Forecast for Grand Rapids economy: Slow growth, but better than national expectations

Expect the West Michigan economy to continue to slow in 2023 as interest rate increases and inflation could hamper some sectors of the economy more than others. But the Grand Rapids area will still grow at twice the rate of the national economy.

That’s the conclusion of the annual Grand Rapids Economic Forecast by Grand Valley’s Seidman College of Business.

The report by Seidman Associate Dean Paul Isely, Kuhelika De, associate professor of economics, and graduate assistant Marcus Lynch, based its conclusions on surveys of business leaders along with research of local and national business trends. Isely and De presented the report February 1 at the Grand Rapids Chamber of Commerce's annual meeting.

The data for West Michigan shows a slowdown in 2023, compared to 2022, the report concludes. However, that slowdown will be uneven with construction and interest sensitive industries slowing and services continuing to show some strength.

Isely and De said they expect West Michigan to fare better than the rest of the nation as automotive suppliers work through order backlogs and supply chain concerns ease. An uptick in office furniture purchases that had been delayed by the pandemic may help offset some of the natural downturn that industry often sees during economic slowdowns.

“One of the things that we realize here is we’re seeing a slowdown, but we’re seeing a slowdown that is nowhere near what is expected for the rest of the nation,” Isely said.

Favorable demographics for economic growth (more young people than old), a steady automotive sector and resilient housing market are the main factors helping West Michigan stay ahead of national expectations, Isely said.

The forecast calls for a mild recession in the second half of 2023, but De said West Michigan should be more insulated from such a downturn in economic activity because its main industries and its housing market are on more solid footing than many other areas.

De said to keep an eye on how far the Federal Reserve will go in raising interest rates as a means to bring down inflation, as increases will cause the economy to slow down.

“We may have to tolerate some slowdown in economic activity to bring down inflation,” De said, noting that the regional inflation rate is expected to track with the national forecasted inflation rate of 5 percent.

One unique aspect of the economic situation in the year ahead will be to watch how consumer spending shifts, Isely said, noting that the bottom 50 percent of the population by wealth saw its net worth increase by 140 percent from the start of the pandemic.

It remains to be seen whether lower income populations will cut spending and preserve any of that additional wealth or if inflation will end up draining savings. So far, signs are pointing toward a spending slowdown even as credit card debt goes up, a sign that some consumers are running out of savings accumulated during the pandemic.

Isely said there’s reason to hope for an “unexciting year” ahead amid uncertainty around the world.

“Unexciting is not bad this year,” he said. “Unexciting is that housing prices might drive a little lower, maybe a little higher. But we don’t expect massive movement. We expect inflation to start to drift lower.”

High-profile job cuts at large tech firms like Google, Meta, Amazon and Microsoft could even help buoy lower profile companies in need of talent.

Cuts at larger companies are “freeing up labor that is going down to small and mid-sized firms that haven’t been able to hire for years now,” Isely said.