Muskegon—along with the rest of West Michigan and the country—should brace itself for an economic recession that will likely hit by the end of 2019, economist Paul Isely told a group of hundreds of local business leaders Friday morning.
“Are you getting a little worried about 2019? Yeah, I can tell; there’s this many people here to listen to an economist on a snowy day,” Isely, the associate dean of undergraduate programs at Grand Valley State University’s Seidman College of Business, said to the crowd gathered for the Muskegon Lakeshore Chamber of Commerce’s annual “Muskegon County Economic Forecast” on Friday, Jan. 25.
“Current [economic] conditions are worsening, but it doesn’t mean all is lost,” Isely continued, saying he expects Muskegon, West Michigan and the Midwest as a whole to fare better than the United States’ coasts during an upcoming recession.
There are several red flags that point to a nearing economic downturn, Isely noted, including rising pessimism among business leaders.
“This is the first time since 2008 that there’s been a decrease in confidence among business leaders; remember 2008?” he asked, referring to the Great Recession, which resulted in the United States’ labor market hemorrhaging 8.4 million jobs.
Another sign pointing to a recession? Real gross domestic product (GDP) has now surpassed potential GDP—which causes bottlenecks that result in an economic slowdown, such as businesses running out of labor or being unable to borrow funds, Isely explained. Additionally, he emphasized that businesses are increasingly spending income on employees.
“You’re having to do that to keep people from being poached, to attract new workers…that is wage inflation,” the economist said.
Plus, the costs of doing business are on the rise.
“We have constraints on inputs; the price you have to pay to build stuff is going up much faster than the price you get to sell it,” Isely said. “That’s been happening the last two years.”
None of that is music to business owners’ ears, but the situation isn’t dire—this recession should be nothing compared to 2008, Isely said.
“As we go into the end of this year, we’ll deal with slowdowns occurring; I think it’ll be a soft landing for West Michigan because we’re diversified and because the businesses that were weak were weeded out during an 10-year recession,” he said, referring to the recession that existed in Michigan from 2001 to 2011. “Things are looking pretty good for us if we can find the workers.”
That phrase—“if we can find the workers”—is key to Muskegon’s success, the economist stressed.
Muskegon, like much of Michigan and the rest of the country, is facing a workforce that’s decreasing in population: people are having fewer kids and fertility rates are expected to keep dropping.
“There’s nothing we can do about this; there’s going to be fewer kids in the United States,” Isley said. “The United States will shrink without immigration.”
Plus, all of Michigan lost workers during the decade-long recession that persisted in the state from 2001 to 2011.
“Generation X folks left to Houston, Atlanta, Denver, and other places, and they had their kids there,” Isely said.
Recession or no recession, Muskegon (and Michigan) needs to attract workers, the economist noted.
Right now, Grand Rapids is surpassing Muskegon when it comes to incentivizing people—including numerous millennials—to move to its city. And while wage growth in Muskegon County is a little above 10 percent over last year, this area’s workers are still making less than than the West Michigan region as a whole. According to the U.S. Bureau of Labor Statistics (BLS), the average hourly wage in Muskegon is about $22.50 as of November 2018, compared to an average of $26 in Michigan and a little more than $25 in Grand Rapids.
Entry-level management, administrative, construction, engineering, and sales jobs in Muskegon are, on average, paying less than Grand Rapids—though entry-level positions in fields like healthcare, health support, arts and design, and protective services (such as the police) are paying more than Grand Rapids, according to 2017 BLS statistics.
“The areas where you’re strong, you’re extremely competitive on wage,” Isely said.
Still, millennials are opting for Grand Rapids over Muskegon.
“What happens in Kent County is there are more 25 to 35-year-olds than there are people over 65; that’s not the case in Muskegon County,” Isely said.
“We have to convince millennials to move in,” he continued. “We have to convince them that Muskegon is a great place. We have to convince Generation Z that’s here to stay here. That includes the Muskegon Area Promise, your advertising campaigns, the fact that you’ve spent a lot of time and effort on your city to make it a better place to live. Just the cleanup along the lake over the course of eight years has added a quarter million visitors to your town. Every visitor to your town is a potential person who may want to stay.”
New Muskegon Lakeshore Chamber of Commerce Board of Directors Chairman Tom Schultz announced at the breakfast that the Chamber’s theme for 2019, “taking it outdoors,” which aims to recognize and celebrate outdoors-related businesses, is in part meant to draw millennials to the Muskegon area.
“By focusing on these quality-of-life businesses and initiatives, we hope to attract new residents to Muskegon County—specifically millennials,” Schultz said.
Conversations surrounding development, such as the incoming Windward Pointe project at the old Sappi site and the former B.C. Cobb power plant, too are generating buzz that is helping to draw individuals to the area, Isely said. Enthusiasm surrounding development is helping grow a more vibrant downtown, he added.
“We’re seeing it with the downtown becoming a fun place to go to,” Isely said. “When I took a sabbatical in Muskegon in 2010, there were a couple bars that were fun, but the downtown wasn’t fun.”
In order for people to have money to spend at downtown bars and on other activities—including the city’s evolving outdoors options—the economist encouraged the city to focus on growing its strengths, such as manufacturing jobs that use computers to control machine tools (known as CNC, or Comuter Numerical Control) and aerospace.
“If you get those growing, it’ll have spinoffs for the kayaks and the brew pubs and restaurants because people will have money to spend at those,” he said and added the Muskegon region too has “a lot of potential on the food processing side.”
To further economic growth, Muskegon and the West Michigan region will have to continue addressing a skills gap, the speaker emphasized—something the region has been tackling with, for example, securing more than $1 million in state funding for job training.
“Expect you will have a severe talent shortage that should be addressed, and that should be job one in Muskegon,” Isely said.
Another daunting economic issue facing Muskegon is trade. Currently, one in nine jobs is related to exports in the state—and it’s a little higher in Muskegon County. That translates to an economy that will directly feel issues in trade—such as the United States and China, the world’s two largest economies, being mired in a continuing trade war that has impacted everything from Michigan’s farms to its scrapyards and entrepreneurship.
“Last year, the story of the year was the tax change,” Isely said, referring to the Tax Cuts and Jobs Act of 2017. “That added a percentage point to growth in the U.S. This year, trade will shave a half percentage point off growth.”
One of the biggest issues with trade? Uncertainty.
“What has happened for us this year—and I don’t care if you’re a Democrat or Republican or agnostic or Communist, we have to understand the political system threw a lot of uncertainty into the game for everyone,” Isely said.
“The number one thing we hoped we’d get from the tax law change was an increased willingness to invest,” he continued. “The trade change has created so much uncertainty that businesses say, ‘I can’t.’ Uncertainty is what’s going to cause us a lot of problems this year.”