Three of four key activity indexes for West Michigan’s industrial economy improved in August, furthering the economic rebound of recent months from a deep decline last spring with the onset of the COVID-19 pandemic and resulting stay-home orders.
The sales activity index from economist Brian Long’s monthly survey of industrial purchasing managers in Grand Rapids and Kalamazoo improved from a 12 to a 19 from July to August, and the employment index went from a negative-4 to a positive-13.
The index for purchases held steady at positive-10 and the production index declined one point to 13.
The August results show the “economic bounce that we were expecting has definitely arrived,” said Long, director of supply chain management research at Grand Valley State University’s Seidman College of Business.
“While some firms are still struggling, others are already back at full capacity. Furthermore, some survey participants report that they are again having difficulty finding enough workers, especially workers with specific skills. If this trend continues, our unemployment rates will continue to fall,” Long wrote in his report on the August survey. “That said, the recovery from every recession in recent memory has begun with a surge in pent-up demand. After the initial surge, we begin to see the permanent damage that the recession has wrought.”
Long expects the activity indexes to “probably improve a little more when we add up the results for September,” although “if the increase in the number of (COVID-19) cases begins to get out of control, we face the possibility of another shut-down.”
“As we enter an election season wherein many people are already in a negative mood, we can expect that we do not really know where the economy is headed until the election is over,” he wrote.
Survey respondents were a little less optimistic in the near term. The short-term outlook index for the next three to six months registered a zero for August, down from a 6 in July.
“Most measures of confidence tend to be driven by the current news cycle. Hence, the August news cycle, which included the political conventions, yielded a slightly different view of the future,” Long wrote.
The three- to five-year outlook improved to 41 for August from 32 in July.
Nationally, an updated U.S. economic outlook Comerica Inc. issued Tuesday projects Real GDP growth of 5.0 percent for the present third quarter after the unprecedented decline in the second quarter. Comerica expects Real GDP to grow another 5.0 percent in the fourth quarter.
Built into the monthly Comerica outlook is “a key underlying assumption” that “we do not see a return to widespread and severe ‘lockdowns’ of businesses and extreme restrictions on social behavior,” economists wrote.
“We may see a rollback of the spring/summer re-openings in certain states and regions, but it will likely not be a uniform nation-wide policy initiative. However, we are already seeing a disturbing increase in the spread of coronavirus on many college campuses and generally in some Midwestern states,” the outlook stated. “The Labor Day holiday could turn out to be a jump-off point for new infections. It is conceivable that a resurgence in the spread of coronavirus, combined with a bad seasonal flu outbreak, could quickly overwhelm hospital capacity this fall, resulting in the need for wide-spread lockdowns of businesses and strict social mitigation policies.”
U.S. Real GDP growth will start 2021 at 4.1 percent for the first quarter and average 3.0 percent for the full year, according to Comerica.
After four months of steady job gains since the spring plunge, with the economy recouping about half of the jobs lost in the pandemic, the outlook estimates employment growth will ease in the months ahead with job growth averaging 100,000 per month through the rest of the year.
“This is still a very complex labor market,” Comerica economists wrote. “For the remainder of this year, hiring and layoffs will be highly idiosyncratic by industry and by region.”
The national unemployment rate that hit 13.0 percent for the second quarter and has since come down will come in at 8.4 percent in the third quarter and end the year at 8.3 percent on the fourth. Unemployment will average 8.1 percent for all of 2021, Comerica predicts.