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By Joe Boomgaard | MiBiz
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GRAND RAPIDS — Michigan as a whole is growing again, and Grand Rapids is leading that comeback, according to Dana Johnson, SVP and chief economist at Comerica Inc.

While the state’s growth continues to outpace national economic growth, Johnson doesn’t expect that trend to continue much longer. Michigan’s growth — buoyed by the rebound in the manufacturing sector — “probably will fade” and the state will start to grow at a slower pace by 2012, thanks in part to the state’s lagging population growth and its impact on the labor force.

“Grand Rapids’ growth is faster than the other metros, and it’s because you’ve created a business friendly environment,” he said.

But several recent state legislative actions should help encourage business growth in the state. Johnson praised Gov. Snyder’s actions to reform the state’s business tax structure and eliminate the Michigan Business Tax.

“This economic policy will put the state in a position to grow,” Johnson said. “It’s a rethinking of our economic institution … that will lead to a more friendly business environment. Michigan’s future is bright for the next 10-15 years.”

His long-term view wasn’t so rosy for the national economy thanks to the political situation in Washington, D.C.

Still, the private sector has experienced its strongest growth since 2006, to the point where he sees a “self-reliant pattern of growth” driven broadly by durable goods, whether they’re being sold to households, related to increased spending on production equipment, or because of increased exports. Still, GDP only grew by 2.8 percent last year, and Johnson predicts similar levels of expansion for 2011 because of the drag on the economy from the housing market, a contraction of state and local government and increasing energy costs.

Johnson sees evidence of “healing” in both the housing sector and state and local governments. The roughly half million housing starts are only about half of what is currently needed, so he expects that segment to stabilize “slowly and surely.” Meanwhile for local governments, “the need to cut back will subside. They’re heading in the right direction.”

Worries about inflation are starting to creep back, especially as tensions escalate in the Middle East and drive energy prices higher, which in turn puts upward pressure on food prices. When energy costs are coupled with falling housing values, the net effect is to reduce growth by 1 percent, he said.

“Deflation has gone away, and so has the need for super accommodative monetary policy,” he said, noting he expects the fed to start lifting short-term rates next year.

But Johnson’s “No. 1 risk” is federal inaction on budgetary policy. “If they do not get after the deficit, they will do damage to the economy,” he said. Currently, the deficit is 9 percent of GDP, a level not seen since World War II. But even if the economy really starts growing and peace in the Middle East were to positively impact oil prices and “everything turned out well,” the lowest the deficit would get is 5 percent of GDP, Johnson said, stating that to the long-term average of 2 percent. “After five years, it would rise again because of Social Security and retirement entitlements. … It’s an unsustainable track.”

Spending is the highest it’s been in 60 years, while revenues are the lowest they’ve been in 60 years. “The Democrats and Republicans are both wrong. We need to get after both sides of the equation.”

“The damage is obvious to me, and it’s a serious threat, but we’re not willing to pay for the services we get. … But is the damage so obvious that we can overcome the political problem … before there’s a crisis? The answer is unclear.”

The American public doesn’t seem to be quick to want to do anything about that deficit, he noted. Taxpayers simply don’t want anyone to mess with the programs they use, namely Social Security and Medicare. The problem will be exacerbated as more Baby Boomers retire and live longer and as medical costs rise higher than other costs.

In a way, Johnson acknowledged that he’s part of the problem. After more than six years with Comerica, the economist retired at the end of May. In a conversation with John Porterfield, West Michigan regional president at Comerica, Johnson said his plans are to fully retire, but he wasn’t prepared to fully close the door to consulting. Both Johnson and his wife are economists.

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• comerica
• dana johnson
• finance
• grand rapids