GVSU Economist: Confidence in Local Economy Hits New Low

GRAND RAPIDS, Mich. — Each year, Grand Valley State University economist Hari Singh issues his annual benchmark survey of the regional economy. In last year's report, confidence in the local economy had slipped to its lowest in 13 years. Now it has declined even further, reaching the lowest point in the survey’s history.

According to the survey, the prospects are dire. The business confidence index has dipped below 50  for the first time in 14 years. In 2009, employment is expected to decline by 1 percent and overall sales are expected to fall by 0.5 percent.

A major goal of the survey is to historically track the overall business confidence of the Grand Rapids metropolitan area by a confidence index. The confidence index respondents use a scale from 0 percent (no confidence at all) to 100 percent (complete confidence). Over the survey’s history, when the economy has been growing steadily at a robust rate, the confidence index depicted a high level of confidence — generally around 80 percent for the private sector. That confidence level has dipped to 48.4 percent in this year’s survey. The sharp decline in regional confidence, employment, and sales reflect the impact of a continuing recession, Singh said.

"West Michigan had not recovered completely from the 2001 recession, and we are now in the midst of another prolonged recession," Singh said, citing the sub-prime housing market crisis, significant tightening of credit, and rising unemployment as drags on the economy.

Singh, chair of the Economics Department in Grand Valley’s Seidman College of Business, unveiled his annual economic forecast for the regional economy on January 16. The survey polls business leaders in the greater Grand Rapids area (Kent, Ottawa, Muskegon, and Allegan counties) and was conducted in November 2008. A survey was mailed to the CEOs of organizations based on a sample representing different sectors of the regional economy and the geographical diversity of the area.

Singh said it continues to be crucial for Michigan to diversify its economy. "West Michigan will continue to find a foothold by diversifying away from manufacturing into specialized services such as health care, professionals services and education," Singh said. "In spite of difficult times, the state needs to ensure that it will create a highly qualified workforce for the future. State resources need to be leveraged to position West Michigan strategically in growth sectors of the future. Besides health care and homeland security, state policies need to promote more renewable and alternative energy production options within Michigan."

As an indication of the report's accuracy, in last year's forecast, Singh said the elements pushing Michigan's economy down in 2008 would be the sub-prime housing market crisis, high energy prices, and weak job growth prospects due to restructuring. “The mortgage finance hardships along with the slump in the housing market could not have come at a worse time,” Singh said at the time.