Institute for Supply Management, GreaterGrandRapids,Inc.P.O.Box230621GrandRapids,MI49523-0321

News Release (For Immediate Release) March 7, 2017

Current Business Trends By Brian G. Long, Ph.D., C.P.M. Director, Supply Chain Management Research Grand Valley State University (269) 323-2359 Back to Double-Digit Growth

TheForWestMichigan,the2017rallycontinuesforthe industrial markets. According to the latest surveyconducted during the last twoweeks of February, NEWORDERS,ourindexofbusinessimprovement,bouncedto+25, up significantly from+8 in lastmonth’s report. ThePRODUCTION index rose to +17 from +8. Activity in thepurchasing offices, the index of PURCHASES, jumped to+19 from +6. The February index representing FINISHEDGOODSINVENTORIESindexedgedupto+5from+0.Thefear ofmore price increases drove the RAWMATERIALSINVENTORIESindexupto+21from+11.Allofthisbodeswell for theoverallWestMichiganeconomy for the firstquarterof2017.Infact,ifMarchturnsouttobeasgoodasFebruary,theGDPforthefirstquarterof2017shouldbeverypositive.Althoughmanyofourindustrialgroupsare showing signs of topping out, the overall WestMichigan economy should still remain positive for theforeseeablefuture.Lookingat individual industrialgroups, theautopartssuppliers continue to raise concern over the recentsofteninginautosalesbutremainpositiveaboutthe2017outlook.Fortheofficefurnitureindustry,afewofthefirmsare continuing to set sales records, althoughmany signsstillpointtowardsalestoppingout.ThecapitalequipmentrallywhichstartedinJanuaryisstillmovingforward.Theperformancefortheindustrialdistributorscontinuestobepositiveforsomefirms,butothersareseasonallystagnant.Followingthepatternofimprovingsalesandproductionstatistics,itisnotsurprisingtoseethebusinesssentimentnumbers for February continue to improve. The SHORTTERMBUSINESSOUTLOOK,which asks local firms abouttheperceptionforthenextthreetosixmonths,roseto+37from+28.Lookingoutthreetofiveyears,theLONGTERMBUSINESSOUTLOOK remainedunchanged at +47. All ofthis reflects a noticeable improvement over the pre-electionstatisticsafewmonthsago.The March 1 report from the Institute for SupplyManagement, our parent organization, came in verypositive. NEW ORDERS, ISM’S index of businessimprovement,roseto+32,upsharplyfrom+16inJanuaryand+12inJanuary.ThePRODUCTIONindexjumpedto+27from+14.TheEMPLOYMENT indexremainedunchangedat+8.ISM’soverallindexforFebruaryacceleratedto57.7,upsignificantlyfrom+56.0.TheFebruary surveyof theU.S. conductedbyMarkit,theBritisheconomicsconsulting firm,remainedpositive.However, the growth rate for NEW ORDERS moderatedfromJanuary’s28monthpeak,alongsideaslightlyslowerincreaseinthePRODUCTIONindex.TheMarkitPMIfortheU.S. came in at 54.2, down slightly from 55.0 in theJanuary report. Comments from Chris Williamson, thechief business economist at Markit, have turned quitepositive,giventhatmostofhis2016commentswereverycautious:

“Evenwiththelatestslowing,thegoods-producingsectoris still on course for its best quarter for two years,representing a markedly improved picture compared tothis time last year. Growth is being driven by robustdomestic demand, stemming in turn from buoyantconsumers and increased investment spending by theenergy sector in particular. Manufacturing is far frombooming, however, as the strong dollar means near-stagnantexportscontinuetoactasadragongrowth.”The March 1 report from the J.P. Morgan GlobalManufacturing survey of 31 nations continued to beoptimistic.JPM’soverallindexrosetoa69monthhighof52.9 in February, up slightly from 52.7 in January. Thisindexhasnowremainedabovetheneutral50.0markfor12successivemonths,quellingfearsthataworldrecessionmightbebrewing.EuroareamanufacturingPRODUCTIONand NEWORDERS both rose at the quickest rates sinceApril 2011. David Hensley, the survey author, furthernoted:

“Euro area manufacturers are reporting thestrongestproductionandorderbookgrowth foralmost six years, in what’s looking like anincreasingly robust upturn. Companies clearlyexpect the good times to persist. This year hasseenfirmsmoreoptimisticaboutthefuturethanatanytimesincetheregion’sdebtcrisis.”

More good news comes from the Index of SmallBusiness Optimism tabulated by National Federation ofIndependentBusiness(NFIB).TheindexcameinathighestlevelsinceDecember2004,andfollowsthelargestmonth-over-monthincreaseinthesurvey’shistory.Itisimportanttonoteworthyrememberthatabout60%ofallnewjobsare generated by small businesses. According to NFIB’schiefeconomist:

“Thestunningclimbinoptimismaftertheelectionwas significantly improved in December andconfirmedinJanuary.Smallbusinessowners likewhat they see so far from Washington. Thecontinued surge in optimism is a welcome signthateconomicgrowthiscoming.Theverypositiveexpectationsthatweseeinourdatahavealreadybeguntranslatingintohiringandspendinginthesmallbusinesssector.”

ItwasgoodtoseetheFebruaryEMPLOYMENTindexforWest Michigan edge up to +12 from +6. Double digitgrowthfortheindexhasreturnedforthefirsttimesinceAugust. At the national level, the ISM index ofEMPLOYMENTroseto+8afterpostingnegativenumbersformostof2016.Manyindustrialfirmsarestillstrugglingto find new workers who are both qualified anddependable.Hence,asweapproachfullemployment,itisnotsurprisingtofindthattheunemploymentratesamongourWestMichiganreportingunitsarenolongerfallinglikethey were a year ago. For instance, the latestunemployment report for Kent County came in at 2.9%,wellbelowthestaterateof5.0%.However,thereportis

slightlyhigherthanthe2.7%ratefromayearearlier.Wecanhopethat theunemployment ratewill showmodestimprovementincomingmonths,buttheinabilityofmanyfirmstofillthe80,000Jobopeningsthroughoutthestatewillprobablykeepunemploymentratesfromfallingmuchfurther.Aswehavenotedinthepast,itisfrustratingthattheeducationsystemiscurrentlydoinglittletoclosethisgap.ThelowestrateforKentCountyininthepasttwentyyears came in at 2.1%, so there is still room forimprovement.One of the current threats to the profitability of ourlocal industrial firms continues tobe the recent surge inpricesforawidevarietyofcommodities.OurlocalindexofPRICESmoderatedto+27from+30,butthelistofmajorcommodities rising the prices continues to grow. At thenationallevel,ISM’sindexofPRICEScameinat+36,wellaheadofthesingledigitreportsformostof2016.Amongthe“bigticket”worrisomecommoditiesthathavejumpedinpriceoverthepastfewmonthsarehotandcoldrolledsteel, rubber, copper, brass, and most types of plasticresins. Over the past two years the U.S. dollar hasstrengthen by about 20% compared to the average ofothermajorworldcurrencies.Whereasastrongdollarmaybeanelementofnationalpride,itmakesexportsaleslesscompetitive and raises the cost for many of our keyindustrial commodities. Unfortunately, the FederalReserve’sprobableincreaseininterestrateswillresultinthedollarrisingevenfurtherinvalue.Thesales statistics forautomobileshavecontinued tomoderate,andtheyear-over-yearsalesforFebruaryeasedby 1.1 percent. Our automotive parts suppliers inWestMichigan continue to be cautious, although onerespondentnoted that thedrop in saleshas so farbeen

veryorderly.Furthermore,severalofourlocalfirmshavebeen successful in developing new business with theJapanese and Korean transplant companies around theworld.LookingatFebruarysalesfortheDetroitThree,Fordpostedadeclineof4.0percent,followedbya9.9percentdropatFiat-Chrysler.GeneralMotorspostedanoffsettingincrease of 4.2 percent. Among the othermajor brands,Honda rose 2.3 percent, Nissan added 3.7 percent, andSubarugained8.3percent.ThebigloserwasagainToyota,whichreportedadropof4.4percent.In summary, most of our state, local, and nationalstatisticscontinue to improve. Even theworldeconomycontinues to show modest improvement. The term“TrumpRally”hasbeenappliedtothestockmarket,whichhas risenabout17%sinceElectionDay.Overall, there isnow a new wave of optimism, partially driven byexpectationsfordecreasedregulationandlowertaxes.Aswehavenotedinpreviousreports,largecorporationslikeGeneralElectricareabletotakeadvantageofthemyriadoftax loopholetobringtheir taxesdownwellbelowthewidelypublicizedstatutoryrateof35%.Afewyearsback,all of these loophole resulted in GE paying no federalincometaxatall.Smallbusinesses,ontheotherhand,arealmost never afforded this kind of favorable treatment,andenduppayingtaxesveryclosetothe35%rate. It istherefore understandable that the possibility of ratesfalling to 15% or even 20% has generated a lot ofexcitement. But for the “Trump”Rally” to continue,weneed to see by mid-summer some evidence that lowertaxesareactuallygoingtohappen.AstheFourSeasonsputitoverfiftyyearsago,“Talkingischeap,peoplefollowlikesheep,eventhoughthereisnowheretogo.”

FEBRUARYCOMMENTSFROMSURVEYPARTICIPANTS

“Ordersaresteady,butwe’relookingformoreemployees.”

“Tool&dieshopsremainbusyandareslowly

warmingtonewcapitalequipmenttohelpfilltheorderstheyhave.Ourfabricationequipmentisdoingwell,butcompetitionistoughonpricing.”

“Itseemslikealltheresinsuppliersaretryingto

boosttheirmargins.”“Wehaveagoodstartto2017.”“Automotiveremainsstrong.Saleswouldbe

strongerifwecouldproducetowhatisneeded.Manylargerdrop-inordersfromcustomershavebeencominginprettyheavythisnewyear.”

“2017isstartingoffalittleslowforus.Hopefully,

saleswillpickupthisspring.”“Rawmaterialincreaselettersarecomingfastand

furious.“SteelScrapseemstomaintainitssmallupward

bump,withnorealindicatorsitwillgoupmuchmorenorcomebackdown.“

“We’reseeinglotsoffirst-ofthe-yearincremental

increases.”“Longtermcontractstiedtoeconomicescalation

arestartingtotrendupabit.”“Nochangesincelastmonth.”“2017islookingstrongerthatwefirstthought

basedonthelastquarterof2016.”

“Wearemeetingplan.SalescameinasexpectedinJanuary,andweareveryclosetoplanforFebruary.”

“Wecontinuetojogalongfat&happy.Weare

expecting2017tobeanothergoodyearforus.”“Salescontinuetogrowandourbacklogislarger

thanithasbeeninyears.”“Wearebusygettingreadyforspringbyprocuring

constructionequipmentandmaterialsandworkingonconstructioncontractstostartwhentheweatherbreaks!”

“Ordersareslowrightnow,butquotesarehighforthistimeofyear.”

“Wecanneversustainanymomentumonincomingorders.Projectsstillnotcuttingloose,thoughwearestillhopefultoseesomethinginnextfewmonths.”

“Businessisgood,andIthinkitwillstaythatwayforawhile.Alotofourcustomershavelaunchedprojectsthatrequireahugecapitalinvestment.Theywouldn'tdothatiftheywereconcernedaboutthenearfuture.”

“Lotsofsabrerattlinggoingon.”“Wearelookingstrongthroughthefirstquarter.”“Wehaveasteadystarttothenewyear.It’snot

amazing,butconsistent.”“Oursalesbackloghasincreasedsignificantlyover

thepast30days.”“BookingsforJanuaryarehigherthanDecember,

butthatisn'tsayingmuchbecauseDecemberwashorrible.Februaryisnotlookingstrongatthispoint.”

February2017SurveyStatisticsFeb. Jan. Dec. 25 Year

UP SAME DOWN N/A Index Index Index Average Sales (New Orders) 40% 43% 15% 2% +25 + 8 - 5 +14 Production 28% 57% 9% 6% +17 + 8 + 3 +14 Employment 20% 72% 8% +12 + 6 + 7 + 8 Purchases 31% 57% 12% +19 + 6 + 3 + 7 Prices Paid (major commod.) 29% 69% 2% +27 +30 +21 +15 Lead Times (from suppliers) 20% 80% +20 +15 +11 +11 Purchased Materials Inv. 32% 51% 11% 6% +21 +11 + 4 - 4 (Raw materials & supplies) Finished Goods Inventory 20% 59% 15% 6% + 5 + 0 - 7 - 8 Short Term Business Outlook 45% 48% 8% +37 +28 +20 - (Next 3-6 months) Long Term Business Outlook 48% 48% 1% 3% +47 +47 +45 - (Next 3-5 years)

Itemsinshortsupply:Labor,Sabicresin,somesteel,nickelchloridecrystal,ValeSroundsanodes,butadiene,titaniumdioxide,electricalcomponents,castings,someautomotivegradesofaluminum,soundcastings,carbonsteel,coatedsteel.

PricesontheUPside: wages, Asian wire rod and steel, aluminum, copper.

PricesontheDOWNside:Someresins*,rubber,carbonsteel,oceanfreight.*TheseitemsarereportedasbothupANDdowninprice.

LatestUnemploymentReports(Exceptasnoted,dataareNOTseasonallyadjusted)

Dec.Dec.Aug.20Year201620152009LowStateofMichigan(Adj.)5.0%5.1%14.6%3.2%StateofMichigan(Unadj.)4.4%4.5%14.1%2.9%KentCounty 2.9%2.7%11.9%2.1%KalamazooCounty 3.4%3.1%11.1%2.1%CalhounCounty4.2%3.9%12.8%2.7%OttawaCounty 2.8%2.6%13.3%1.8%BarryCounty 3.4%3.3%10.9%2.2%KalamazooCity4.3%3.9%15.2%3.2%PortageCity3.2%2.9%8.7%1.3%GrandRapidsCity3.9%3.6%16.1%3.0%KentwoodCity2.8%2.6%10.7%1.4%PlainfieldTwp.2.2%2.0%8.0%1.4%U.S.OfficialRate(Dec.)4.7%5.0%9.6%3.8%U.S.RateUnadjusted4.5%4.8%9.6%3.6%U.S.U-6Rate**9.2%9.9%16.7%8.0%**U-6forMichigan=10.4%forQ3of2016

IndexofNewOrders:WestMichigan

Asthenameimplies,thisindexmeasuresnewbusinesscomingintothefirm,andsignifiesbusinessimprovementorbusinessdecline.Whenthisindexispositiveforanextendedperiodoftime,itimpliesthatthefirmororganizationwillsoonneedtopurchasemorerawmaterialsandservices,hiremorepeople,orpossiblyexpandfacilities.Sincenewordersareoftenreceivedweeksorevenmonthsbeforeanymoneyisactuallypaid,thisindexisourbestviewofthefuture.LatestReport+25forthemonthofFebruary2017

PreviousMonth+8forthemonthofJanuary2017

OneYearAgo+14forthemonthofFebruary2016

RecordLow-57forthemonthofDecember,2008

RecordHigh+55forthemonthofSeptember,1994

FirstRecovery+3inAprilof2009andforward

ISM-WestMichiganIndexofNewOrders1988-2017

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ISM-WestMichiganIndexofEmploymentTheindexofEMPLOYMENTmeasuresthefirm’sincreasesanddecreasesinstaffing,includingpermanentworkersandtemps.Aftereconomicdownturns,itmeasurenewhiresaswellaspreviousworkerscalledbacktowork.Whenthisindexispositiveforanextendedperiodoftime,italmostalwayssignalsareductioninindustrialunemploymentforWestMichigan. Normally, there isaboutamonthor two in lag timebetween this reportand thepayrollnumbersbeingreflectedbythegovernmentstatistics.However,almostallemploymentindexesarelaggards,meaningthatfirmsoftenwaituntilupticksinordersareconfirmedbeforeaddingstaff,andconverselylayingoffstaffonlyafteradownturninordersappearstobecertainfortheforeseeablefuture.

ISM-WestMichiganFutureBusinessOutlookTheindexesofLONGTERMBUSINESSOUTLOOKandSHORTTERMBUSIESSOUTLOOKprovideaglimpseatcurrentandfutureattitudesofthebusinesscommunity.Traditionally,mostbusinessesaremoreoptimisticaboutthelongterm,althoughcurrenteventcanresultinperceptionschangingveryrapidly.Bothshortandlongtermattitudesreflectcurrentbusinessconditions,andareusuallyhigherwhensales,production,andemploymentarepositive.

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SHORTTERMBUSINESSOUTLOOK(3-6MONTHS)LONGTERMBUSINESSOUTLOOK(3-5YEARS)