West Michigan’s industrial economy ended 2022 in a downward trend.
Three of the four key indexes from Grand Valley State University economist Brian Long’s monthly survey of industrial purchasing managers in Grand Rapids and Kalamazoo declined for December.
“Although our data have softened during the past few months, this month’s statistics now meet the criteria of being our first official negative report since the end of the recent pandemic-induced recession,” Long, director of supply chain management research at GVSU’s Seidman School of Business, wrote in his monthly report released today.
The index for sales declined from negative-2 in November to negative-24 in December, and the production index declined from a 7 to negative-10. The index for purchases declined 17 points to negative-19.
The employment index remained positive, although it declined six points to 14.
The region’s industrial economy appears to follow the U.S. economy that’s slowing because of rising interest rates of the last year that were to bring down high inflation.
In his report on the December survey results, Long speculates on the potential for a “growth recession,” in which GDP falters for two or three quarters, while unemployment inches upward only a percentage point or two.
“However, even if we do enter a growth recession, many firms will still find a shortage of skilled tradespeople,” Long wrote. “As interest rates rise, interest rate sensitive sectors of the economy, especially housing and construction, will decline as the cost of typical 30-year mortgages rises dramatically. Other sectors of the economy that are not interest-sensitive may continue to grow.”
The short-term, three- to six-month outlook among respondents to Long’s December survey did improve by 10 points from November, but remained in negative territory at negative-12.
An economic outlook that PNC Bank issued just before Christmas forecasts 0.2-percent Real GDP growth for the U.S. in 2023 with a mild recession toward midyear. PNC predicts flat Real GDP for the first quarter, followed by negative-0.6 percent in the second and negative-1.3 percent in the third quarter.
The U.S. economy will end 2023 with 1.5-percent Real GDP decline in the fourth quarter, according to PNC economists.
“Given the tight post-pandemic labor market, businesses will be reluctant to lay off workers, in turn limiting job losses. Banks have lots of money available to make loans, in part because of regulations put in place after the global financial crisis, and consumer and business credit quality are excellent. And while house prices are falling, homebuilding over the past dozen years has been low relative to demand, meaning there is no oversupply of housing unlike during the Great Recession, which will limit the housing downturn,” PNC economists wrote in their latest outlook.
PNC expects inflation to ease during 2023 with a 2.3-percent Consumer Price Index increase for the full year, including 2.1 percent in the fourth quarter.
“There is also still a one-in-three probability that the economy avoids recession. Inflation could slow more quickly than expected, giving the Fed more leeway to keep interest rates lower, limiting the damage to the economy,” PNC economists wrote. “But the most likely outcome is a recession starting in the spring of 2023, with real GDP contracting a modest 1 percent before recovery starts in early 2024 as the Fed lowers interest rates in response to a deteriorating labor market and slower inflation.”