GRAND RAPIDS — Businesses in Grand Rapids, particularly in the service industry, expect slowed economic growth later this year as interest rates likely rise and labor and supply chain challenges continue.
That was one of the takeaways from today’s “State of Grand Rapids Business” presentation at the Grand Rapids Area Chamber of Commerce’s annual meeting in Grand Rapids.
Paul Isely, professor of economics and associate dean in the Seidman College of Business at Grand Valley State University, and Kuhelika De, assistant professor of economics at GVSU, detailed results of a survey last fall of 1,000 organizations in Kent, Ottawa, Muskegon and Allegan counties.
Overall, business leaders started 2022 with less confidence than at the start of 2021. The confidence index within the State of Grand Rapids Business report fell last year to 72.4 percent and is forecasted to fall to 70.5 percent this year.
“A lot of this is COVID fatigue, but it still means they are not sure that they can go in and invest as fast as they want to,” Isely said during today’s event. “Holding back on investing is going to be one of the biggest problems firms have in adapting to all the changes that are about to happen.”
Employment is expected to grow 2.6 percent to 3.2 percent in 2022, following a similar growth trajectory compared to last year, according to the report. As well, overall nominal sales are expected to increase 2.3 percent to 2.9 percent this year. Wages are expected to increase by 4.4 percent to 5.2 percent, and prices are expected to increase by up to 7.3 percent.
Businesses are still dealing with a number of problems spurred by the pandemic, including supply chain issues, determining new work from home and hybrid work models, difficulty filling open positions and inflation.
“The No. 1 issue to employers across the nation and in West Michigan is attracting candidates. The No. 2 issue is retaining workers, and number three is the supply chain,” Janis Petrini, owner of Express Employment Professionals, said during a panel discussion at the chamber event.
In the “war for talent,” businesses have to determine how to compete for workers against other companies by offering flexibility, giving employees ways to feel more fulfilled at work, growing a strong business culture, and providing ways for employees to move up and build their skills, Petrini said.
From November 2020 to November 2021, employment in Kent, Ottawa, Muskegon and Allegan counties grew at the projected rate of 3.1 percent. The average employment across these counties is anticipated to grow by another 3 percent in 2022. Virtually no firms reported that they expect their employment to shrink this year, and 60 percent of firms expect to see 0 to 3 percent growth, according to the survey.
Three types of workers
“We talk a lot about the Great Resignation, but in reality I like to talk about the great retirement,” Isely said. “What we’re seeing is a sea change in how people in West Michigan and across the United States look at retirement, and they are retiring earlier.”
Aside from retirees, Isley sees three groups of people who are currently “sitting on the sidelines.” Many people wanted to get out of working in the food service industry in 2020 and found ways to gain new skills through classes or training programs. They are expected to trickle back into the workforce this year, Isely said.
Many working-age women also plan to re-enter the workforce but have not yet based on a range of obstacles, including a lack of childcare. This is the last group of workers expected to come back into the market, Isely said.
A third group of younger people are holding off on entering the workforce because there is a common belief among the younger generation that “ambition and moving forward in work is a misplaced idea,” Isely said.
The number of women who have left the workforce and people adding to their skill set to change jobs represents about 1.5 million people across the country who will eventually re-enter the workforce, Isely explained.
“Here in Michigan, we won’t see entry level workers start to increase in quantity unil about 2028 to 2029,” he said. “These are things you’re going to be hearing about at every single meeting you have for the next five years. It’s not going to get better. You’re going to have to find ways to replace workers or find ways for workers to be able to do more work.”
COVID-19 has also pushed employers to compete to be an employer of choice, Petrini said.
“The shift is that employers aren’t looking at what their employees can do for them, but they’re looking more at what they need to do for their employees,” Petrini said.
The slowing of economic growth at the end of 2022 is also forecasted nationally. Comerica Inc.’s latest outlook predicts the U.S. economy to ease after a strong 6.9-percent growth in Real GDP in the fourth quarter to end 2021, and for supply chains to improve.
Comerica projects 2-percent Real GDP growth for the first quarter of 2022, followed by 4.5-percent growth in the second and 3.7-percent growth in the third. The year will end with an expected 3.1-percent growth in fourth quarter Real GDP.
Comerica Chief Economist Bill Adams wrote in an outlook Tuesday that nearly 5 percentage points from the fourth quarter growth rate came “from businesses frantically rebuilding inventories in response to shipping delays, supply shortages, and rapidly rising prices.”
“Inventory restocking will stay a tailwind for growth in the first half of 2022, (and) even amid the fourth quarter’s big build in inventories, the economy-wide inventory-to-sales ratio stayed historically low. And businesses will have an easier time replenishing inventories early this year since the rush to stock retail shelves ahead of the holiday shopping season is no longer straining supply chains,” Adams wrote. “As inventories rise, 2022 should see shortages, delivery delays, and related inflationary pressures subside. Surveys of purchasing managers already showed fewer delivery delays in December than earlier in 2021, so durable goods prices should rise slower in coming quarters.”
Real GDP growth for all of 2022 will average 4.0 percent, followed by a projected 2.3-percent growth in 2023, according to Comerica’s outlook.
Inflation should ease as well, to a projected 2-percent annualized rate for the first quarter, according to Comerica’s outlook. The consumer price index is expected to run a little higher during mid-2022, at 5.6 percent in the second quarter and 4.6 percent in the third.
Comerica expects the Federal Reserve to begin raising interest rates in March, followed by “several more” quarter-point increases in the federal funds rate during 2022.
Senior Writer Mark Sanchez contributed to this story.