April 2003 Executive Summary

Prepared by David G. Sowerby, CFA
Loomis, Sayles & Company, LP

In the first quarter of 2003, business conditions were unchanged in the Greater Lansing area, which is nearly identical to the general economic environment that prevailed both at the state and national levels. In March, the Greater Lansing Business Index finished the month at a level of 114.5, which was essentially unchanged from the yearend 2002 level of 114.7. The mid-Michigan index is a seasonally adjusted, six variable regional index that incorporates measures from the financial, labor, industrial, energy, housing and travel sectors.

In the first three months of 2003, the impact of slower consumer spending, particularly on big-ticket durable good items, combined with the prevailing uncertainty of war with Iraq, weakened consumer confidence. The lingering weakness in the stock market prompted a stagnant economy, which proved to discriminate against few local areas, including Lansing. Sluggish conditions were felt not only in local area stock prices, but also in hotel occupancies, residential housing units sold and in local labor markets.

As a result of no change in the overall index level, when measured versus year ago levels, the Greater Lansing Business Index is down 5 percent. This is the weakest year-over-year comparison since December 2000. When the index is smoothed, to adjust for monthly volatility, the current reading is still up 1 percent compared with March 2002 levels. The smoothing is accomplished with a simple six-month moving average.

Among the stronger variables reported in early 2003 was motor vehicle production at General Motors’ Lansing area facilities, which produce the Cadillac CTS, Chevy Malibu, Oldsmobile Alero and Pontiac Grand Am. While overall auto production has been somewhat weaker, demand for Lansing-built vehicles has stayed stronger, helping local business conditions. In addition, energy usage was stronger, due in part to one of the coldest winters in the last 100 years for much of the United States east of the Mississippi.

Encouragingly, while local stock prices were down about 2 percent in the first quarter, they fared better than the S&P 500, which fell over 3 percent. Thus far in April, stock prices have rebounded more than 5 percent in part due to the end of the war with Iraq and stronger than expected corporate profits. A rebound in corporate earnings, combined with low interest rates, healthy productivity and the possibility of a third tax cut, should boost local and state economic growth beginning in the current quarter.

Designed to gauge the health of the local business environment, the Greater Lansing Business Index is comprised of six regional variables, which include motor vehicle production, stock prices, employment, energy usage, residential housing units and hotel occupancy rates. It is seasonally adjusted and has a base level of January 1997 of 100.