West Michigan: ‘Don’t worry about a recession.’ Unless you’re under 40.

HOLLAND, MI – West Michigan’s economy can shield itself from potential downturn. That was the highlight of Michigan’s West Coast Chamber economic forecast.

The region’s growing population of young people, increasing workforce, high housing demand and diversified manufacturing will help buoy it through any rough waters, said Paul Isely, associate dean and professor of economics at Grand Valley State University.

“We have the strengths. We will outperform,” he said to an audience of 300 in-person and virtual attendees on Tuesday, Jan. 9.

Isley’s presentation looked at macro trends like vehicle sales, housing prices, wage growth and interest rates and overlaid them with local data, chamber survey results and focus group input from West Michigan employers.

His insights for Ottawa County, specifically, were nuanced but overall positive.

“Don’t worry about a recession,” he said. “Do worry if you sell to the rest of the United States.”

Within Ottawa County, Isley had one more caveat on his economic forecast: age matters.

Tales of two economies: the old and the young

Spending is divided along generational lines. Isley splits the population between those younger or older than 40. Ottawa County residents older than 40 make up approximately 44.8% of the population, according 2022 Census estimates.

Years of growth in Ottawa County have age demographics leaning younger with a median age between 35 and 36.

Younger people are under greater economic stress, and not just anecdotally that Millennials and Gen Z feel they can’t move forward with financial milestones like homebuying, weddings, children, and further education.

Related: Homes, degrees and weddings: Younger generations delay costly life milestones

Take for example the trend line of drivers extending their car loans to a 90-day forgiveness payment plan. The line spikes for 30-year-olds. The rate at which that age group is asking for more time to pay is nearing Great Recession levels, where the only year it was higher is 2009.

However, those 40 and above are not showing the same economic stressors.

So, what does that mean for Ottawa County, where 40% of the jobs are manufacturing and a large portion of that is auto related?

“That’s good news here in Ottawa County,” Isley said. “Number one, we have old people. But number two, old people are on the verge of buying cars.”

New orders for West Michigan’s furniture and vehicle manufacturing dropped throughout 2022-23. Isley predicts that downward movement is over and 2024 will remain relatively flat.

The other upside is “old people” are more likely to keep spending money in sectors like travel and hospitality. While splurging on restaurant and retail have started trending downward, services are still strong.

“Retail sales are driven by young people,” Isley said. “Old people can do more experiences and they already have a house filled with too much stuff.”

When will consumer spending slow down?

Consumer spending habits have surprised economists in recent years, with the federal government miscalculating how much wealth individuals were hanging onto after the pandemic stimulus, Isley said.

Those high spending trends are likely to finally slow in 2024, based on an increase in loan extensions, borrowing from 401(k) plans and “buy now, pay later” retail trends.

Isley made the distinction that consumers felt they were flush with cash not because of high wages but because of high savings accounts. But savings data adjusted for inflation is bleaker, Isley said.

“The consumer, just last month, ran out of money. And they don’t know it yet,” he said. “When they look at their savings account, they say ‘see I have so much money in there.’ The psychology hasn’t caught up with how much less that money is actually worth. They’re continuing to spend.”

The “danger zone” is when consumers realize it and start to pull back. That action, Isley said, will have a fiercer impact than what the Federal Reserve does with interest rates.

Interest rates are expected to come down this year to achieve the Fed’s “soft landing.”

Depending on how much they drop will influence consumer habits along that age line, again. The post-pandemic inflation hit a 40-year peak in March 2022, meaning anyone born in the 1980s or later has been navigating uncharted territory.

Related: Last year bucked recession fears. How’s 2024 looking for Michigan?

Economic forecasts going into 2024 have tapped down recession fears and given an overall “OK” rating in the new year. Isley notes that economic forecast models are based on smooth, predictable changes.

“I would say it’s like driving down the road at 90 miles an hour using only your rearview mirror. When the road is pretty straight you can do it. When you have a right corner, you never see it coming,” Isley said.

Those right corners include macro problems like geopolitics like the war in Ukraine and the Israel-Hamas conflict.

There’s also potential sharp turns ahead of the U.S. 2024 presidential election – 81% of West Michigan chamber members said they are worried about the “political environment” of the next year.

Population growth should translate to workforce growth

Ottawa County’s population growth, the fastest in the state, continues to turn up the heat on housing. This, again, bucks national trends.

Related: Ottawa County still state’s fastest growing among largest counties

High interests pinched both contractors and buyers nationally and slowed the market in 2023. Building permit data shows that wasn’t the case for Ottawa County and Isley predicts builders will continue to be booked out for the year and into 2025.

The population increase of young people is a major positive for Ottawa County’s economic forecast because it’s boosting its workforce numbers.

However, commuter data shows that a third of Ottawa County’s working age population is driving to work in Kent County. Another 55% drive somewhere else.

Isley zoomed in closer and found 20,000 people commute into Holland and Zeeland.

“What’s happening right now is your area is competing with Kent County for those Ottawa County workers who live between here and there,” Isley said. “Over the last 20 years, you’ve been losing the battle.”

The potential is there for Ottawa County to keep their residents working within county lines. The growing workforce population and the overall desire to work close to home are strong indicators, Isley said.

What’s working against Ottawa County are high housing prices. People are getting priced out and moving up the lakeshore.

Isley’s calculation estimates 700 people per year move from Ottawa County to Muskegon County. From Muskegon, another 200 people move to Oceana County. Even as they go further from Grand Rapids, they all still commute to Kent County, Isley said.

Employment and wage growth aren’t running as hot

Isley surveyed the 1,200 member businesses representing 80,000 employees in the greater Holland/ Zeeland area about employment and wage growth predictions for the new year.

In 2024, employment is expected to slow down from 1.8% last year to 1.3%.

Similarly, employers expected wage growth to stay high but not increase like previous years.

Of those who answered the survey, 45% of firms said they expected to give raises between 2-3%.

The median and average raise is in the 3.5% range which differs from last year’s 4.5-5% raise expectations last year. This is elevated but closer to a “long-term norm”, Isley said.

More than 20% of businesses said they were still going to raise wages 4% or more in the new year. Those businesses shared they are trying to compete with Kent County wages, Isley said.

The employment, wage and recruitment and retention numbers struck a chord with audience member Renee Looman, who managers membership services at The Employer’s Association.

Those numbers were spot on with what she’s hearing from the nearly 600 employers and Human Resource leaders they serve across the state, with the majority being in Kent, Ottawa, Muskegon and Allegan counties.

In addition to pay raises, Looman is seeing high attendance in leadership classes offered by the association. More employers are taking advantage of trainings to move their junior leadership, that under 40 age range, into higher roles as a form of retention.

“Those classes are filling up. There’s a big thirst for it amongst the employers,” she said.

Training is becoming part of the compensation package offered to new employees, she said.

An increase in employee engagement surveys also indicate the trend of employee input, increased by sweeping resignations and job swaps in the pandemic, has held on.

The future of work

Audience members asked Isley his two cents on adding artificial intelligence into the workplace, how to accommodate working parents and if entrepreneurial growth was on the horizon.

All three categories leaned into that under 40 subsets of the workforce.

Isley’s quick takes:

  • Artificial Intelligence will increase productivity but at the expense of replacing middle management or those near retirement in knowledge-based jobs.
  • Affordable childcare will come from raising pay for childcare workers, but until wages have a major shift, flexible work schedules are big retention bonuses.
  • The younger generation is drawn to entrepreneurship because they want flexibility and to shed corporate life. Economic downturns are usually fertile ground for entrepreneurial growth.

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