By Dr. Brian G. Long, Ph.D., C.P.M.

After seeing the reports for the West Michigan industrial economy soften at the end of 2015, it is gratifying to report that the local economy is again gaining strength. The data and comments collected in the last two weeks appear to be paralleling the post holiday growth we reported last month. NEW ORDERS, our index of business improvement, rose to +15, up incrementally from +14. The PRODUCTION index also edged higher to +16, up from +12. Activity in the purchasing offices, the index of PURCHASES, turned back to positive at +3, up from -3. The West Michigan economy continues to outpace the national economy as well as the overall Michigan economy, and the pattern of slow growth has returned.

Looking at individual industries, strong auto sales are still keeping our local auto parts suppliers humming. Although a couple of firms reported a slight hesitation, most firms were very positive. The office furniture business remains stable, and some of the specialty firms are reporting an unexpected upturn. Industrial distributors were generally positive. However, capital equipment firms reported widely mixed results.

Many of our survey participants remain fairly optimistic about 2016, and this month’s survey reflects a much more positive attitude than last month. The biggest gain came in the index we call the SHORT TERM BUSINESS OUTLOOK, which asks about the perception of the next 3-6 months. Citing improved sales and less worry about the direction of the world economy, the index rose to +37, up considerably fromFebruary’s +19, and significantly higher than the +4 reported last October. For the outlook for the next three to five years, the LONG TERM BUSINESS OUTLOOK index rose to +44, up from +40. Although the long-term index is well below the +60 recorded two years ago, the mood is still clearly positive.

The April 1, 2016 report from the Institute for Supply Management, our national parent organization, delivered a significant bounce for March. NEW ORDERS, ISM’S index of business improvement, rose to +20, up nicely from +6. In a similar move, the PRODUCTION index jumped to +17, up from+7. For the first time in sixmonths, ISM’s overall index flipped back across the 50.0 break-even line to 51.8. This is especially good news for economists who follow the ISM index closely.

By contrast, the U.S. survey conducted by Markit.com, the international economics consulting firm, is still more cautious, even though Markit’s PMI edged up to 51.5 from 51.3. Manufacturers noted that generally improving global economic conditions have helped to offset some of the negative influence on export sales resulting from the strong dollar. The survey author further noted: “March’s survey highlights sustained weakness across the U.S. manufacturing sector, meaning that overall growth through the first quarter slowed to its lowest since late 2012. Subdued client spending patterns within the energy sector, ongoing pressure from the strong dollar, and general uncertainty about the business outlook were cited as factors weighing on new order flows inMarch.”

Just like all of our other indicators, the world economy improved slightly in March. According to the J.P. Morgan Global Manufacturing survey of 31 nations released on April 1, JPM’s index of NEWORDERS edged up to 51.2 from 50.4. In a similar move, the PRODUCTION index rose to 51.2 from 50.3. The Global PurchasingManager’s Index edged up to 50.5 from last month’s break-even point of 50.0. The Eurozone PMI posted a small uptick to 51.6 from 51.2. Ireland hit an eight month high of 54.9, but Germany only managed to come in at 50.7. France and Greece remained negative. The survey author and chief economist for Markit remains cautious: “Although the PMI ticked higher, March still saw the second weakest improvement in manufacturing conditions seen for just over a year. The data suggest manufacturing grew by only around 0.2% in the first quarter, acting as a drag on thewider economy. Policymakers will also beworried by the further intensification of deflationary pressures in the manufacturing supply chains, with prices charged at the factory gate falling at the steepest rate since late 2009. Discounting was widespread as firms competed on price amid weak demand. Both Germany and France saw especially disappointing export trends, exacerbating weak domestic demand in the case of France. Pockets of brighter light persisted outside of the core. With the exception of Greece, which remained in decline, most other countries surveyed including Spain, Italy, the Netherlands and Austria saw robust rates of growth.”

Auto sales for March posted a gain of 3.1%, but the SAAR (seasonally adjusted annual rate) fell to a thirteen month low of 16.56 million—well below forecasts of 17.3 million. Among the Detroit three, Ford sales rose 7.8%, Fiat Chrysler gained 8.0%, and General Motors eked out an increase of 0.9% because of declines in Buick and Cadillac sales. Toyota lost 2.7%, but Honda gained 9.4%. Overall, virtually the entire sales increase for the industry has come from the sale of light truck and SUVs, and inventories formost of the small cars are starting to build up on dealer lots. A few months ago, almost no one anticipated gasoline falling to the current levels, resulting in consumer preferences shifting away from fuel economy and back to the traditional gas guzzlers.

In late March, the Commerce Department posted a third and final revision for the GDP estimate for the fourth quarter of 2015. Fromthe dismal initial estimate of 0.7%, the GDP was upgraded to 1.0%. On March 25, the number was upgraded to 1.4%. Looking at past estimates, it appears that the Commerce Department’s first estimates are regularly off by the proverbial county mile, and the fourth quarter revisions for 2015 are a good example. The overall GDP for all of 2015 can now go in the record books as 2.4%, the same growth rate as 2014. Hence, the economy is still performing below the post-war average rate of 3.0%.

For the unemployment statistics, there is good news. Our local index of EMPLOYMENT remains in double digits at +14, up significantly from December’s -3. Today’s “official” unemployment rate in Michigan now stands at 4.8%, a fifteen year low. Again, the “official” rate is subject to the limitations of what the numbers really mean. Our latest U-6, which some call the REAL unemployment rate, continues at 11.4% for Michigan, which is also a fourteen year low. Overall, most West Michigan reporting units are a full percentage point below where they were a year ago.

The February Kent County unemployment number came in at 3.2%, Ottaway County at 3.1%, and Kalamazoo County at 3.6%. The recovery is finally taking hold, and the employment picture is the best it has been since the recovery began seven years ago. We should see at least some additional improvement over the next few months, although we can’t expect to go down another full percentage point over the next year. Also keep in mind that Michigan’s total workforce is about 400,000 workers lower than it was 16 years ago. Again, there is still roomfor improvement in Michigan’s jobs picture.

In the industrial market, another significant event has been unfolding in the markets for the major commodities and raw materials. Over the past two years, we have watched the price of some grades of steel fall by 40-50%, copper drop 40%, aluminum slide 30%, and oil plunge by as much as 70%. For the seller of these commodities, business conditions have been a disaster, although the mining companies have endured recessions in the past. For some of the smaller oil exploration companies, bankruptcy is the only alternative. However, along with oil, we have recently seen an uptick in the prices of most of the major commodities. ISM’s index of PRICES flipped back to positive at +3, up from-23 lastmonth and considerably higher than the -33 reported in January. Our local index of PRICES also turned positive at +11, up from -20. This is a SIGNIFICANT reversal in just one month. Granted, the rising prices for these commodities will not be good for the bottom lines of many local firms, even though most increases have been fairly minor. But from the standpoint of the overall world economy, the turnaround in commodity prices has helped reduce the odds of a worldwide recession.

In summary, the purchasingmanager’s reports at the local, national, and international levels have turned more positive over the past month. Commodity prices have apparently bottomed out, which will hopefully allow business conditions for these industries to stabilize. Some of the economic news coming out of China has helped to relieve the world’s anxiety about a possible recession. We hope all of these current trends will continue.