October 2004 Executive Summary

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

In the late summer, a decline in Lansing-area motor vehicle production led to a modest drop in local business conditions. The Greater Lansing Business Index declined from a level of 118.1 in April to 115.1 by August, a 2.5 percent drop.

During the past year, the Greater Lansing Business Index has been essentially unchanged to slightly lower. Weakness in motor vehicle production and employment has diluted the more favorable gains from hotel occupancy, residential real estate and local area stock prices.

After four years of above average growth at the national level, state and local business conditions have failed to match U.S. growth rates. For example, at the state level, growth in prosperity (defined as the combination of personal income growth plus household employment growth) has trailed the overall United States for the last five years. The chart and table below, which compares the United States with Michigan, demonstrates the difference. This is in contrast to much of the 1990s, when Michigan often exceeded or matched U.S. growth rates thanks to national and global cyclical forces having a greater benefit for Michigan and Lansing-area business conditions.

While U.S. prosperity growth has exceeded Michigan, encouragingly, the gap is narrowing. Table I shows that the current prosperity gap is approximately 2 percent, versus more than 4 percent for most of 2004. The recent better news on unemployment rates, regional sales growth and state revenue collections confirm a moderate improvement in the economy.

To create a comprehensive barometer for local business activity, the Greater Lansing Business Index combines six local economic variables:

1. Residential housing units built (seasonally adjusted)
2. Motor vehicle productions (seasonally adjusted)
3. Hotel occupancy rates (seasonally adjusted)
4. Kilowatt per hour usage (seasonally adjusted)
5. Ingham County employment
6. Local area stock prices

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