Published in Manufacturing

Tight labor market constrains growth for manufacturers, economist says

BY Sunday, June 11, 2017 08:08pm

While optimism for the U.S. economy remains relatively high, many economists and industry watchers are forecasting a period of slow growth in West Michigan’s manufacturing sector. 

Primarily, West Michigan’s manufacturing sector will be constrained by a tight labor market, meaning companies in the region will only be able to expand their operations in line with population growth, said Paul Isely, an associate dean and professor of economics at the Seidman College of Business at Grand Valley State University (GVSU). 

“We have no ability to grow except for people coming in,” Isely said. “There are no workers lying around. It’s not that we have a big mismatch. It’s not that we have a bunch of kids sitting in basements. It’s that we’ve literally run out of workers that can do the jobs we’re trying to hire for. 

“The growth is limited to population growth and that’s not bad, but it’s not going to be that breakneck growth that we’ve seen before. It’s going to really put a cap on how fast firms in West Michigan can grow.”

Despite constraints in the industrial labor market, many manufacturing executives are more optimistic on the business climate going forward. Local indices for the short term and long term increased in May, according to the monthly business trends survey published by Brian Long, director of supply management research at GVSU. 

The short-term business outlook inched up one point to 33, while the long-term outlook reached 46, up from 35 the previous month. 

Despite the optimism, it’s hard to ignore some of the uncertainty in the global industrial markets, Isely said. 

Raw material prices are more volatile than in the past and harder to predict, which could lead to excess inventory costs as companies stockpile these materials. Isely also points to the threat of the U.S. pulling out of the North American Free Trade Agreement (NAFTA) as another source of uncertainty. 

But overall, he doesn’t see anything looming that will send the West Michigan manufacturing economy into a downturn. 

“I’m not seeing anything that takes us off the cliff,” Isely said. “I’m not seeing anything that’s going to accelerate us ahead. To move off of that path is going to take a big shock one way or the other. Right now, there’s nothing on the wall that says that’s going to happen.” 

Here are brief economic forecasts for each of the major manufacturing sectors in West Michigan.


Despite a litany of positive macroeconomic factors, including GDP growth and consumer spending, pointing toward a favorable automotive market, some analysts don’t see that translating into vehicle sales.

According to IHS Markit, North American light vehicles sales are projected to reach 17.3 million units this year and 17.5 million units in 2018, down from 17.6 million units in 2016. 

Many automotive analysts entered 2017 predicting the vehicle market had reached a plateau. Now, looking ahead to 2020, some have adjusted their forecasts to include a decline in the vehicle market. 

“We’ve been talking about this plateau scenario that we see vehicle sales in and I would actually dub it a declining plateau,” said Mike Wall, director of automotive analysis at IHS Markit. “That’s owing largely to the fact that we have had this pretty healthy growth clip already. When people see the positive economic fundamentals, there is a little bit of a decoupling, at least in the near term, to vehicle sales.”

In part, some of that decline also is being driven by increasing new vehicle prices, a tightening of automotive credit and other factors, sources said. 

Meanwhile, North American light vehicle production is expected to reach 17.6 million units this year and 17.7 million units in 2018, according to data from IHS Markit. Both are down from 17.8 million units in 2016. 


Production throughout Michigan’s commercial aerospace supply chain should remain steady in coming years as large carriers continue to update their fleets.

Demand for smaller commercial jets, including Boeing’s 737 and Airbus’s A320, should continue to lead growth in the industry, said Gavin Brown, executive director of the Michigan Aerospace Manufacturers Association (MAMA). 

While the commercial sector is projected to remain steady, Brown believes the majority of growth in the aerospace industry will be driven by defense spending through the F-35 Joint Strike Fighter, refueling tanker and long-range bomber programs.

“I think (the industry) is going to be very strong,” Brown said. “Commercial is going to stay steady and the growth will be in defense.”


Much like other sectors of manufacturing, the office furniture industry has also entered a period of slow to stagnant growth. During the first quarter of 2017, shipments of office furniture — including to the education and health care markets — grew 2 percent compared to the same quarter in the previous year, said Tom Reardon, executive director of the Business and Institutional Furniture Manufacturers Association

“The order patterns are still spotty,” Reardon said. “You’ll have a big week and then a slow week and then vice versa and it kind of ebbs and flows. But as usual, most of it is related to projects.” 

Shipments are expected to increase in the coming months as orders grew 6 percent year-over-year in the first quarter of 2017. 

“I sense there is a degree of optimism out there,” Reardon said. “Business is good (and the)  unemployment rate is declining. If you talk to design firms, they have a lot of work on their boards and that will eventually translate into orders and shipments.”

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