Region’s Q2 GDP expected to drop over 20%
Early projections are out about the impact of COVID-19 on the West Michigan economy, and they paint a sobering picture for the second quarter of 2020.
James Chung — partner at StratoDem Analytics, a data science firm in Cambridge, Massachusetts that generates geographic market intelligence and forecasting in the U.S. — told the Business Journal on April 1 that the consensus forecast for national gross domestic product in Q2 is currently -18.1%, the sharpest downturn in the history of U.S. GDP measurement.
The consensus forecast is based on the compilation of national forecasts issued during the preceding week by Goldman Sachs, JP Morgan, Morgan Stanley, UBS (Switzerland) and Deutsche Bank, which StratoDem Analytics further refined down to the county level based on local economic data.
The declines in the core coverage area of the Business Journal — Kent, Ottawa, Muskegon and Allegan counties — are sharper than the national average, with an expected Q2 GDP downturn of -21.6% in Kent County, -22.9% in Ottawa, -21.0% in Muskegon and -24.3% in Allegan, which translates into combined Q2 GDP declines of about $3.53 billion in the region, and an average income loss of $7,400 per household in Q2 (see chart for further details).
Chung said the top three worst-hit areas in the U.S. right now are counties that are dependent on the oil industry, tourism and cyclical manufacturing.
He said the declines in West Michigan from the cyclical manufacturing sector are mainly in office furniture, automotive and aviation manufacturing — although the impact of many area manufacturers such as Steelcase and Herman Miller pivoting to making personal protective equipment and health care supplies was not taken into account in the StratoDem forecast.
Because the Grand Rapids area is slightly more diversified than the east side of the state — with large health care and agriculture sectors in addition to grocery retailers based here such as Meijer and SpartanNash, which are hiring — the GDP declines on the west side of the state are expected to be lower than in the Detroit metro area, Chung said.
Michigan counties that likely will see some of the steepest percentage drops in Q2 2020, according to the StratoDem analysis, include Macomb County, with expected economic losses of around $3.1 billion for Q2 (-30%); Genesee County, with expected economic losses around $989 million (-26.4%); and Wayne County, with expected economic losses around $6.5 billion (-26.3%).
“Because (Grand Rapids) is not a one-trick pony that’s solely about cyclical manufacturing, it’s going to do a little bit better than the rest of Michigan,” Chung said.
Other sectors such as commercial and residential real estate and hospitality/entertainment — which includes hotels, restaurants, museums, concert venues and tourist attractions — also are “getting hammered everywhere in the country,” Chung said.
Paul Isely, professor of economics and associate dean of undergraduate programs at Grand Valley State University’s Seidman College of Business, said the StratoDem analysis tracks with GVSU’s current forecast for Q2.
GVSU’s forecast, which defines West Michigan as Kent, Ottawa, Barry and Montcalm counties, projects about a -20% drop in GDP for Q2, which equals an overall GDP decline of about $3.3 billion, Isely said.
He concurred that the impact on the manufacturing sector will be “outsized,” with manufacturing accounting for about 41% of the quarter’s GDP decline.
Non-grocery retail and entertainment will be the second- and third-hardest hit sectors, Isely said, accounting for about 12%-15% of the decrease in total output.
He noted employment numbers likely will show greater losses than output, but it’s impossible to make a projection.
“What I’m telling people on the unemployment number is the number is going to be stunning, and it’s outside of any modeling that we have,” he said.
“We’re hearing national numbers ranging from 10% all the way to 30%, because we’re experiencing something that we’ve never experienced before, which is the complete shutdown of several industries.”
He said it is unclear what effect the federal CARES Act stimulus package will have on the economy, but if West Michigan receives its “fair share” of federal aid, that will significantly help.
Along with most economists, Chung and Isely said there is no question we are now in a recession for the rest of 2020.
Chung said based on data StratoDem collected during the Great Recession, Kent, Ottawa, Muskegon and Allegan counties saw respective GDP declines of -5.6%, -7.5%, -4.7% and -8.8% at the end of 2009, which was the bottom of the most recent recession.
“If this recession is only as bad as the last recession, that would be a good outcome,” Chung said, noting most models are forecasting a national GDP decline of -5% to -6% for the full year 2020, provided Q3 and Q4 stabilize.
Isely added he expects 2020 will end with a -5% GDP decline, and that’s provided manufacturing goes back online in May and people are able to leave their houses and resume normal life by June, which is what the current virus modeling suggests will happen, he said.
Chung said stories like Steelcase and Herman Miller using their history of innovation to be part of the solution during this pandemic are what give him hope for the nation’s recovery.
“This is going to be a hard thing to go through … but we’re going to see how strong communities really are,” he said.
“It’s going to take really strong communities to put the pieces together. Part of the reason why we’re sharing this is we’re hoping good reporting helps everyone take it seriously and know that it’s going to take a lot of collective effort to work through this.”
Posted By: Grand Rapids Business Journal on April 3, 2020. For more information, please click here to read the source article.
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