Published in Manufacturing

West Mich. manufacturing continues rebound, but COVID crisis won’t end until vaccine is found, economist says

BY Monday, July 06, 2020 04:54pm

West Michigan’s manufacturing sector maintained momentum in June as key indexes registered improvements in a monthly survey.

Pent up demand during June “brought our statistics back closer to break-even,” although they remained in negative territory even after solid gains for the second straight month from the depths of the pandemic-related downturn.

Brian Long, director of supply chain management research at Grand Valley State University’s Seidman College of Business COURTESY PHOTO

That pent up demand is being met “in large part by inventory that’s still in stock,” said Brian Long, director of supply chain management research at Grand Valley State University’s Seidman College of Business.

Long surveys industrial purchasing managers monthly in Grand Rapids and Kalamazoo to gauge activity. Key indexes continue to improve for June after bottoming out in April.

The index for sales improved to a minus-7 from a minus-32 in May, and the production index improved to a minus-11 from a minus-35. The index for employment improved by 25 points to a minus-13 and the purchasing index went to minus-13, a 29-point improvement.

The continued improvements came as many factory reopenings were “thwarted by kinks in the convoluted supply chains we have built over the last two decades. In some instances, new suppliers need to be located to fill supply chain gaps,” Long wrote in his monthly report. 

While many companies are enforcing face masks, social distancing and site decontamination, “increased social activities outside of the workplace” are leading to recent growth in COVID-19 cases, Long noted.

“Hence, we can expect next month’s survey statistics to remain near the current levels, unless the current situation grows worse,” he wrote.

An index for the short term outlook for the next three to six months improved as well in June to a minus-8 for June. That compares to a minus-15 for May and minus-47 for April. The long term business outlook over three to five years slipped by seven points to a positive-26.

Long reiterated in his June report that the global crisis from the COVID-19 pandemic will not end “until we have a viable vaccine that can be widely disseminated to the entire world.”

“Until then, the economy will be restrained. In the short term, we cannot be fooled by a bounce triggered by pent-up demand,” he wrote. “The good news, of course, is that there are hundreds, if not thousands, of scientists with modern equipment scrambling to come up with a solution. Furthermore, numerous production labs around the globe stand ready to duplicate the vaccine once it has been identified. Short term, we can mitigate the damage with facemasks, social distancing, increased sanitization, and comprehensive screening tests.”

Nationally, Comerica Inc.’s latest economic outlook projects U.S. Real GDP growth of 12.3 percent in the present third quarter after an estimated 24.7 percent decline in the second quarter. The U.S. economy will grow another 3.6 percent in the fourth quarter and then start 2021 with a quarterly growth rate of 5.9 percent in Real GDP, according to an updated outlook Comerica issued Monday.

Economists at Comerica wrote that even with Real GDP projecting upward for the next year, they expect that “a significant portion” of the 14.7 million jobs lost nationally since February “are not coming back.”

“Some businesses will fail. Some will reopen with less capacity. Some workers that were retained because of PPP loan requirements will eventually be laid off,” Comerica economists wrote in the updated economic outlook. “Some businesses were simply running labor rich through the end of the last expansion and will make adjustments now. Some workers will not go back to work as long as they can receive more in unemployment insurance benefits than they can by working.”

Real GDP for all of 2020 should decline a projected 4 percent, followed by 3 percent growth in 2021, according to Monday’s outlook.

Comerica expects unemployment nationally to ease to 10.2 percent for the third quarter, from 13 percent for the second, and to 10 percent for the fourth. Unemployment will ease slightly in 2021 to 9.5 percent for the third quarter, according to the Comerica outlook.

U.S. auto sales, after falling to 13.8 million units in 2020 from 17.0 million in 2019, should partly rebound to 15.7 million units in 2021, Comerica projects.

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