking to diversify coming out of the economic situation, Small said it really boils down to the executive team deciding where it wants the company to grow and how quickly.

Small said companies have also started to realize the value of their engineering capabilities to production. And they’re investing in engineering to strengthen their competitive position, he said.

As U.S. and West Michigan manufacturing strengthens, so too have other areas of the economy. Jobs created in the professional sector were the biggest contributor to total employment in Grand Rapids. According to Erickcek’s data, the professional sector added roughly 6,000 of the total 8,250 jobs created in the third quarter of last year. Moreover, employment in Grand Rapids has been growing faster than the nation since mid-2009.

One contributing factor is the number of self-employed persons in the scientific, professional or technical industries, which gauges the entrepreneurial activity in the region. According to Erickcek, 25.1 percent of people in those industries are self-employed, compared to the peer average of 17.4 percent.

While short-term gains appear promising, Erickcek believes talent as well as some luck will determine long-term success.

Thelen said only time will show the effects of the region’s efforts.

  Order Reprints

TAGS:

• elijah brumback
• grand rapids
• johnson controls
• lg chem